Annual Report · General Insurance Life Insurance Financial Services Asset Management Annual Report and Financial Statements

General Insurance Life Insurance Financial Services Asset Management

Annual Reportand Financial Statementsfor the year ended 31 December, 2016

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2

Annual Report 2016

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Madison Financial Services Plc

ANNUALREPORTFOR THE YEAR ENDED 31 DECEMBER 2016

CONTENTS

OUR PROFILE

CHAIRMAN’S REPORT

RE VIEW OF SUBSIDIARIES

OPER ATIONAL PERFORMANCE RE VIEW

SOCIAL-ENVIRONMENTAL ACTIVIT Y

CORPOR ATE GOVERNANCE

DIRECTORS’ REPORT

DIRECTORS’ RESPONSIBILIT Y IN RESPECT OF THE PREPAR ATION OF FINANCIAL STATEMENTS

INDEPENDENT AUDITOR’S REPORT

GROUP STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

COMPANY STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

GROUP STATEMENT OF FINANCIAL POSITION

COMPANY STATEMENT OF FINANCIAL POSITION

GROUP STATEMENT OF CHANGES IN EQUIT Y

COMPANY STATEMENT OF CHANGES IN EQUIT Y

GROUP STATEMENT OF C ASH FLOWS

COMPANY STATEMENT OF C ASH FLOWS

NOTES TO THE FINANCIAL STATEMENTS

2 – 8

9 – 11

13 – 14

15 – 16

17 – 19

20 - 25

26 - 29

30

31 - 37

38 - 39

40

41 - 42

43

4 4 - 46

47

48

49

50 - 121

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Annual Report 2016

OURPROFILE

OUR MISSIONEnhancing shareholder value and value for our customers by the provision of efficient services and innovative financial solutions through motivated and skilled people

OUR VISIONTo be recognised as the leading and model financial services provider in Zambia and the region

OUR CORE VALUES

� INTEGRITY � INNOVATION � CUSTOMER FIRST � TEAM WORK � EXCELLENCE

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ANNUALREPORT 2016

OUR BUSINESSMFS Plc operates a close-knit and WELL DIVERSIFIED FINANCIAL SERVICES GROUP of companies, offering various products and services in the following businesses: -

GENERAL INSURANCE through Madison General Insurance Company Zambia Limited (MGen) which is owned 100% by Madison Financial Services Plc (MFS) and MGen Tanzania Insurance Company Limited (MGen TZ) which is owned 65% by MFS;

Insurance offerings include: � Motor vehicle – third party and comprehensive cover � Marine and transportation � Fire � Domestic contents � Office contents � Fire � Electronic equipment � Machinery loss of profits � Deterioration of stock � All other engineering risks � Miscellaneous personal accidents � Bonds � Crop � Livestock � Agriculture

GENER AL INSUR ANCE

A SSET MANAGEMENT AND STOCKBROKING

LIFE INSUR ANCE

PROPERT Y DE VELOPMENT

MICRO LENDING

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Annual Report 2016

LIFE INSURANCE through Madison Life Insurance Company Zambia Limited (MLife) which is owned 100% by MFS;

Insurance offerings and administration of schemes: � Group Life covering death and disability � Credit Life � Group Funeral and Individual Funeral, including a

Diaspora Funeral Cover � Medical � Travel � Various Individual Life products such as

Endowment, School Fees, Baby Present, Whole-Life and Personal Pension plans

� Pension Annuities � Pension schemes administration services � Funeral scheme administration services � Medical fund administration services

MICRO LENDING to individuals and to groups of individuals, micro, small and medium sized enterprises and deposit taking from individuals and corporates. These services are offered through Madison Finance Company Limited (MFinance) which is owned 50% by MFS;

Product offering include: � Working capital loans � Micro-group loans and asset finance � Housing finance � Agricultural finance � Invoice discounting � Personal loans supported by payroll deduction

codes � Deposit taking

ASSET MANAGEMENT AND STOCKBROKING through Madison Asset Management Company Limited (MAMCo) a 100% subsidiary of MFS;

Product offering � collective investment schemes or unit trusts of

various types including equity, money market and microfinance funds

� tailored fund management services to corporates and individuals

� stock-broking � wealth management and wills and trusts � investment banking including capital raising and

agency services in the issuance of securities

PROPERTY DEVELOPMENT through Madison Capital Limited (MCL) and Hillview Estate Limited which are 100% subsidiaries of MAMCo;

Property development activities � Housing and commercial properties to lease � Housing and commercial properties for disposal � Land development for sale � Unitisation of properties to allow for fractional/

collective ownership

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OURHISTORY1992

2000/03

2004

2014

1995

2005

Madison Insurance Company (Z) Ltd (MICL) is opened -first private insurance company

� LSA consolidates to own Madison 100% � Madison Investment Company Limited

(forerunner to MAMCo) is formed

� Listing of MFS � LSA-60% � AFlife Financial Services (AFLife) 10% � Public 30% � Commencement of deposit taking by MFinance

� LSA formed and acquires 10% interest in MICL � Trans Zambezi Industries (TZI) acquires 60%; and � Hannover Re 30%

MICL splits into 2 insurance companies, MGen and MLife

� Entry of Enko Capital Management (Pty) Limited via ZFI Holdings Limited at 20%

� LSA 40% � AFLife 10% � Public 30%

� MFS formed � Entry of Internatinal Finance Corporation(IFC) � LSA - 80.5% � IFC - 19.5%

1992

2004

2014

2000-2003

1995

2005

2007

2011-2013

2015

LSA grows: exit of TZI and Hannover Re; entry of ZVCF with shareholding in Madison as follows;� LSA 62.86% � ZVCF 37.14%

2007

2011/132015

� Acquisition of 25% in MFinance by Shorecap

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Annual Report 2016

Choma

KitweChingola

Chililabombwe

Mansa

Mongu

Solwezi

NdolaNdola

Kabwe

Kasama

Livingstone

Chipata

Lusaka

Mufulira

ArushaMwanza

Dar es Salaam

GROUP PROFILE HIGHLIGHTS

A HUMAN RESOURCE

COMPLEMENT OF OVER 800

PEOPLE

41 BR ANCHES IN 17 TOWNS/

CITIES AND STILL GROWING

IN EXISTENCE SINCE 1992

TRENDSETTER

� First privately owned insurance company following liberalisation of the insurance industry in 1992

� First organisation to promptly unbundle its composite insurance company into separate Life and General insurance companies even before legislation took effect

� Pioneered Health Insurance, Credit-Life Insurance and other life insurance and investments products in Zambia

� First truly Zambian-owned insurance services group to list on the LuSE

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MGEN

� Strong market position. MGen among the top 2 players in the general insurance industry

� Wide geographical spread � A+ rated reinsurers � A robust IT system � MGen has one of the best

management expense ratios in the market

� One of the strongest cashflow and investment portfolios in the market

� One of the best at debtors management and liquidity positions in the market

� One of the best claims settlement records

MGEN TANZ ANIA

� Has established itself as the best engineering underwriter in a difficult market

� Wide and efficient distribution network

� Very positive growth pattern � Strong reinsurance program with A+

rated reinsurers � Set itself apart as a professional outfit � Market share has been improving

progressively now at over 3% from 2%

MLIFE

� Strong capital position and healthy solvency ratio

� Strong market position. MLife is one of the top 2 players in the life insurance industry

� One of the best claims payment records

� Wide geographical spread � Robust ICT system � A wide range of unique and

innovative products under offer with a well-trained sales force spread across the country

� A number of SMART partnerships for business development in place

MAMCO& MC APITAL

� Market leader in unit trust products with around 65% market share

� Leverages on the branch network of the other Group companies

� Delivers competitive returns � Innovative products and personalised service on offer � Upgrading to a robust ICT platform

MCAPITAL � Diversified sources of funding for property development

including DFI support � Attractive returns

MFINANCE

� Strong market position – MFinance ranks among the top 3 players in the microfinance industry

� Increased attraction of DFI funding because of the company’s strategic direction in terms of enterprise lending and good governance.

� The company has a deposit taking license which contributes to reducing the cost of capital

� Innovative products on offer with a skilled management team and strategic partnerships with international investors.

� Wide geographical spread � Versatile ICT platform

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Annual Report 2016

HIGHLIGHTS

CHALLENGES

NET PROFIT MARGIN

+3%

490%

-1%

GROWTH OF NET PROFITGROWTH OF REVENUE

RETURN ON EQUITY: GROWTH IN TOTAL ASSETS

2016: 2015:

11% -3%2016

2015

INCREASE IN CASH GENERATED FROM OPERATING ACTIVITIES

� Tight market liquidity and inflation impacted all costs including insurance claim costs, management and administration costs and financing costs with increased exponentially relative to revenue.

� 37% increase in general insurance claims largely on account of a doubling in cost of foreign currency related claims.

� Constrained market liquidity and therefore a rise in financing costs. Investment income however was positively impacted.

� Poor capital market performance partly impacted our fee income. � High inflation called for restraint in operational spending. � Premium undercutting called for prudent underwriting and innovation.

� New property development projects in the pipeline

� Continued investment in capacity building and ICT to avoid compromising service

� Planning additional expansion in the region

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Dr. Lawrence S. Sikutwa (PhD; MBA; FCII; FABE)

Group Executive Chairman

Lawrence Sikutwa has over 20 years’ experience in management including financial restructuring and setting up companies. He successfully set up Madison Insurance Company Limited from inception in 1992. He previously worked for the Zambia State Insurance Corporation as General Manager before being recruited to set up Madison.

2016OVERVIEW

The Group was successful in ensuring earnings growth despite a difficult economic environment in 2016 which carried through from 2015. We made significant investments in capacity building, information technology systems and investment assets whose effect on earnings growth will continue to be felt over the medium to long-term. Accordingly, the Group emerged from an almost complete loss position of K3.83million in 2015 to a positive net profit position of K14.95million in 2016. Although 2016 was a slightly better economic year than 2015, but only at the back of a monetary policy which supported exchange rate stability and tightened up money supply, many challenges were sticking, exacerbated in part by a widening fiscal deficit especially at the height of the 2016 general elections. Inflationary pressures were high for the most part of the year, liquidity was tight, the cost of borrowing was high and there was low availability of credit. The persistent electricity shortages brought with them new costs as businesses grappled

with how to stay relevant. In this environment, the Group experienced an exponential rise in costs including borrowing costs, insurance claim costs and management and administration costs. The Group also had to contend with the impact of depressed debt collection fomented by illiquidity in the economy.

However, I am pleased to report some factors which contributed to positive performance amongst others: -

� Innovative marketing and sales strategies led to growth in revenue in the face of the economic challenges referred to above. Innovation resulted in the introduction of new product lines and a revision of existing lines.

� The fostering of strategic partnerships at home and abroad was a key driver in maintaining the Group’s competitiveness in view of the presence of strong foreign competitors entering our markets.

� The Group implemented cost management strategies

CHAIRMAN’S REPORT

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Annual Report 2016

THE DEPOSIT-TAKING BASE FOR MFINANCE GREW OVER THE YEAR

BY ABOUT 27% AND CLOSED THE YEAR WITH AROUND K69.5

MILLION IN DEPOSITS.

especially those aimed at ensuring that they delivered value for money. The effect of some of the cost management strategies will continue to impact positively in 2017 and beyond.

STRATEGIC FOCUS

The Group remains focussed on improving the performance of subsidiary companies in order to improve returns for the shareholders. In this regard, our business focus was on the following:

� Continually improving operating efficiencies The ICT automation programmes across the Group were on course during the year, and as reported before the focus is on superior products and services delivery to our customers and tightening up on controls as well as reducing operational costs.

� Strengthening the control environment We noticed a deterioration in moral hazard amongst both staff and some policyholders which probably was a result of the prevailing difficult economic environment. Accordingly, the Group adopted a no-tolerance approach to inculcate improved discipline amongst staff and tightened up on underwriting policy to control the spate of doubtful claims. As already reported above, the ICT strategy will also assist in improving the control environment which in turn will improve our level of sustainability which ultimately will improve market confidence.

� Continued innovation The Group thrives on innovation and since its inception has been the first mover in a number of markets. We will continue to advance that strategy in order to differentiate ourselves in our markets and to drive growth. Our capacity to innovate will help us to improve our competitiveness and increase our market share. I am glad to report that in 2016 we were quite adept at using technology to

communicate with the mass market and with our intermediaries as a marketing strategy.

� Property development Property development through MAMCo is set to be a major contributor to the Group’s profits with a number of projects lined up to be kick-started in 2017. In 2016, K28 million worth of new investments were made in property development. USD10 million is expected to be invested between 2017 and 2019. The projects include residential as well as commercial properties.

� Growth of the deposit taking business The deposit-taking base for MFinance grew over the year by about 27% and closed the year with around K69.5 million in deposits. The deposits assisted MFinance to diversity its sources of funding for on-lending purposes and therefore will be very active in expanding the deposit base in 2017 and beyond.

� Increase market penetration rates Penetration levels for the whole spectrum of financial services are very low in Zambia in accordance with market research. Accordingly, the Group applied tremendous efforts in capturing the under-served population especially through its offering of Individual Life insurance products and Micro, Small and Medium Enterprise (MSME) finance. To improve market penetration and grow market share will depend on developing very efficient distribution channels.

� Regional expansion Studies are underway in the region for purposes of realising our regional expansion programme in Africa. With our local markets under pressure due to many new entrants, a regional expansion programme is essential. We are focusing on those markets with high earnings potential and low barriers of entry.

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COMPANY FACTS:

AssetsOver K1 Billion in total assets

Companies5 Subsidiaries41 Branches

Products and servicesOver 41 products and services offered

CHAIRMAN’S REPORT (continued)

SUSTAINABILIT Y IS NOW A NOTICEABLE CONCERN FOR ALL INDUSTRY PL AYERS PARTICUL ARLY IN THE INSUR ANCE SECTOR

Our Human Capital Our teams, comprising the boards of directors, management and staff constitute a very important strategic resource and therefore, we will continue to pursue programmes that are aimed at motivating them and creating in them an entrepreneurial spirit. Accordingly, incentive schemes will continue to be provided to motivate our people. Our capacity building efforts included employing expatriates to sharpen our people’s skills and knowledge and continuing our partnerships with consultant groups.

Environmental and Social Sustainability

Towards environmental and social sustainability, our policies and operations deliberately encompass key aspects of environmental awareness and protection, the wellbeing of employees and the community and civil society in general, for both now and in the future. This is done not only as an integral part of our risk management, but also in order to meet our duty of being a responsible citizen. It is part of the reason that we have pursued the offer of financial services at micro level in both the insurance and lending businesses, in all this we have a special focus on women and youth. We also strive to be an equal opportunity employer and accordingly women are offered the necessary support.

Future Outlook

The financial services market remains attractive for growth especially that there is a large population still untapped. Therefore, with the anticipated economic growth in 2017 on the back of an increase in copper prices and improved power supply together with the government’s

resolve to improve fiscal discipline and with the elections behind us, the Group’s performance, including investment programmes are expected to yield better results for the shareholders. Further, sustainability is now a noticeable concern for all industry players particularly in the insurance sector and we are seeing more sensible pricing commensurate with the exposure to risk. Therefore, we expect growth and earnings to enjoy an upward trajectory.

Conclusion

I would like to assure shareholders that the vision in which all the executive teams fully share as well as the staff in general is fully aligned to the expectations of all stakeholders especially the shareholders i.e. to achieve strong and sustainable performance which can be achieved year after year. Therefore, we are committed to delivering both short and long term value for our shareholders and we remain confident that we are on course to achieving our vision.

Finally, I wish to thank my fellow board members, members of management and our hard working members of staff across the Group for their continued dedication and diligence towards actuating the Group’s mission.

DR. LAWRENCE S. SIKUTWAGroup Executive Chairman7th March 2017

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Annual Report 2016

CHAIRMAN’S REPORT (continued)

www.facebook.com/mlifezambia www.twitter.com/mlifezambia

[email protected]

+260 211 211 233 940 / 41

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AGNES CHAKONTA BA , FCII, MBA

MANAGING DIRECTOR MLIFE

CHABAL A LUMBWE BA (ECON), ACII FIIZ A

MANAGING DIRECTOR MGEN

REVIEW OFSUBSIDIAIRIES

Madison Life Insurance Company Zambia Limited (MLife) weathered the storm and posted positive results despite the challenging business environment in 2016. Gross Written Premium (GWP) grew by 28% and the growth in premium was substantially above the projected life insurance industry growth rate of 13%, resulting into MLife snapping up second position of the life insurance market. The positive performance was at the backdrop of a range of innovative insurance products which were introduced and which have seen the company win some strategic partnerships with institutions in both the private and public sector.

In 2016, the company also paid special focus towards its health division in order to take advantage of the growing prospects in that area.

The company has stayed true to its values of innovation, hard work, team work and being customer centric and we believe this is what is leading us to being the market leader. Growing policyholder and shareholder value remains central in our mission.

The General insurance market continued to be very soft with wide capacity where price was mainly the focus for most customers. However, the company still maintained its high standard with regard to quality customer service.

In line with the strategic objective of improving the quality of service and optimising operational excellence the company automated the broker platform which increased the placement of risks through this channel. We continued to be innovative and rolled out our online presence to afford people to access insurance at their convenience.We shall continue to put our employees, customers and shareholders at the heart of everything we do, enabling us to offer the best possible value for all stakeholders.

www.facebook.com/mlifezambia www.twitter.com/mlifezambia

[email protected]

+260 211 211 233 940 / 41

Protecting you all the way! 25 years in

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14

Annual Report 2016

TITUS WAITHAKA MSc, BSc STRATEGIC MGT

MANAGING DIRECTOR MFINANCE

MUCHINDU KASONGOLA FCMA

MANAGING DIRECTOR MAMCO

CHARLES SUMBWE BA (EDU), ACIIMANAGING DIRECTOR MGEN TANZANIA

MFinance is growing into a force to be reckoned with in deposit taking and continues to be a leading microfinance institution in Zambia. Our pledge is to make better the lives we touch by offering innovative financial solutions to achieve transformation of lives in the communities we serve. In our spirit of offering responsive and flexible services to our customer, we have gone a step further to set up a mobile banking platform with a view to reaching an increased base of clientele, and offering value added services in line with changing technologies. As a further value add and in order to reduce the cost of capital for our Shareholders and customers, MFinance is looking towards becoming a fully-fledged and leading SME bank in the near future.

Performance in 2016 was satisfactory as we successfully reeled the company from the losses of 2015 into a profit situation. With so much ground work done, we are confident that our profits are on a positive trajectory.

Asset under management continued on a positive growth trajectory supported primarily by the acquisition of new portfolio mandates concluded during the year. The aggregate assets under management crossed the K1 billion mark during the year closing at K1.1 billion at the end of 2016. This was against a backdrop of tight liquidity conditions and a depressed stock market which characterised most of the year 2016. The real estate development portfolio is expected to deliver accelerated growth in assets under management and profits from 2017 onwards as projects in the development pipeline begin to be commissioned and associated revenues accrue. The company shall in the short to medium term be consolidating on the gains made thus far and differentiation through exceptional client service which is to be supported by the recently commissioned Moneyware asset management system.

MGen Tanzania continues its drive towards its excellence as a professional outfit operating in an intense environment. As Tanzania continues to adjust itself under a new administration that is bent on destroying corruption, intent on improved revenue collection and empowerment of local employees, MGen is sufficiently prepared to take advantage of these measures as it has already been operating in a way that meets these high expectations. After a dip in business activity generally during the first year of the new government, there is marked expectation of an upswing which will boost revenue levels and in anticipation MGen has entered into various intermediary relationships and technical alliances that will translate into increased revenue.

MGen Tanzania is positioning itself to be the leading agricultural insurer in Tanzania.

REVIEW OF SUBSIDIAIRIES (continued)

15


Total Revenue Results from operating activities Profit/(Loss) for the year

OPERATIONAL PERFORMANCE REVIEWOVERALL

The net profit recovered from the loss position which was caused by foreign exchange losses in 2015, to a net profit of K14.95 million in 2016. The recovery was influenced by the growth in revenue of 15% in 2016. However, the recovery was now without challenge as the economic environment that prevailed in 2016 brought about a higher increase costs in relation to the growth in revenue, thereby causing a substantial net loss in the Zambian general insurance business. The rest of the other companies recorded relative improvements in profit.

REVENUE

Revenue is made up of general and life insurance premium, interest income, fee income and other investment income, income from property development including sales of housing units.

Performance Highlights

Revenue

2014 2015 2016

405,961 485,830 548,665

49,976 42,230 29,057

35,963 (3,831) 14,955

General insurance – Zambia General insurance – Tanzania Life insurance Microfinance Asset Management Property Development Total

125,490 129,235 148,55620,269 17,673 16,457

117,943 126,161 163,50597,664 119,822 131,70336,673 57,982 73,115

7,922 34,956 15,328405,961 485,830 548,665

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Annual Report 2016

Growth was recorded in all segments except in the Tanzanian general insurance company whose revenue remains almost flat on account of a selective approach towards accepting risks, and the property development business where various developments are still underway.

NET PROFIT

The Group’s net result came out from the loss position of 2015 owing to the growth in revenue, and also because in 2016 there were no foreign exchange losses which were the cause of the losses in 2015. The majority of the segments contributed to the turnaround with the exception of general insurance in Zambia and property development. A decline in consumer spending impacted insurance premium growth amidst a rise in insurance costs in 2015 and 2016 especially as they were mostly affected by foreign currency movements of 2015. The property development side suffered increased costs of borrowing although the loss will be covered as finished units come on stream for sale from 2017 onwards.

Performance Highlights

CONSOLIDATED PROFIT RETURNS

The profit return, based on equity at the beginning of the year was as shown in the table below. In line with the improved net profit position, the return on equity also improved over the year.

2014(%) 2015(%) 2016(%)

ROE 36 -3 11

Asset size

The total asset size continued to grow providing a larger base for future profit growth. It crossed the K1 billion mark for the first time in 2016.

2014 2015 2016

K’000 K’000 K’000

Total assets 716,847 931,758 1,035,066

REVIEW OF SUBSIDIAIRIES (continued)

40,000

20,000

0

-20,000

-40,000

-60,000

-80,000

-100,000

-120,000

General insurance – Zambia General insurance – Tanzania Life insurance Microfinance

Asset Management Property Development MFS Plc Total

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CSR FR AMEWORK

SOCIAL-ENVIRONMENTAL ACTIVITY

MFS Plc believes that doing business in a sustainable manner drives positive development outcomes. Therefore we manage risk by striving to adopt the best sound environmental, social, and corporate governance practices as an integral part of conducting business.

The Group’s corporate social responsibility framework is founded on the conviction that our sustainable existence is made possible by the society in which we operate and therefore that we have a responsibility to fulfil towards all of our stakeholders, who also include the community and society at large. The relevant programmes towards our aim in that regard are formed in the following core categories: community service; environmental and social responsibility; staff welfare; compliance with laws and regulation and with contracts and promises made to our customers and shareholders; and ethics and integrity in business dealings.

At a minimum, the group’s environmental and social policy complies with all laws, regulations and contracts and has also taken after the IFC’s sustainability framework, as well as FMO’s ESG principles.

In adopting the IFC’s sustainable framework we have committed to sustainable

development as an integral part of our approach to risk management. The Sustainability Framework comprises 1) The Group’s Environmental and Social Sustainability Policy, 2) Performance Standards on Environmental and Social Sustainability, and 3) the Access to Information Policy.

The environmental and social sustainability policy outlines the guiding and overarching principles of the Group’s policy and roles

Sustainability Framework

Policy on environment & Social Sustainability

Performance Standards

Risk Categorisation & Exclusion List

Access to information Smart Campaign

ESG Principles

COMMUNITY DEVELOPMENT

SUPPORT

ENVIRONMENTAL LAND SOCIAL

SUSTAINABILITYSTAFF WELFARE COMPLIANCE ETHICS

CSR

18

Annual Report 2016

and commitment to various areas of environmental and social sustainability including a recognition of the threats of climate change and a commitment to contribute to environmental preservation, respect for human rights, a recognition of women’s crucial role and a commitment to avoid gender inequity, and a commitment to provide timely and accurate information as part of good corporate governance. Also, a risk categorisation mechanism is also especially applied by the lending business, whereby risks are categorised from A to D on a scale of high to low risk in terms of their likelihood of environmental and social risks and impact. The depth of investigation and analysis before business conclusion will be impacted by the risk categorisation. In working through the risk categorisation, MFS Plc has also adopted a list of excluded businesses which it cannot transact with and this list is found at: http://www.ifc.org/exclusionlist. These generally are businesses in illegal activities, ammunition and weapons,

businesses involved in exploitative and child labour, alcoholic beverages and tobacco among others.

The lending business also adopted the FMO ESG policies, and as part of the ESG principles the micro-lending business has endorsed and embedded in its operations the ‘Smart Campaign’, and is listed on http://www.smartcampaign.org/about/campaign-endorsers. The principles are aimed at acting socially responsible towards micro-borrowers through the seven core principles being Appropriate product design and delivery; Prevention of over-indebtedness; Transparency; Responsible pricing; Fair and respectful treatment of clients; Privacy of client data; Mechanisms for complaint resolution.

The Group is an equal opportunity employer and focusses special attention on women, both in employment and the offer of services or products with a target of a 50:50 split between the genders.

THE GROUP’S ENVIRONMENTAL AND SOCIAL POLICY COMPLIES WITH

ALL L AWS , REGUL ATIONS AND CONTR ACTS AND HAS ALSO TAKEN

AF TER THE IFC’S SUSTAINABILIT Y FR AMEWORK

CSR SUPPORT PROGR AMMESCOMMUNITY DEVELOPMENT AND SUPPORT

Social Responsibility Programme (CSRP) under which it extends help to community projects in such areas as health, education, environmental management, commerce, sports and culture.

Rendering support to community projects and forging synergies with other corporate entities to manage national events has become the hallmark of Madison Financial Services Plc (MFS)’s operational phenomenon. Every year, MFS Plc sets aside a budget for Corporate

SOCIAL-ENVIRONMENTAL ACTIVITY (continued)

The Group pays special attention to the environment

The Group Staff making donations at Bethel orphanage in Avondale, Lusaka

19


COMMERCE AND INDUSTRY

Culture - As a way of promoting Zambian culture, the MFS Plc has pledged to render support to the traditional ceremonies in the provincial centres of the country.

Art - The Group’s concept of giving back to the communities which generate its business extends to art. All the Group’s offices are decorated with paintings bought from various artists as a way of encouraging them. At the Corporate Head Office – there is mini art gallery to showcase some of the masterpieces of Zambian artists.

EMPLOYMENT AND STAFF WELFARE

With a staff compliment of over 400 plus a sales workforce of close to 500, the group takes pride in being a major employer in the country.

Staff welfare encompasses the provision of attractive working conditions which extend to immediate and extended families, remuneration and incentive packages which are aimed at inspiring a sense and feel of ownership towards the business for our management and staff regardless of position.

MFS Plc in conjunction with business partners and associates are in the forefront of assisting to put Zambia’s name on the regional and international map in sponsorship of national events such as agricultural shows and trade fairs.

Sport - During the year under review, the MFS Plc group partnered with Konkola Copper Mines Plc and Zambia Sugar Company Plc to sponsor the Zambia Open professional golf tournaments which took place in Chingola and Lusaka, respectively.

Additionally, Madison General Insurance Company Zambia Limited (MGen) has over the years been sponsoring golf tournaments in Ndola and Mkushi.

Motor sports, polo tournaments and rugby are also among sports activities which the MF Plc also supports.

Education - Madison General Insurance has also continued its support to the community school in Lusaka’s Ng’ombe High Density area, mainly with the school’s programme to reward high performing pupils to act as an incentive for children to work harder.

SOCIAL-ENVIRONMENTAL ACTIVITY (continued)

Group Staff donate food stuffs to Matthew 25 Ministries International Home on International Womens Day, 2017

MFS Staff prepare balloons for official release to mark the opening of the 2016 Zambia International Trade Fair

20

Annual Report 2016

The Group endeavours to incorporate into its business activities the best mutual interests of all stakeholders, including, the Regulators, shareholders, employees, customers and the community in which it operates. The Board ensures that the Group complies with all relevant laws, regulations and puts into practice the best practice in terms of Corporate Governance. Internal governance structures and roles are reviewed at board and management levels on a continuing basis.

CORPORATE GOVERNANCE THE GROUP REMAINS A RESPONSIBLE CORPOR ATE CITIZEN AND WILL, WHEREVER POSSIBLE, CONTRIBUTE TOWARDS ENHANCING ITSELF AS SUCH

MFS GROUP BOARDThe Board comprises five non-executive directors and two executive directors. The board of directors is responsible for the management and ultimate control of the Group. The Board is the vision driver and sets the strategic objectives of the Group and puts in place the plans to achieve the set objectives each financial year.

The Board of MFS in 2016 had a complement of Seven (7) board members following the election of Mr Peter Banda and Mrs Margaret Chalwe - Mudenda at the preceding Annual General Meeting. The members of the Board during the year under review was as follows:

NAME STATUS POSITION

1. Lawrence S. Sikutwa Executive Group Executive Chairman

2. Basil Nundwe Non-executive Independent Vice Chairman

3. Rhoydie Chisanga Non-executive Director

4. Ralph Gilchrist Non-executive Director

5. Cindy Chiputa Executive Director

6. Peter Banda Non-Executive Independent Director

7. Margaret Chalwe- Mudenda Non-Executive Independent Director

K AFULA MWICHE | Group Legal Counsel & Company SecretaryBA (Zambia), LLB (Zambia), LL.M (Manchester), ASCZ, ACI Arb (UK)

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MFS BOARD COMMITTEESCOMMITTEE Audit, and Risk Investment &

AccountingRemuneration & Appointments

1. Chairperson Basil Nundwe Rhoydie Chisanga Margaret Chalwe - Mudenda

2. Director Margaret Chalwe – Mudenda

Ralph Gilchrist Cindy Chiputa

3. Director Peter Banda Basil Nundwe Ralph Gilchrist

Subsidiary Board and Board Committee Composition

MADISON GENERAL INSURANCE COMPANY ZAMBIA LIMITED (MGEN)Name Status Position

1. Robin Miller Non-Executive Independent Chairman

2. Chabala Lumbwe Executive Managing Director

3. Cindy Chiputa Non-Executive Director

4. Rajen Ranchhod Non-Executive Independent Director

5. Ignatius Mwanza Non-Executive Independent Director

6. Guy Phiri Non-Executive Independent Director

7. Lombe Irene Chibesakunda Non-Executive Independent Director

8. Evans Chibiliti Non- Executive Independent Director

MGEN BOARD COMMITTEESCOMMITTEE Investments Audit, and Risk Remuneration & HR

4. Chairperson Guy Phiri Lombe Chibesakunda Ignatius Mwanza

5. Director Ignatius Mwanza Guy Phiri Rajeen Ranchhod

6. Director Evans Chibiliti Rajeen Ranchhod Evans Chibiliti

MADISON LIFE INSURANCE COMPANY ZAMBIA LIMITED (MLIFE)Name Status Position

1. Abel Mkandawire Independent Non Executive Chairman

2. Basil Nundwe Independent Non Executive Director

3. Mark O’Donnell Independent Non Executive Director

4. Alfred Lungu Independent Non Executive Director

5. Chansa Chiteba Independent Non Executive Director

6. Masautso Nyathando Independent Non Executive Director

7. Enala Lombe Non-Executive Director

8. Agnes Chakonta Executive Managing

CORPORATE GOVERNANCE (continued)

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Annual Report 2016

MLIFE BOARD COMMITTEESCOMMITTEE Investments Audit, Risk and Finance Remuneration & HR

1. Chairperson Basil Nundwe Mark O’Donnell Alfred Lungu

2. Director Mark O’Donnell Chansa Chiteba Masautso Nyathando

3. Director Alfred Lungu Basil Nundwe Chansa Chiteba

4. Director Enala Lombe Enala Lombe

MADISON FINANCE COMPANY ZAMBIA LIMITED (MFINANCE)Name Status Position

1. Alfred Lungu Independent Non Executive Chairman

2. Isaac Ngoma Independent Non Executive Director (Retired 30/05/2016)

3. Nonny Mwanyungwi Independent Non Executive Director

4. Phillip Hopkins Non-Executive Director

5. Mr Seewoosagur Domun Non-Executive Director

6. Muntanga Mutale Non-Executive Director

7. Titus Waithaka Executive Director Managing

8. Zandile Shaba Executive Director Director Operations

MFINANCE BOARD COMMITTEESCOMMITTEE Credit and Loans

CommitteeAudit & Risk Committee Remuneration and

Human Resources Committee

1. Chairperson Phillip Hopkins Nonny Mwanyungwi (Acting)

Nonny Mwanyungwi

2. Director Nonny Mwanyungwi Mr Seewoosagur Domun

Philip Hopkins

3. Director Mr Seewoosagur Domun Phillip Hopkins Muntanga Mutale

4. Director Muntanga Mutale

MADISON ASSET MANAGEMENT COMPANY LIMITED (MAMCO)Name Status Position

1. Michael Tarney Independent Non Executive Chairman

2. Noriana Muneku Independent Non Executive Director

3. Agnes Chakonta Non-Executive Director

4. Sylvia Bwalya Mwansa Independent Non Executive Director

5. Andrew Kamanga Independent Non Executive Director

6. Muchindu Kasongola Independent Non Executive Managing Director

7. Brian Chintu Independent Non Executive Head of Investments


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MAMCo BOARD COMMITTEESCOMMITTEE Investment Committee Audit Committee Remuneration & HR

1. Chairperson Noriana Muneku Andrew Kamanga Mrs Sylvia Bwalya Mwansa

2. Director Andrew Kamanga Sylvia Bwalya Mwansa Agnes Chakonta

3. Director Agnes Chakonta Noriana Muneku Chabala Lumbwe

MGEN TANZANIA INSURANCE COMPANY LIMITED (MGEN TZ)Name Status Position

1. Lawrence Sikwuta Non-Executive Chairman

2. Hoyce Temu Non Executive Director

3. Mercy Mchechu Independent Non Executive Director

4. David Tuhoye Independent Non Executive Director

5. Simon Mponji Independent Non Executive Director

6. Charles Sumbwe Executive Managing

MGEN TZ BOARD COMMITTEESCOMMITTEE Investment Committee Audit Committee Remuneration & HR

1 Chairperson David Tuhoye Simon Mponji Mercy Mchechu

2 Director Simon Mponji Mercy Mchechu Simon Mponji

3 Director Hoyce Temu David Tuhoye David Tuhoye

Directors’ Conflicts

The Group has a number of policies and procedures including a Conflict of interest Policy. At the beginning of each board meeting the directors are required to put on record any conflict in any matter on the meeting’s agenda. The Directors are further obliged to disclose any material contracts beneficial to them or their families and associates which have been entered into or are being negotiated with any of the companies in the Group.


24

Annual Report 2016

Board Meetings and Record of Attendance

The Company has four scheduled board meetings-one for each quarter. During the year ended 31st December 2016 there were four scheduled meetings held on 4th March, 23rd May, 28th August and 13th December 2016. The table below shows the attendance of the Directors.

BOARD MEETING # 32nd 33rd 34th 35th Board meeting quarter 04/2015 01/2016 02/2016 03/2016

Date of Board meeting 04/03/2016 23/05/2016 26/08/2016 13/12/2016

Director Attendance

1. Lawrence Sikutwa

2. Basil Nundwe

3. Rhoydie Chisanga

4. Ralph Gilchrist

5. Cindy Chiputa

6. Peter Banda N/A N/A

7. Margaret Chalwe-Mudenda N/A N/A

Key In attendance Not in attendanceN/A Not applicable

Directors’ interest in the ordinary shares of the Company As at 31 December 2016 the interests of the Directors in the Company as recorded in the register and on the Lusaka Stock Exchange, were as follows:-

Details 2016

Total ordinary issued shares of the Company 50,000,000

Director Shareholding

Basil Nundwe -

Peter Banda -

Margaret Chalwe- Mudenda -

Ralph Gilchrist -

Cindy Chiputa 30,000

Indirect Shareholding

Lawrence Samva Sikutwa 12,663,956

Rhoydie Chisanga 6,700,000


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Subsidiary Managing Directors’ Interests in the ordinary shares of the Company As at 31 December 2016 the interests of the Subsidiary Managing Directors in the Company as recorded in the register and on the Lusaka Securties Exchange, were as follows:

2016 %

Total Ordinary issued shares of the Company 50,000,000

Managing Director Shareholding

Chabala Lumbwe 545,850 1.09%

Agnes Chakonta 500,000 1.00%

Muchindu Kasongola 500,000 1.00%

Charles Sumbwe 500,000 1.00%

Directors’ Fees and Remuneration

Directors’ fees of K584 thousand were paid by the Company during the year (2015: K377 thousand) while the Group collectively paid K4.7million (2015: K4.1 million) in directors’ fees.

There was K6 million outstanding loans in the Executive Share Scheme of the Managing Directors of the subsidiary companies.

Key Management

The following held key Management positions in the Group as at 31st December 2016.

Function MGen MLife MFinance MAMCo MGen Tanzania

Managing Director Chabala Lumbwe

Agnes Nyondo Chakonta

Titus Waithaka

Muchindu Kasongola

Charles Sumbwe

Chief Financial Officer Mundia Mundia

Ellison Munyenyembe

Idreen Malambo

Mbangweta Musambo

Hope Kaiza

Company Secretary Kafula Mwiche

Kafula Mwiche Kafula Mwiche

Kafula Mwiche Hope Kaiza

Heads - Operations Pauline Simwaba

Taurai Ndoro Zandile Shaba

Clare Lungwe Ernest Kilumbi

Heads – Sales and Marketing and/or Business Development

Anthony Malasha

Denson Lunga Beatrice Odiyo

Cecilia SiabusuSiphiwe Nkunika

By Order of the Board

Kafula Mwiche Company Secretary7th March 2017.


26

Annual Report 2016

DIRECTORS’ REPORT The Directors have the pleasure of submitting their report and the financial statements on the activities of the Company and the Group for the financial year ended 31 December 2016.

1 General information and activities

The Company was set up on 31 July 2007 through a group reorganisation to hold equity investments in financial services companies, such as insurance, micro finance, deposit taking, asset management and leasing etc.

The Group’s major activities through its subsidiary companies include underwriting of all classes of general insurance and life assurance; provision of microfinance loans to small and medium sized businesses and to employees of both public and private institutions based on a payroll deduction agreement; deposit taking; asset management, property development; and stockbroking.

The Company was quoted on the Lusaka Securities Exchange on 28 June 2012.The Company’s abbreviation, share code and ISIN code are as follows:Company abbreviation : MFS PLCLuSE Share code : MFINISIN code : ZM0000000391

It was publicly listed on the Lusaka Securities Exchange and its shares started trading on 1 September 2014 following a successful Initial Public Offering (IPO) of 20 million shares.

2 The Company’s shareholding The shareholding in the Company as at 31 December 2016 was as follows:-

% Shareholding

2016 2015

Lawrence Sikutwa and Associates Limited 40 40

Institutional and private investors 60 60

100 100

3 Share capital

The Company’s authorised and issued share capital is K600,000 and K500,000 respectively and is made up of 60 million and 50 million shares of a nominal value of K0.01 each. Details of the Company’s authorised and issued share capital are included in note 32 of the financial statements.

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4 Results

A summary of the operating results of the Group in Zambian Kwacha is as follows:

2016 2015

Gross insurance premium 403,268,363 361,371,718

Interest and similar income 137,452,392 106,714,135

Fees and commission income 75,202,019 56,384,992

Revenue from sale of property units 3,677,553 25,583,618

Gross revenue 619,600,327 550,054,463

Profit/(loss) before income tax 9,077,350 (14,033,700)

Income tax credit 5,877,271 10,202,711

Profit/(loss) for the year 14,954,621 (3,830,989)Profit attributable to owners of the Company 12,376,413 5,349,239

Profit attributable to non-controlling interest 2,578,208 (9,180,228)

14,954,621 (3,830,989)

Total comprehensive income 18,516,658 7,298,912

Basic earnings per share 0.25 0.11

Diluted earnings per share 0.25 0.11

5 Dividend

During the year dividends of K7 million were paid to the members (2015: K10 million).

6 Directorate and secretariat

The following Directors held office during the year:

Lawrence Sikutwa (Dr) Executive ChairmanBasil Nundwe (Mr) Vice Chairman Rhoydie Chisanga (Mr) Non Executive DirectorRalph Gilchrist (Mr) Non Executive DirectorPeter Banda (Mr) Non Executive Director (Appointed on 24 May 2016)Margaret C. Mudenda (Mrs) Non Executive Director (Appointed on 24 May 2016)Cindy Chiputa (Ms) Executive DirectorKafula Mwiche (Mr) Secretary

7 Directors’ fees

Directors’ fees of K584 thousand were paid by the Company during the year (2015: K377 thousand) while the Group collectively paid K4.743 million (2015: K4.075million) in directors’ fees as disclosed under note 39 of the financial statements.

DIRECTORS’ REPORT (continued)

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Annual Report 2016

8 Loans to directors

No loans were made to the directors by the holding company during the year (2015: nil), while for the Group collectively the loans to directors amounted to K3.149million (2015:K3.199 million), as disclosed under note 39 of the financial statements.

9 Health and safety

The Group attaches great importance to the welfare of its employees. The Group provides medical aid to staff and their dependants through a medical scheme.

10 Employees

At the end of the year, the total number of employees in the Group stood at 447(2015: 413). The related payroll cost was K88 million (2015: K75 million) as disclosed under note 13 of the financial statements.

11 Property, plant and equipment

The Group acquired property, plant and equipment valued at K10.7 million during the year (2015: K10.5 million) as detailed in note 18 of the financial statements.

12 Gifts and donations

The Group made donations to charities totalling K293 thousand during the year (2015: K496 thousand).

13 Events after the reporting date

The Directors are not aware of any material fact, circumstance or event which has occurred between the accounting date and the date of this report which might influence an assessment of the Company’s and the Group’s financial position or the results of its operations.

14 Risk management and control

The Group is exposed to various risks and therefore risk management stays at the core of the operations and management structure of the Company and its Group entities through the entire organisation. Risk is monitored and managed under the following risk categories: strategic, systemic, capital adequacy and solvency, insurance underwriting and liability, credit, interest, liquidity, compliance, reputation, and fraud, which are supported by Group standards, policies and procedures.

The Group has established various levels of risk appetite under each risk category and their sub-categories, and for each respective entity and division. The risk appetites are aimed at limiting adverse impacts on earnings and equity, and in particular avoiding undue concentration of exposure, limiting potential losses from stress events, restricting positions in less quantifiable risk areas at all cost, all of which ultimately have an impact on our reputation.

The overall corporate structure with regard to risk management is such that the Group has established a Risk and Assurance department at Group level which assists the Group Board of Directors with overall oversight. The Group oversight works in coordination with the independent risk management structures in each Group entity, and both report directly to the Audit, Risk and Finance Committees in each entity.

Implementation of the requirements of the risk management and governance standards, policies and


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procedures is the responsibility of the business heads and is cascaded down to the lower levels and individuals. Various tools are utilised to monitor and enforce them including reporting, internal audit, job descriptions, performance management and rewards, and inculcation of a culture of integrity and compliance through the value system.

15 Corporate governance

In December 2016, the Securities Act of Zambia (as amended) was enacted and is applicable to all listed entities and other entities that are licenced by the Securities and Exchange Commission. It contains a requirement for the auditor of a company whose securities are registered with the Commission to, in the audit report of the Company, issue a statement as to the existence, adequacy and effectiveness or otherwise of the internal control system of the company.

The Act did not specify the relevant internal control framework to use in this assessment, and no transitional guidance has been provided by the regulator as at the date of this report. The Company was therefore unable to engage its auditors to perform the work which would be required to issue this statement for the year ended 31 December 2016. This is reflected in a separate paragraph in the Audit Report.

The Board of Directors hereby confirms that the Group has complied with all the internal control requirements of the principles of good governance. Risk, Finance and Audit Committees are in place at both Group and subsidiary company levels.

The financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and comply with the requirements of the Companies Act of Zambia and the Securities Act of Zambia.

The Group has no service contracts with the Directors, except for the Group Executive Chairman, Managing Directors, Group Finance Director and the Executive Directors.

There have been no contracts of significance subsisting during or at the end of the financial year in which any director or any substantial shareholder has been materially interested.

16 Financial statements

The financial statements set out on pages 38 to 121 have been approved by the Board of Directors.

17 Auditors

In accordance with the provisions of the Articles of Association of the Company, Messrs KPMG Chartered Accountants (‘’KPMG’’) will retire at the next Annual General Meeting, and having expressed their willingness to continue in office, a resolution for their re-appointment and fixing their remuneration will be proposed at the Annual General Meeting.

Cindy ChiputaGroup Finance Director 7th March 2017


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Annual Report 2016

DIRECTORS’ RESPONSIBILITY IN RESPECT OF THE PREPARATION OF FINANCIAL STATEMENTS

The directors are responsible for the preparation and fair presentation of the consolidated and separate financial statements of Madison Financial Services Plc (“the Group and Company”) comprising the statements of financial position at 31 December 2016, and the statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and the notes to the financial statements which include a summary of significant accounting policies and other explanatory notes, in accordance with International Financial Reporting Standards and the requirements of the Companies Act and the Securities Act of Zambia. In addition, the directors are responsible for preparing the annual report.

The directors are also responsible for such internal controls as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and for maintaining adequate accounting records and an effective system of risk management.

The directors have made an assessment of the ability of the Company and its subsidiaries to continue as going concerns and have no reason to believe that the businesses will not be going concerns in the year ahead.

The auditor is responsible for reporting on whether the group financial statements and financial statements are fairly presented in accordance with the applicable financial reporting framework.

Approval of the consolidate and separate financial statements and financial statements

The consolidated and separate financial statements of Madison Financial Services Plc, as identified in the first paragraph, were approved by the board of directors on 7th March 2017 and signed by:

Cindy Chiputa Rhoydie ChisangaAuthorised Director Authorised Director

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INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF MADISON FINANCIAL SERVICES PLC

REPORT ON THE AUDIT OF THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS

Opinion

We have audited the consolidated and separate financial statements of Madison Financial Services Plc (“the Group and Company”) set out on pages 38 to 121, which comprise the statements of financial position as at 31 December 2016, and the statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the consolidated and separate financial statements present fairly, in all material respects, the consolidated and separate financial position of Madison Financial Services Plc as at 31 December 2016, and its consolidated and separate financial performance and consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Companies Act and the Securities Act of Zambia.

Basis for Opinion

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

Key Audit Matters

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

KPMG Chartered AccountantsFirst Floor, Elunda TwoAddis Ababa RoundaboutRhodes Park, LusakaP.O. Box 31282Lusaka, Zambia

Telephone +260 211 372 900Website www.kpmg.com

KPMG Chartered Accountants, a Zambian partnership, is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Partners: A list of the partnesr is available at the above mentioned address

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Annual Report 2016

Impairment of loans and advances to customers and insurance receivables (applicable to the consolidated financial statements)

The disclosure associated with impairment of loans and advances to customers and insurance receivables is set out in the following notes: note 4 use of estimates and judgments, note 26 loans and advances to customers, note 29 insurance receivables, note 40 (c) credit risk, note 44(j) financial instruments, and note 44(k) impairment.

Key audit matter How the matter was addressed in the audit

Loans and advances to customers and insurance receivables (“reinsurance assets”) are significant current assets of the Group at year end.

For loans and advances to customers, the banking industry has experienced significant growth in impairment of loans and advances to customers due to a number of economic challenges faced by customers such as depreciation of the Kwacha, an increase in interest rates (following the Central Bank’s removal of interest rate capping on loans and advances to customers), power shortages, weak global demand and low prices of copper, poor rainfall patterns and low market liquidity. These challenges have negatively affected customers’ ability to meet their loan and receivables commitments resulting in a large increase in impairment losses in the sector. The impairment of loans and advances to customers is estimated by the directors through the exercise of judgement and use of highly subjective assumptions.

For reinsurance assets, there is judgement involved in the assessment of whether insurance risk has been transferred to the reinsurer so that an asset can be recognised. The amount receivable from the reinsurer, recognised against the incurred but not reported (IBNR) claims reserves, is particularly judgemental as this is inherently linked to the judgements and estimates involved in the reserving process.

Due to the current economic situation, the magnitude of the loans and advances to customers and insurance receivables balance, the risk of default by a re-insurer due to the liquidity difficulties and the related estimation uncertainty, this matter was considered to be a key audit matter in our audit of the consolidated financial statements.

As part of our audit, we considered the appropriateness of the accounting policies and assessed the loans and advances to customers and insurance receivables impairment methodologies applied, comparing these to the requirements of IAS 39 Financial Instruments: Recognition and measurements.

For loans and advances to customers: � We obtained an understanding and tested the relevant controls over the

credit origination, the credit monitoring and credit remediation processes.

� For provisions that are individually calculated, we evaluated management’s provisions by considering the reasonableness of future cash flows underpinning the calculations and the valuation of collateral held in the context of the Group’s strategy for these loans. Where appropriate, we compared the assumptions used to external sources. We independently calculated the provision using the appropriate sampling techniques. We then compared our results to management’s results and proposed adjustments were necessary.

� Our testing incorporated the selection of a sample of individual loans to critically assess, by reference to the underlying documentation and through discussion with the case manager where appropriate, the criteria for whether an impairment had occurred and to challenge the reasonableness of management’s judgement on whether or not to recognise an impairment allowance. For customers on instalment plans, we reviewed the payment history and assessed the compliance.

� Provisions determined by modelling techniques (collective provisioning), incorporate past experience and management judgement in the selection of assumptions. We evaluated the provisioning models and assumptions used and we assessed whether past experience was reflective of current economic conditions. We agreed past data to the underlying records as appropriate. We challenged key assumptions by comparison to externally available information, where appropriate, as well as management’s conclusion that no collective impairment is required, as disclosed in note 26.

For insurance receivables: � We tested the process and controls over the approval of new reinsurance

contracts in order to support the recognition of a reinsurance asset.

� For the reinsurance share of claims outstanding, we assessed the assets against the terms of the reinsurance contracts and the related recorded liability.

� We assessed the reasonableness of the reinsurance asset assumptions and checked the post period end receipts of reinsurance assets to provide evidence of the recoverability of the year end reinsurance assets.

INDEPENDENT AUDITOR’S REPORT (continued)

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Valuation of insurance fund and insurance payables (“insurance liabilities”) (applicable to the consolidated financial statements)

The disclosure associated with valuation of insurance liabilities is set out in the financial statements in the following notes: note 4 use of estimates and judgments, note 35 insurance fund, note 36 insurance payables and note 44(g) insurance contract liabilities.


A significant proportion of the Group’s business involves registering, processing and paying claims to the insured who have entered into insurance contracts with the Group. The insurance business is split between the life and non-life business. At year end, the insurance fund relates to actuarial liabilities for the life business, while insurance payables relate to claims, commissions and ceded premiums that are payable to the re-insurer. Uncertainty exists about the recognition and measurement of the liabilities arising from claims made under both aspects of the Group’s insurance business.

A specific area of focus was the insurance reserve assumptions and methodologies used to determine insurance policyholder liabilities. Significant judgment, estimates and assumptions have been applied by management to determine:

� assumptions for the life business around future mortality, renewal expenses, expense inflation and withdraws ;

� assumptions for the non-life business around the incurred but not reported (IBNR) claims; and

� the rate applied to discount future profits.

We focused on this area due to valuation complexity and significant judgement applied, and the significance of these balances to the consolidated financial statements.

As part of our audit: � We assessed and tested the design and implementation and operating

effectiveness of the controls and reconciliations that govern the valuation

of the insurance liabilities.

For the life business we used our actuarial valuation experts on our audit team to:

� Evaluate the models and significant assumptions applied by management’s actuaries in the valuation of the insurance liabilities.

� Challenge management’s actuaries regarding underlying assumptions and methodologies applied in deriving the value of insurance liabilities with reference to economic conditions and performance.

� Construct independent models to test the valuation of selected insurance liabilities and compared our modelled results to management’s assessment.

� We assessed the level of reserves held for incurred claims through evaluating the competence, capability and objectivity of the Group’s

external actuary.

For the non-life business we: � Assessed whether the IBNR rates have been correctly applied to the

respective insurance classes and also assessed the reasonableness of the rates by comparison to independent industry average rates and the knowledge obtained during the course of the audit.

� Recomputed the unearned premium reserve using the 365 days method required by the Pension and Insurance Authority Regulations.

� Performed a retrospective review of the IBNR provision based on a three year history and compared actual losses in that period to the IBNR provision calculated for the period to determine whether the IBNR provision is reasonable.

� Evaluated the provisioning models and assumptions used and assessed whether past experience was reflective of current economic conditions.


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Annual Report 2016

Valuation of investment property (applicable to the consolidated financial statements)

The disclosure associated with valuation of investment property is set out in the financial statements in the following notes: note 4 use of estimates and judgments, note 19 investment property and 44(n) Investment property.


The Group invests in investment properties as part of its business. Valuation of unlisted commercial properties require judgement and estimation to determine the appropriate valuation techniques and to source relevant and reliable inputs. The valuation of these investment properties is based on inputs that are not quoted in the market, but are indirectly derived.

The fair value of these investment properties is determined through the application of valuation techniques which involve the exercise of judgement by the directors and the use of assumptions and estimates.

Due to the significance of investment properties and the related estimation uncertainty, this matter was considered to be a key audit matter in our audit of the consolidated financial statements.

As part of our audit: � We assessed the competence and independence of the

Company’s external property valuer.

� We obtained the Group’s valuation expert’s report and assessed the judgements and estimates applied by management to our understanding of current market practice and conditions. We also obtained independently-sourced inputs where available.

� Where valuation inputs were unobservable, we assessed the reasonability of the valuation inputs based on supportable and comparable information and compared these to management’s valuation inputs.

� We considered the appropriateness of the accounting policies applied and assessed the investment property methodologies across the Group in order to compare these with the requirements of IAS 40 Investment Property and International Financial Reporting Standard 13 Fair Value Measurement.

Impairment of investments in subsidiaries (applicable to the separate financial statements)

The disclosure associated with investment in subsidiaries is set out in the financial statements in the following notes: note 31 investment in subsidiaries and 44(a) (ii) subsidiaries.


The Company recognises its investment in subsidiaries at cost and performs an assessment of impairment on an annual basis. Impairment assessments of unlisted investments require greater judgement and estimation to determine the appropriateness of the valuation technique and to source relevant and reliable inputs. The impairment assessment is based on inputs that are not quoted in the market, but are indirectly derived.

The impairment assessment involves the application of valuation inputs such as discounted cash flows of the subsidiary, and a discount factor based on the 10 year bond rate of 25% plus margin of 12.5%. These assumptions involve an exercise of judgement by the directors and the use of assumptions and estimates.

Due to the magnitude of the investment in subsidiaries and the related estimation uncertainty, this matter was considered to be a key audit matter in our audit of the separate financial statements.

As part of our audit: � We obtained management’s impairment calculation in

respect of investments in subsidiaries and understood and challenged the assumptions used by management based on our historical and current understanding of the subsidiaries operations.

� Where valuation inputs were unobservable, we assessed the reasonability of the valuation inputs based on comparable external information, comparing this information to management’s valuation inputs.


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Other Information

The directors are responsible for the other information. The other information comprises the information contained in the Annual Report, but does not include the consolidated and separate financial statements and our auditor’s report thereon.

Our opinion on the consolidated and separate financial statements does not cover the other information and we do not express an audit opinion or any form of assurance conclusion thereon.

In connection with our audit of the consolidated and separate financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated and separate financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the Directors for the Consolidated and Separate Financial Statements

The directors are responsible for the preparation and fair presentation of the consolidated and separate financial statements and in accordance with International Financial Reporting Standards and the requirements of the Companies Act and the Securities Act of Zambia, and for such internal control as the directors determine is necessary to enable the preparation of consolidated and separate financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated and separate financial statements, the directors are responsible for assessing the Group’s and the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group and/or the Company or to cease operations, or have no realistic alternative but to do so.

Auditor’s Responsibilities for the Audit of the Consolidated and Separate Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated and separate financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated and separate financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

� Identify and assess the risks of material misstatement of the consolidated and separate financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

� Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s and the Company’s internal control.


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Annual Report 2016

� Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.

� Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s and the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated and separate financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group and/or the Company to cease to continue as a going concern.

� Evaluate the overall presentation, structure and content of the consolidated and separate financial statements, including the disclosures, and whether the consolidated and separate financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

� Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

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

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

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

Report on Other Legal and Regulatory Requirements

In accordance with Section 173(3) of the Companies Act of Zambia, we report that, in our opinion, the required accounting records, and registers have been properly kept in accordance with the Act.

In accordance with Schedule IV, Rule of 18, of the Securities Act of Zambia we confirm that, in our opinion:

� the Group and Company have, throughout the financial year, kept proper accounting records in accordance with the requirements of the SEC Rules;

� the consolidated and separate statement of financial position and consolidated and separate statement of profit or loss and other comprehensive income are in agreement with the company’s accounting; and

� we have obtained all the information and explanations which, to the best of our knowledge and belief, are necessary for the purposes of our audit.


37


In accordance with section 149 of the Securities Act of Zambia, we report as follows:

In terms of relevant International Standards applicable to audit, review and other assurance engagements we were unable to accept and perform an engagement on the existence, adequacy and effectiveness or otherwise of the internal control system of the Group and Company, as required by section 149 of the Securities Act, for the Act does not specify which internal control framework to use in assessment of the Group and Company`s internal control. We have not performed any audit, review or other assurance engagement in relation to these matters and accordingly we do not express any assurance opinion or conclusion thereon.

KPMG Chartered Accountants 20th March 2017Lusaka, Zambia

Jason Kazilimani, Jr AUD/F000336Partner


38

Annual Report 2016

GROUP STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

for the year ended 31 December 2016In Zambian Kwacha

Note 2016 2015

Gross insurance premium 7 403,268,363 361,371,718

Premiums ceded to re-insurers 7 (121,643,526) (118,029,459)

Net insurance premium 281,624,837 243,342,259Change in net provision for unearned premiums 7 (932,079) (8,266,438)

Earned premium 280,692,758 235,075,821Net insurance claims 7 (141,097,328) (97,682,923)

Net insurance commissions 7 (39,933,851) (41,159,529)

Net underwriting profit 99,661,579 96,233,369

Interest and similar income 8 137,452,392 106,714,135

Interest and similar expense 8 (106,120,004) (70,164,614)

Net interest income 31,332,388 36,549,521

Fees and commission income 9 75,202,019 56,384,992

Fees and commission expense 9 (4,249,356) (8,823,196)

Net fee and commission income 70,952,663 47,561,796

Revenue from sale of property units 10 3,677,553 25,583,618

Cost of sales on property units 10 (3,201,329) (29,132,178)

Profit/(loss) on sale of property units 476,224 (3,548,560)

Investment income 11 50,708,137 53,804,712

Other income 12 10,247,196 5,699,586

Administration expenses 13 (203,904,513) (161,333,466)

Impairment loss 14 (6,461,624) (6,456,324)

Transfer to insurance fund 35 (23,955,326) (26,280,555)

(173,366,130) (134,566,047)Results from operating activities 29,056,724 42,230,079Finance income 15 7,220,715 11,443,199

Finance costs 15 (27,200,089) (67,706,978)

Net finance costs (19,979,374) (56,263,779)Profit/(loss) before income tax 9,077,350 (14,033,700)Income tax credit 16(a) 5,877,271 10,202,711

Profit/(loss) for the year 14,954,621 (3,830,989)

The notes on pages 50 to 121 are an integral part of these financial statements.

39


GROUP STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME (Continued)


Note 2016 2015Items that will never be reclassified to profit or lossRevaluation of property, plant and equipment 5,195,925 17,879,283

Related tax on revaluation of property, plant and equipment (1,337,674) (5,401,999)

Fair value adjustment on intangible assets 17 (75,820) 23,432

3,782,431 12,500,716Items that are or may be reclassified to profit or lossForeign operations-currency translation differences (339,068) (1,285,523)

Related tax 118,674 (85,292)

(220,394) (1,370,815)Other comprehensive income, net of tax 3,562,037 11,129,901Total comprehensive income for the year 18,516,658 7,298,912

Profit attributable to:Owners of the Company 12,376,413 5,349,239

Non-controlling interest 2,578,208 (9,180,228)

Profit/(loss) for the year 14,954,621 (3,830,989)

Total comprehensive income attributable to:Owners of the Company 16,015,588 16,958,925

Non-controlling interest 2,501,070 (9,660,013)

Total comprehensive income for the year 18,516,658 7,298,912

Earnings per shareBasic earnings per share 5 0.25 0.11

Diluted earnings per share 5 0.25 0.11


40

Annual Report 2016

COMPANY STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME


Notes 2016 2015

Revenue 11 13,035,045 13,135,550

Other income 12 - 397,948

Administration expenses 13 (1,515,405) (1,234,957)

Results from operating activities 11,519,640 12,298,541

Finance income 15 9,517,546 3,449,550

Finance cost 15 (6,187,647) (12,432,529)

Net finance income/(cost) 3,329,899 (8,982,979)

Profit before tax 14,849,539 3,315,562Tax expense 16(a) - -

Profit 14,849,539 3,315,562

Total comprehensive income 14,849,539 3,315,562

There were no items of other comprehensive income during the year (2015: Nil).


41


GROUP STATEMENT OF FINANCIAL POSITION

As at 31 December 2016In Zambian Kwacha

Note 2016 2015

AssetsIntangible assets 17 26,505,540 15,365,774

Property, plant and equipment 18 124,643,360 102,093,502

Investment property 19 148,417,504 129,450,421

Financial assets at fair value through profit or loss 20 8,453,986 11,023,844

Loans receivable 21 1,905,849 1,854,372

Held-to-maturity financial assets 22 35,613,041 29,745,868

Deferred tax assets 23 19,924,114 15,763,717

Available-for-sale financial assets 24 147,651 149,489

Non-current assets 365,611,045 305,446,987

Inventory 25 20,853,944 16,103,699


Available-for-sale financial assets 24 685,500 3,384,332

Loans receivables 21 7,661,640 1,044,368

Loans and advances to customers 26 248,135,286 235,894,912

Trade and other receivables 28 37,460,552 36,477,380

Insurance receivables 29 66,885,534 68,870,085

Amounts due from related parties 39 17,511,639 16,697,964

Tax asset 16(c) 11,864,748 10,073,323

Cash and cash equivalents 30 151,854,077 153,823,331

Current assets 669,454,462 626,310,894Total assets 1,035,065,507 931,757,881


42

Annual Report 2016

GROUP STATEMENT OF FINANCIAL POSITION (Continued)


Note 2016 2015

EquityShare capital 32 500,000 500,000

Share premium 13,659,580 13,659,580

Revaluation reserve 21,101,086 17,242,835

Statutory reserve - 203,700

Retained earnings 90,431,941 85,150,350

Translation reserve (1,059,228) (915,972)

Contingency reserve 3,371,544 3,073,022

Fair value reserve 1,303,373 1,379,193

Total equity attributable to equity holders 129,308,296 120,292,708

Non-controlling interest 10,531,173 11,527,158

Total equity 139,839,469 131,819,866

Liabilities

Loans and borrowings 33 172,462,473 160,491,015

Finance lease liabilities 34 1,785,404 4,369,866

Insurance fund 35 102,205,232 87,464,528

Deferred tax liabilities 23 12,190,496 13,819,091

Non-current liabilities 288,643,605 266,144,500

Insurance fund 35 119,463,216 110,677,361

Insurance payables 36 83,418,078 79,282,084

Deposits from customers 37 69,567,138 54,763,577

Loans and borrowings 33 22,085,998 37,139,497

Finance lease liabilities 34 1,780,169 1,212,994

Trade and other payables 38 296,854,491 232,929,702

Bank overdraft 30 1,128,965 4,991,725

Amounts due to related parties 39 12,284,378 12,796,575

Current liabilities 606,582,433 533,793,515

Total liabilities 895,226,038 799,938,015

Total equity and liabilities 1,035,065,507 931,757,881

These financial statements were approved by the Board of Directors on 7th March 2017 and were signed on its behalf by:

Director Director


43


COMPANY STATEMENT OF FINANCIAL POSITION


Notes 2016 2015

AssetsInvestments in subsidiaries 31 58,468,111 58,468,111

Non-current assets 58,468,111 58,468,111


Current tax asset 16(c) 4,639,305 2,742,618


Current assets 8,559,026 8,604,236Total assets 67,027,137 67,072,347

EquityShare capital 32 500,000 500,000

Share premium 13,659,580 13,659,580

Retained earnings 21,985,135 14,135,596

Total equity attributable to equity holders of the Com-pany 36,144,715 28,295,176

Liabilities20,638,358 26,734,296Loans and borrowings 33


Non-current liabilities 22,344,605 32,938,386

Loans and borrowings 33 122,208 414,655


Other payables 38 1,066,704 761,297

Current liabilities 8,537,817 5,838,785Total liabilities 30,882,422 38,777,171Total liabilities and equity 67,027,137 67,072,347

These financial statements were approved by the Board of Directors on 7th March 2017 and were signed on its behalf by:

Director Director


44

Annual Report 2016

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46

Annual Report 2016

GROUP STATEMENT OF CHANGES IN EQUIT Y (Continued)

for the year ended 31 December 2016

Revaluation reserves

The revaluation reserve arises from the periodic revaluation of property and represents the excess of the revalued amount over the carrying value of the property at the date of revaluation. Deferred tax arising in respect of the revaluation of property has been recognised in other comprehensive income. The reserve is non-distributable to shareholders.

Share premium

Share premium is the excess paid by shareholders over the nominal value for their shares.

Retained earnings

Retained earnings are the brought forward profits of the Group plus current period profit attributable to shareholders of the Company, less dividend distributions.

Translation reserve

Translation reserve arises from the translation of foreign operations.

Statutory reserve

Statutory reserves are non-distributable reserves that comprise transfers out of net profit prior to dividends.

Contingency reserve

A contingency reserve is created in line with Insurance Regulations 21 (2) under the Insurance Act 1996 of Tanzania and relates to MGen Tanzania Insurance Company Limited. The regulation requires an insurer to establish a contingency reserve into which a transfer representing the greater of 3% of the net premium written or 20% of the net results is made each year until the reserve reaches the greater of the minimum paid up capital or 50% of the net premium written.

Fair value reserve

The fair value reserve arises from the periodic revaluation of intangible assets, and represents the excess of the revalued amount over the carrying value of the assets for which revaluation differences are not recognised in profit or loss but directly in equity. The reserve is non-distributable to shareholders.

Non-controlling interest

Non-controlling interest represents the equity book value of the minority shareholders in the subsidiary companies. These included the minority shareholdings of 50% in Madison Finance Company Limited, and 35% in MGen Tanzania Insurance Company Limited which were being held as at 31 December 2016.

47


COMPANY STATEMENT OF CHANGES IN EQUIT Yfor the year ended 31 December 2016In Zambian Kwacha

Share capitalShare

premiumRetainedearnings Total

Balance at 1 January 2015 500,000 13,659,580 20,820,034 34,979,614Total comprehensive income for the yearProfit - - 3,315,562 3,315,562Total comprehensive income for the year - - 3,315,562 3,315,562Transactions with owners of the CompanyDividends - - (10,000,000) (10,000,000)Total transactions with owners of the Company - - (10,000,000) (10,000,000)Balance at 31 December 2015 500,000 13,659,580 14,135,596 28,295,176

Balance at 1 January 2016 500,000 13,659,580 14,135,596 28,295,176Total comprehensive income for the yearProfit - - 14,849,539 14,849,539Total comprehensive income for the year - - 14,849,539 14,849,539Transactions with owners of the CompanyDividends - - (7,000,000) (7,000,000)Total transactions with owners of the Company - - (7,000,000) (7,000,000)Balance at 31 December 2016 500,000 13,659,580 21,985,135 36,144,715

Retained earnings

Retained earnings are the brought forward recognised income, net of expenses of the Company plus current year profit attributable to shareholders, less dividend distributions.

Share premium

Share premium is the excess paid by shareholders over the nominal value for their shares.


48

Annual Report 2016

GROUP STATEMENT OF C ASH FLOWS


Cash flows from operating activities Note 2016 2015Profit/(loss) before income tax 9,077,350 (14,033,700)Adjustments for:Interest income 8 (137,452,392) (106,714,135)Interest expense and finance cost 126,099,378 126,428,393Dividend receivable 11 (555,727) (143,846)Depreciation of property, plant and equipment 18 10,500,192 8,827,325Amortisation and impairment of intangible assets 17 2,356,974 1,707,748Settlement of convertible redeemable preference shares - 7,991,034Profit on sale of property, plant and equipment 12 (895,450) (243,867)Fair value change in financial assets at fair value through profit or loss

112,378,176 485,312

Fair value adjustment on investment property 11 (13,339,341) (18,913,356)(1,830,840) 5,390,908

Change in loans receivables (6,668,749) (398,371)Change in loans and advances to customers (12,240,374) (51,823,185)Change in insurance, trade and other receivables 1,001,379 (32,183,153)Change in amounts due from related parties (813,675) 451,545Change in inventory (4,750,245) (15,718,779)Change in insurance, trade and other payables 68,060,783 80,980,494Change in insurance fund 23,526,559 32,639,804Change in deposits from customers 14,803,561 53,011,785Change in amounts due to related parties (512,197) 4,746,031

80,576,202 77,097,079Interest received 8 137,452,392 106,714,135Interest and finance costs paid (126,099,378) (126,428,393)Taxation paid 16(c) (3,044,736) (9,206,571)Net cash generated from operating activities 88,884,480 48,176,250Cash flows from investing activitiesDividend received 555,727 143,846Payments to acquire property, plant and equipment 18 (10,694,192) (10,509,806)Payments to acquire intangible assets 17 (13,572,745) (4,577,066)Payments to acquire investment property (28,179,071) (6,849,693)Proceeds from/(disposal of) available-for-sale investments 2,700,670 3,564,860(Payments)/ proceeds from financial assets at fair value through profit or loss (313,048) 1,547,840Purchase of held-to-maturity financial assets (28,467,215) (48,410,090)Proceeds from sale of property, plant and equipment 3,078,228 944,299Proceeds from sale of investment property 19 - 1,903,157

Net cash used in investing activities (74,891,646) (62,242,653)Cash flows from financing activities Change in finance lease liabilities (2,017,287) 2,347,725Net(repayments of)/proceeds from loans and borrowings (3,082,041) 34,540,730Dividends paid (7,000,000) (10,729,696)Net cash generated from financing activities (12,099,328) 26,158,759Increase in cash and cash equivalents 1,893,506 12,092,356Cash and cash equivalents at 1 January 148,831,606 136,739,250Cash and cash equivalents at 31 December 30 150,725,112 148,831,606


49


COMPANY STATEMENT OF C ASH FLOWS


Cash flows from operating activities Note 2016 2015

Profit before income tax 14,849,539 3,315,562

Adjusted for:

Finance income 15 (9,517,546) (3,449,550)

Interest expenses and finance cost 15 6,187,647 12,432,529

11,519,640 12,298,541

Change in amounts due from related parties 837,360 (1,375,495)

Change in amount due to related parties (1,811,771) 5,855,610

Change in other payables 305,407 318,771

10,850,636 17,097,427

Income tax paid 16(c) (1,896,687) (638,708)

Interest and finance cost paid 15 (6,187,647) (12,432,529)

Net cash generated from operating activities 2,766,302 4,026,190

Cash flows from investing activities

Interest received 9,517,546 3,449,550

Dividend paid (7,000,000) (10,000,000)

Investment in subsidiary 31 - (22,500,000)

Net cash generated /(used in) investing activities 2,517,546 (29,050,450)

Cash flows from financing activities

Net proceeds/(repayment) of loans and borrowings (6,388,385) 27,148,951

Net cash (used in)/generated from financing activities (6,388,385) 27,148,951

Increase in cash and cash equivalents (1,104,537) 2,124,691

Cash and cash equivalents at 1 January 2,268,234 143,543

Cash and equivalents at 31 December 30 1,163,697 2,268,234


50

Annual Report 2016

NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2016

1 Reporting entity

The Group financial statements for the year ended 31 December 2016 comprise the Company and its subsidiaries (together referred to as the “Group” and individually as “Group entities”). The Group is domiciled in Zambia. The registered office of the Group is Plot 316, Independence Avenue, P. O Box 37013 Lusaka.

The Group’s major activities include investment in financial services companies and the management of them by the Company, and through the subsidiary companies underwriting of all classes of general insurance and life assurance, asset management services, property development, stock broking, leasing and providing of microfinance loans to small businesses and employees of both public and private institutions based on payroll deduction agreements and leasing.

2 Basis of preparation

These Group financial statements and of Madison Financial Services Plc financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) and the requirements of the Companies Act of Zambia. References to the “Group” or to the “Consolidated” financial statements apply equally to the Company unless otherwise indicated.

Basis of measurementThe financial statements have been prepared on the historical cost basis except for the following material items in the statement of financial position:

� non-derivative financial instruments at fair value through profit or loss are measured at fair value; � available-for-sale financial assets are measured at fair value; � investment property is measured at fair value; � property is revalued periodically and measured at fair value; and � Intangible assets (customer listing) is measured at fair value.

Details of the Group’s accounting policies during the year, are included in note 44.

3 Functional and presentation currency

These consolidated financial statements are presented in Zambian Kwacha (“Kwacha”), which is the Company’s functional currency. All financial information presented in Kwacha, except where indicated.

4 Use of estimates and judgements

In preparing these consolidated financial statements, management has made judgements, estimates and assumptions that affect the application of the Group’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively.

(a) JudgementsInformation about judgements made in applying accounting policies that have a significant risk of resulting in a material adjustment in the year ending 31 December 2016 is included in the following notes:

51


� Note 44(h) – leases: whether an arrangement contains a lease; � Note 44(a) – consolidation: whether the Group has de facto control over an investee; and � Note 44(h) – lease classification.

(b) Assumptions and estimation uncertainties Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in the year ending 31 December 2016 is included in the following notes:

� Note 44(i) - Recognition of deferred tax assets: available future taxable profit against which carry forward tax losses can be used.

� Note 44(k) - Impairment test: key assumptions underlying recoverable amounts. � Notes 44(o) - Recognition and measurement of provisions and contingencies: key assumptions

about the likelihood and magnitude of an outflow of resources. � Note 44(g) - Insurance contract liabilities. � Note 44(g) - Incurred but not reported claims. � Note 44(g) - Deferred acquisition costs. � Note 44(a) - Acquisition of subsidiary; fair value measurement on a provisional basis.

(c) Measurement of fair valuesA number of the Group’s accounting policies and disclosure require the measurement of fair values, for both financial and non-financial assets and liabilities.The Group has an established control framework with respect to the measurement of fair values. Significant valuation issues are reported to the Group’s Audit Finance and Risk Committee.

When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

� Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. � Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or

liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). � Level 3: inputs for the asset or liability that are not based on observable market data

(unobservable inputs).

If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.Further information about the assumptions made in measuring fair values is included in the following notes:

� Note 44(j) - financial instruments. � Note 44(n) - investment property. � Note 44(a) - acquisition of subsidiary � Note 44(a) - goodwill and acquired customer list.

5 Earnings per share (EPS)(a) Basic earnings per share

The calculation of basic earnings per share has been based on the profit attributable to owners of the Company and the weighted average number of ordinary shares outstanding. The number of shares outstanding throughout the year was 50 million.

Notes to the financial statements (continued)for the year ended 31 December 2016

4 Use of estimates and judgements (Continued)(a) Judgements (Continued)

52

Annual Report 2016

The calculation of the Group basic earnings per share at 31 December 2016 was based on the profit attributable to ordinary shareholders of K12,135,758 (2015: K5,349,239) and weighted average number of ordinary shares during the year ended 31 December 2016 of 50,000,000 (2015: 50,000,000).

Group2016 2015

Profit attributable to ordinary shares 12,376,413 5,349,239

Weighted average number of ordinary sharesIssued at beginning of year 50,000,000 50,000,000

Movement during the year - -

Weighted average number of ordinary shares at end of year 50,000,000 50,000,000

Basic earnings per share 0.25 0.11

(b) Diluted earnings per share

The diluted earnings per share was equal to the basic earnings per share as there was no presence of any dilutive effects on both the average number of ordinary shares outstanding and the profit attributable to owners of the Company.

Diluted earnings per share 0.25 0.11

6 Segmental reporting

Basis for segmentationThe Group has four strategic operating segments, which are its reportable segments. These divisions offer distinct products and services, and are managed and registered separately. They also require different technology and marketing strategies. The operations of each reportable segment are described in the summary below:

� Life insuranceThe life insurance segment offers savings, protection products and other long-term contracts (both with and without insurance risk and with and without discretionary participating features). It comprises a wide range of whole life, term assurance, unitised pensions, guaranteed pensions, pure endowment pensions and mortgage endowment products and health insurance. Non-life health care contracts provide medical cover to policy holders. Revenue from this segment is derived primarily from insurance premiums, fees and commission income, investment income and fair value gains and losses on investments.

� Non-life insuranceThe non-life insurance segment comprises general insurance to individuals and businesses. General insurance products offered include motor, household, commercial and business interruption insurance. These products offer protection of policyholder’s assets and indemnification of other parties that have


5 Earnings per share (EPS) (Continued)(a) Basic earnings per share (Continued)

53


suffered damage as a result of policyholder’s accident, e.g. employee liability claims and asbestos. Revenue in this segment is derived primarily from insurance premiums, investment income and fair value gains and losses on investments.

The non-life insurance segment has two operating subsidiaries, one operating in Zambia (Madison General Insurance Company Zambia Limited) and another in Tanzania (MGen Tanzania Insurance Company Limited).

� Asset management The asset management segment provides investment management services to institutions, pension funds and individuals and manages a range of retail investment products, including investment funds, unit trusts and brokering services.

� MicrofinanceThe microfinance segment is involved in the business of providing microfinance loans to small and medium enterprises and employees of both public and private institution based on a payroll deduction agreement.

No operating segments have been aggregated to form the above reportable operating segments.Segment performance is evaluated based on profit or loss which, in certain respects, is measured differently from profit or loss in the consolidated financial statements. Group financing (including finance costs) are managed by individual companies but monitored closely at Group level.

The Group’s Board of Directors through the Group Head Office management reviews the internal management reports for each segment at least monthly. Segment income, expenses and results will include those transfers between business segments which will then be eliminated on consolidation.


6 Segmental reporting (Continued)

54

Annual Report 2016

A.

Info

rmat

ion

abou

t rep

orta

ble

segm

ents

Info

rmat

ion

rela

ted

to e

ach

repo

rtabl

e se

gmen

t is s

et o

ut b

elow

. Seg

men

t pro

fit a

fter t

ax is

use

d to

mea

sure

per

form

ance

bec

ause

man

agem

ent b

elie

ves t

hat

this

info

rmat

ion

is th

e m

ost r

elev

ant i

n ev

alua

ting

the

resu

lts o

f the

resp

ectiv

e se

gmen

ts re

lativ

e to

oth

er e

ntiti

es th

at o

pera

te in

the

sam

e in

dust

ry.

2016

Non

-life

in

sura

nce

Life

insu

ranc

e M

icro

fina

nce

Asse

t man

agem

ent

Oth

er

repo

rtab

le

segm

ent

Adj

ustm

ents

and

el

imin

atio

ns

Tota

l

Und

erw

ritin

g ba

lanc

e fro

m

insu

ranc

e bu

sine

ss

53,1

94,6

6652

,832

,068

--

-(6

,365

,155

)99

,661

,579

Net

inte

rest

inco

me/

(exp

ense

) -

-33

,552

,527

(2,2

20,1

39)

--

31,3

32,3

88

Net

fees

and

com

mis

sion

-

14,2

49,2

6431

,512

,869

25,1

90,5

30-

-70

,952

,663

Net

inco

me

from

sale

of

prop

erty

uni

ts-

--

476,

224

--

476,

224

Inve

stm

ent i

ncom

e 3,

415,

358

27,9

70,4

47-

19,3

22,3

3213

,035

,045

(13,

035,

045)

50,7

08,1

37

Oth

er in

com

e1,

820,

788

1,76

3,05

76,

143,

195

520,

156

--

10,2

47,1

96

58,4

30,8

1296

,814

,836

71,2

08,5

9143

,289

,103

13,0

35,0

45(1

9,40

0,20

0)26

3,37

8,18

7

Adm

inis

tratio

n ex

pens

es

(74,

083,

778)

(51,

694,

324)

(64,

234,

703)

(18,

741,

458)

(1,5

15,4

05)

6,36

5,15

5(2

03,9

04,5

13)

Impa

irmen

t los

ses

(2,0

25,9

64)

(1,1

62,8

39)

(3,2

72,8

21)

--

-(6

,461

,624

)

Tran

sfer

to in

sura

nce

fund

s-

(23,

955,

326)

--

--

(23,

955,

326)

Resu

lts fr

om o

pera

ting

activ

ities

(1

7,67

8,93

0)20

,002

,347

3,70

1,06

724

,547

,645

11,5

19,6

40(1

3,03

5,04

5)29

,056

,724

Net

fina

nce

inco

me/

(cos

t)(3

,316

,177

)52

9,05

267

1,17

2(1

7,69

6,26

5)3,

329,

899

(3,4

97,0

55)

(19,

979,

374)

Prof

it be

fore

inco

me

tax

(20,

995,

107)

20,5

31,3

994,

372,

239

6,85

1,38

014

,849

,539

(16,

532,

100)

9,07

7,35

0

Inco

me

tax (

expe

nse)

/cre

dit

7,

729,

885

-54

4,82

0(2

,397

,434

)-

-5,

877,

271

Prof

it(1

3,26

5,22

2)20

,531

,399

4,91

7,05

94,

453,

946

14,8

49,5

39(1

6,53

2,10

0)14

,954

,621

Not

es to

the

finan

cial

stat

emen

ts (c

ontin

ued)

for t

he y

ear e

nded

31

Dece

mbe

r 201

6In

Zam

bian

Kw

acha

6 Se

gmen

tal r

epor

ting (Continued)

55


A.

Info

rmat

ion

abou

t rep

orta

ble

segm

ents

Info

rmat

ion

rela

ted

to e

ach

repo

rtabl

e se

gmen

t is s

et o

ut b

elow

. Seg

men

t pro

fit a

fter t

ax is

use

d to

mea

sure

per

form

ance

bec

ause

man

agem

ent b

elie

ves t

hat

this

info

rmat

ion

is th

e m

ost r

elev

ant i

n ev

alua

ting

the

resu

lts o

f the

resp

ectiv

e se

gmen

ts re

lativ

e to

oth

er e

ntiti

es th

at o

pera

te in

the

sam

e in

dust

ry.

2016

Non

-life

in

sura

nce

Life

insu

ranc

e M

icro

fina

nce

Asse

t man

agem

ent

Oth

er

repo

rtab

le

segm

ent

Adj

ustm

ents

and

el

imin

atio

ns

Tota

l

Und

erw

ritin

g ba

lanc

e fro

m

insu

ranc

e bu

sine

ss

53,1

94,6

6652

,832

,068

--

-(6

,365

,155

)99

,661

,579

Net

inte

rest

inco

me/

(exp

ense

) -

-33

,552

,527

(2,2

20,1

39)

--

31,3

32,3

88

Net

fees

and

com

mis

sion

-

14,2

49,2

6431

,512

,869

25,1

90,5

30-

-70

,952

,663

Net

inco

me

from

sale

of

prop

erty

uni

ts-

--

476,

224

--

476,

224

Inve

stm

ent i

ncom

e 3,

415,

358

27,9

70,4

47-

19,3

22,3

3213

,035

,045

(13,

035,

045)

50,7

08,1

37

Oth

er in

com

e1,

820,

788

1,76

3,05

76,

143,

195

520,

156

--

10,2

47,1

96

58,4

30,8

1296

,814

,836

71,2

08,5

9143

,289

,103

13,0

35,0

45(1

9,40

0,20

0)26

3,37

8,18

7

Adm

inis

tratio

n ex

pens

es

(74,

083,

778)

(51,

694,

324)

(64,

234,

703)

(18,

741,

458)

(1,5

15,4

05)

6,36

5,15

5(2

03,9

04,5

13)

Impa

irmen

t los

ses

(2,0

25,9

64)

(1,1

62,8

39)

(3,2

72,8

21)

--

-(6

,461

,624

)

Tran

sfer

to in

sura

nce

fund

s-

(23,

955,

326)

--

--

(23,

955,

326)

Resu

lts fr

om o

pera

ting

activ

ities

(1

7,67

8,93

0)20

,002

,347

3,70

1,06

724

,547

,645

11,5

19,6

40(1

3,03

5,04

5)29

,056

,724

Net

fina

nce

inco

me/

(cos

t)(3

,316

,177

)52

9,05

267

1,17

2(1

7,69

6,26

5)3,

329,

899

(3,4

97,0

55)

(19,

979,

374)

Prof

it be

fore

inco

me

tax

(20,

995,

107)

20,5

31,3

994,

372,

239

6,85

1,38

014

,849

,539

(16,

532,

100)

9,07

7,35

0

Inco

me

tax (

expe

nse)

/cre

dit

7,

729,

885

-54

4,82

0(2

,397

,434

)-

-5,

877,

271

Prof

it(1

3,26

5,22

2)20

,531

,399

4,91

7,05

94,

453,

946

14,8

49,5

39(1

6,53

2,10

0)14

,954

,621

2015

Non

-life

in

sura

nce

Life

insu

ranc

e M

icro

fina

nce

Asse

t man

agem

ent

Oth

er

repo

rtab

le

segm

ent

Adj

ustm

ents

and

el

imin

atio

ns

Tota

l

Und

erw

ritin

g ba

lanc

e fro

m

insu

ranc

e bu

sine

ss

54,7

05,2

3650

,903

,702

-(9

,375

,569

)96

,233

,369

Net

inte

rest

inco

me/

(exp

ense

) -

-42

,801

,155

(6,2

51,6

34)

--

36,5

49,5

21

Net

fees

and

com

mis

sion

-

3,90

4,65

228

,241

,186

15,4

15,9

58-

-47

,561

,796

Net

inco

me

from

sale

of

prop

erty

uni

ts-

--

(3,5

48,5

60)

--

(3,5

48,5

60)

Inve

stm

ent i

ncom

e 2,

808,

161

22,8

57,1

71-

28,1

39,3

8013

,135

,550

(13,

135,

550)

53,8

04,7

12

Oth

er in

com

e2,

819,

147

21,3

982,

275,

290

185,

803

397,

948

-5,

699,

586

60,3

32,5

4477

,686

,923

73,3

17,6

3133

,940

,947

13,5

33,4

98(2

2,51

1,11

9)23

6,30

0,42

4

Adm

inis

tratio

n ex

pens

es

(59,

321,

032)

(39,

174,

416)

(55,

866,

238)

(15,

112,

392)

(1,2

34,9

57)

9,37

5,56

9(1

61,3

33,4

66)

Impa

irmen

t los

ses

(2,7

70,5

59)

(1,0

91,1

25)

(2,5

94,6

40)

--

-(6

,456

,324

)

Tran

sfer

to in

sura

nce

fund

s-

(26,

280,

555)

--

--

(26,

280,

555)

Resu

lts fr

om o

pera

ting

activ

ities

(1

,759

,047

)11

,140

,827

14,8

56,7

5318

,828

,555

12,2

98,5

41(1

3,13

5,55

0)42

,230

,079

Net

fina

nce

inco

me/

(cos

t)7,

394,

403

55,6

82(3

5,75

9,12

1)(1

8,97

1,76

4)(8

,982

,979

)-

(56,

263,

779)

Prof

it be

fore

inco

me

tax

5,63

5,35

611

,196

,509

(20,

902,

368)

(143

,209

)3,

315,

562

(13,

135,

550)

(14,

033,

700)

Inco

me

tax (

expe

nse)

/cre

dit

(415

,661

)-

2,40

1,50

98,

216,

863

--

10,2

02,7

11

Loss

5,21

9,69

511

,196

,509

(18,

500,

859)

8,07

3,65

43,

315,

562

(13,

135,

550)

(3,8

30,9

89)

Not

es to

the

finan

cial

stat

emen

ts (c

ontin

ued)

for t

he y

ear e

nded

31

Dece

mbe

r 201

6In

Zam

bian

Kw

acha

6 Se

gmen

tal r

epor

ting (Continued)

A.

Info

rmat

ion

abou

t rep

orta

ble

segm

ents

(Con

tinue

d)

56

Annual Report 2016

B.

Info

rmat

ion

abou

t rep

orta

ble

segm

ents

(con

tinue

d)

Segm

ent s

tate

men

t of f

inan

cial

pos

ition

as a

t 31

Dece

mbe

r 201

6

Non

-life

in

sura

nce

Life

insu

ranc

e M

icro

fina

nce

Ass

et

man

agem

ent

Oth

er

repo

rtab

le

Segm

ent

Adj

ustm

ents

an

d el

imin

atio

nsTo

tal

Asse

ts

Inta

ngib

le a

sset

s 3,

741,

476

9,33

2,08

03,

735,

033

15,9

94,0

22-

(6,2

97,0

71)

26,5

05,5

40

Prop

erty

, pla

nt a

nd e

quip

men

t 69

,507

,621

44,4

85,2

758,

969,

045

1,68

1,41

9-

-12

4,64

3,36

0

Inve

stm

ent p

rope

rty

2,47

0,00

016

,718

,588

-12

9,22

8,91

6-

-14

8,41

7,50

4

Fina

ncia

l ins

trum

ents

(inc

ludi

ng c

ash

and

bank

) 35

,399

,225

148,

719,

640

30,5

21,5

1212

5,33

8,94

859

,631

,808

(91,

745,

209)

307,

865,

924

Loan

s and

adv

ance

s to

cust

omer

s -

-24

8,13

5,28

6-

--

248,

135,

286

Insu

ranc

e re

ceiv

able

52

,911

,409

13,9

74,1

25-

--

-66

,885

,534

Amou

nts d

ue fr

om re

late

d pa

rtie

s 5,

974,

256

8,06

6,36

43,

565,

797

3,19

0,77

52,

756,

024

(6,0

41,5

77)

17,5

11,6

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57


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58

Annual Report 2016

6 Segmental reporting (Continued) Group

C. Geographical Information

The non-life general insurance operates through Madison General Insurance Company Zambia Limited (MGen) which is in Zambia and MGen Tanzania Insurance Company Limited (MGen TZ) which is Tanzania.The geographical information analysis of the Group’s revenue and non- current assets by the Company’s country of domicile is as disclosed below:

2016 2015(i) Revenue

Zambia 595,641,336 522,500,754

Tanzania 23,958,991 27,553,709

Total 619,600,327 550,054,463

Total gross revenue is made up of:

Notes 2016 2015Gross insurance premium 7 403,268,363 361,371,718

Interest and similar income 8 137,452,392 106,714,135

Fees and commission income 9 75,202,019 56,384,992

Revenue from sale of property units 10 3,677,553 25,583,618

Gross revenue 619,600,327 550,054,463

(ii) Non-current assets Zambia 364,250,658 304,352,655

Tanzania 1,360,387 1,094,332

Total 365,611,045 305,446,987

Non-current assets includes intangible assets and goodwill, property, plant and equipment, investment property, financial assets at fair value through profit or loss, loans receivable, held-to-maturity financial assets, deferred tax asset, and available-for-sale financial assets.

Notes to the financial statements (continued)for the year ended 31 December 2016In Zambian Kwacha

59


7 Net insurance income

Group Company2016 2015 2016 2015

Gross insurance premiumGeneral insurance 234,360,804 232,004,910 - -

Life insurance 168,907,559 129,366,808 - -

403,268,363 361,371,718 - -Premiums ceded from re-insurers General insurance (72,762,925) (87,905,169)

- -

Life insurance (48,880,601) (30,124,290) - -

(121,643,526) (118,029,459) - -Insurance claimsGeneral insurance (88,070,246) (65,746,301) - -

Life insurance (53,027,082) (31,936,622) - -

(141,097,328) (97,682,923) - -Insurance commissionsGeneral insurance (22,385,329) (19,718,085) - -

Life insurance (17,548,522) (21,441,444) - -

(39,933,851) (41,159,529) - -

Change in net provision for unearned premiums (932,079) (8,266,438) - -

Net under-writing profit 99,661,579 96,233,369 - -

8 Net interest income

Group Company2016 2015 2016 2015

Interest and similar incomeInterest on loans and advances to customers 96,144,787 81,665,000 - -

Interest on held to maturity investments and short term loans 40,177,746 23,791,077 - -

Other interest 1,129,859 1,258,058 - -

137,452,392 106,714,135 - -Interest and similar expensesInterest on loans and borrowings (106,120,004) (70,164,614) - -

(106,120,004) (70,164,614) - -

Net interest income 31,332,388 36,549,521 - -


60

Annual Report 2016

9 Net fees and commission income

Group Company2016 2015 2016 2015

Fees and commission incomeManagement fees 37,556,201 26,380,056 - -

Arrangement fees 34,688,352 27,648,647 - -

Commission 708,316 411,650 - -

Policy fees 2,249,150 1,944,639 - -

75,202,019 56,384,992 - -Fees and commission expenseHandling and other fees (4,249,356) (8,823,196) - -

(4,249,356) (8,823,196) - -Net fees and commission income 70,952,663 47,561,796 - -

10 Revenue from sale of property units

Group Company2016 2015 2016 2015

Sale of housing units 3,677,553 25,583,618 - -

Cost of sales (note 19) (3,201,329) (29,132,178) - -

476,224 (3,548,560) - -

The revenue from sale of property was derived from the sale of Buboni Phase 1 housing units by Madison Capital Limited (MCL).

11 Investment income

Group Company2016 2015 2016 2015

Interest income on fund placements 28,505,236 20,679,790 - -

Rental income 10,002,757 6,404,366 - -

Dividend income 555,727 143,846 13,035,045 13,135,550

Fair value adjustment on investment property(note 19) 13,339,341 18,913,356 - -

Change in market value of quoted equity securities (2,378,176) (485,312) - -

Other fair value trading gains 54,719 148,235 - -

Income from property units - 7,513,384 - -

Interest income on government securities 66,957 123,307 - -

Other 561,576 363,740 - -

50,708,137 53,804,712 13,035,045 13,135,550


61


12 Other income

Group Company2016 2015 2016 2015

Gains on disposal of property, plant and equipment 895,450 243,867 - -

Other** 9,351,746 5,455,719 - 397,948

10,247,196 5,699,586 - 397,948

**Other income mainly relates to sundry income, terminal and administration fees, rental income, supplier registration fees and corporate guarantee fees.

13 Administration expenses

Group Company2016 2015 2016 2015

Staff costs (note (i) below) 87,995,604 75,252,220 - -

Audit fees 2,048,043 1,260,720 124,925 122,072

Depreciation and amortisation 12,857,167 10,524,235 - -

Directors fees 4,725,592 4,160,024 583,963 377,333

Other operating expenses 96,278,107 70,136,267 806,517 735,552

203,904,513 161,333,466 1,515,405 1,234,957

(i) Staff costs

Group Company2016 2015 2016 2015

Salaries and wages 71,746,943 61,076,395 - -

Other staff costs 16,248,661 14,175,825 - -

87,995,604 75,252,220 - -

Total number of employees at the end of the year was 447 (2015: 413).

14 Impairment loss

Group Company2016 2015 2016 2015

Impairment losses recognisedLosses on loans and advances (note 27) 3,272,821 2,594,640 - -

Losses/(recoveries) on insurance receivables (note 29) 2,032,736 3,861,684 - -

Losses on trade and other receivables 115,268 - - -

Other impairment losses 1,040,799 - - -

6,461,624 6,456,324 - -


62

Annual Report 2016

15 Net finance costGroup Company

2016 2015 2016 2015Finance incomeInterest income 4,103,819 4,048,796 7,071,822 3,449,550

Exchange gains 3,116,896 7,394,403 2,445,724

Total finance income 7,220,715 11,443,199 9,517,546 3,449,550Finance costInterest on loans and borrowings (25,636,209) (16,053,082) (6,187,647) (3,427,057)

Exchange losses (1,563,880) (51,653,896) - (9,005,472)

Total finance cost (27,200,089) (67,706,978) (6,187,647) 12,432,529)Net finance cost (19,979,374) (56,263,779) 3,329,899 (8,982,979)

16 Income tax expense and liability

Group Company2016 2015 2016 2015

a. Income tax expense in the statement of profit or loss and other comprehensive incomeCurrent tax charge 1,253,311 614,701 - -

Over under provision in prior years - (1,810,773) - -

Current tax charge /(credit) 1,253,311 (1,196,072) - -

Deferred tax credit (7,130,582) (9,006,639) - -

(5,877,271) (10,202,711) - -

b. Reconciliation of tax charge(Loss)/ profit for the year 14,954,621 (3,830,989) 14,849,538 3,315,562

Income tax credit (5,877,271) (10,202,711) - -

Profit/(Loss) before income tax 9,077,350 (14,033,700) 14,849,538 3,315,562Income tax using tax rate of 35% 3,177,072 (4,911,795) 5,197,338 1,160,447

Non-deductible expenses (17,288,204) (11,925,188) - 49,282

Effect of unrecognised temporary differences on tax losses 724,102 (207,692) -

Effect of income taxed at other rates (1,532,190) (555,326) (4,562,266) (4,597,443)

Change in unrecognised temporary differences (396,951) 134,429 - -

Current year losses for which no deferred tax asset has been recognised 6,940,518 5,452,088 (635,072) 3,387,714

Over provision in prior years 2,498,382 1,810,773 - -

Total income tax credit (5,877,271) (10,202,711) - -


63


Group Company2016 2015 2016 2015

c. Current tax liabilitiesOpening balance (10,073,323) 329,320 (2,742,618) (2,103,910)

Payable in respect of the current year

1,253,311 (1,196,072) - -

Paid during the year (3,044,736) (9,206,571) (1,896,687) (638,708)

Closing balance (11,864,748) (10,073,323) (4,639,305) (2,742,618)

d. Tax lossSome of the subsidiary companies have incurred tax losses. The Income Tax Act chapter 323 of the Laws of Zambia operates a self-assessment system for corporate income tax. The tax losses and sub-sidiaries respective tax changes are therefore, subject to assessment by the Zambia Revenue Author-ity.

Group2016 2015 Expires

Year of tax loss2012 - 10,640,401 2017

2013 18,773,137 18,773,137 2018

2014 13,287,326 13,287,326 2019

2015 14,914,185 14,914,185 2020

2016 21,319,132 - 2021

68,293,780 57,615,049


16 Income tax expense and liability (Continued)

64

Annual Report 2016

17 Intangible assets

Group

Goodwill Software

Acquired customer list

at fair value

Acquired customer list

at cost TotalCost At 1 January 2015 4,106,471 14,838,126 1,825,825 - 20,770,422

Additions - 4,577,066 - - 4,577,066

Translation adjustment - (1,231) - (1,231)

Fair value adjustment - - 23,432 - 23,432

At 31 December 2015 4,106,471 19,413,961 1,849,257 - 25,369,689

At 1 January 2016 4,106,471 19,413,961 1,849,257 - 25,369,689Additions - 6,572,745 - 7,000,000 13,572,745

Translation adjustment - (185) - - (185)

Fair value adjustment - - (75,820) - (75,820)

At 31 December 2016 4,106,471 25,986,521 1,773,437 7,000,000 38,866,429

Accumulated amortisation

At 1 January 2015 - 8,296,167 - - 8,296,167

Charge for the year - 1,707,748 - - 1,707,748

At 31 December 2015 - 10,003,915 - - 10,003,915

At 1 January 2016 - 10,003,915 - - 10,003,915Charge for the year - 1,890,307 - 466,667 2,356,974

31 December 2016 - 11,894,222 - 466,667 12,360,889

Carrying amounts

At 31 December 2016 4,106,471 14,092,299 1,773,437 6,533,333 26,505,540At 31 December 2015 4,106,471 9,410,046 1,849,257 - 15,365,774

GoodwillGoodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the identifiable net assets of the acquired entity at the date of acquisition. Goodwill is recognised as an asset at cost and tested at least annually for impairment. If impairment is identified, the carrying value of goodwill is written down through profit or loss and is not subsequently reversed. At the date of disposal of a Group undertaking, the carrying amount of attributable goodwill is included in the calculation of the profit or loss on disposal.


65


For the purpose of impairment testing, goodwill is allocated to the Group’s operating subsidiaries which represent the lowest level within the Group at which goodwill is monitored for internal management purposes. There was no impairment loss recognised during the year (2015: Nil).The aggregate carrying amounts of goodwill allocated to each unit are as follows:-

2016 2015Madison General Insurance Company Zambia Limited 1,216,281 1,216,281

Madison Life Insurance Company Zambia Limited 1,216,281 1,216,281

Madison Finance Company Limited 1,673,909 1,673,909

4,106,471 4,106,471

Acquired customer list at fair valueThe acquired customer list relates to Madison Pension Trust Fund management and Madison Health Solution Company’s medical scheme business acquired by the Group in 2014 and 2016 respectively.

Valuation techniques and significant unobservable inputs The fair value is the price that would be received to sell the customer listing in an orderly transaction between market participants at the measurement date.

The fair value measurement for acquired customer list has been categorised as a level 3 fair value based on the inputs to the valuation technique used.

The following table shows the valuation technique used in measuring the fair value of customer lists, as well as the significant unobservable inputs used.

Valuation technique Significant unobservable inputs Inter-relationship between key unobservable inputs and fair value measurement

Discounted cash flows: The valuation model considers the present value of net cash flows generated from the customer list, taking into account expected management fees growth rate, rate of growth of the customer listing, termination rate of customers’ contracts. The expected net cash flows are discounted using risk-adjusted discount rate.

· Expected market rate of 24.5% which is similar to 31 December 2016, 5 year Government of the Republic of Zambia bond yield rate.

· 2.5% risk premium consistent with risk premiums of corporate bonds with similar tenor.

· Net of withdrawals rate of 15% per annum.

· 10% per annum to 5 year as the duration risk is reduced greatly

The estimated fair value would increase/(decrease) if there is any change to the following assumptions :

� Risk free rate � Risk premium � Rate of growth on Madison

Pension Trust Fund’s customers � Rate of growth on segregated

portfolio of customers � Terminal value of customers

Acquired customer list at costDuring the year ended 31 December 2016, the Group finalised an agreement with Madison Health Solution Company Limited for the transfer of all active medical schemes’ customer lists to Madison Life Insurance Company Limited. The consideration for the transfer was agreed at ZMW7 million. The transfer of the customer list was completed once all the conditions precedent had been met by both parties. These conditions were satisfied on 31 August 2016 and, in line with the agreement, the customer list for all active medical schemes with a market value of ZMW 7 million were transferred to Madison Life Insurance Company Zambia Limited. The cost of the transfer has been capitalised in these financial statements as an intangible asset.


17 Intangible assets (Continued)Goodwill (Continued)

66

Annual Report 2016

18 Property, plant and equipment

GroupLeasehold buildings

Motorvehicles

Plant and machinery

Furniture and office

equipment

Capital work in

progress TotalCost or revaluation

At 1 January 2015 66,490,558 19,667,682 126,748 24,295,176 - 110,580,164Additions 1,363,403 5,359,030 187,629 3,289,462 310,282 10,509,806Disposals - (2,297,385) - (21,072) - (2,318,457)Surplus on revaluation 16,098,315 - - - - 16,098,315Translation adjustment - (80,784) - (30,636) - (111,420)At 31 December 2015 83,952,276 22,648,543 314,377 27,532,930 310,282 134,758,408At 1 January 2016 83,952,276 22,648,543 314,377 27,532,930 310,282 134,758,408Additions 249,839 7,323,225 28,990 2,233,670 858,468 10,694,192Disposals - (4,142,421) - (170,556) - (4,312,977)Transfer - 228,915 - - (228,915) -Transfer from Investment property 19,350,000 - - - 19,350,000Surplus on revaluation 3,575,000 - - - - 3,575,000Translation adjustment (222) (3,581) - (3,487) - (7,290)At 31 December 2016 107,126,893 26,054,681 343,367 29,592,557 939,835 164,057,333

Depreciation

At 1 January 2015 2,121,707 9,919,129 31,687 15,164,051 - 27,236,574Charge for the year 1,591,275 3,529,139 42,867 3,664,044 - 8,827,325Disposal - (1,596,953) - (21,072) - (1,618,025)Depreciation write back (1,780,968) - - - - (1,780,968)At 31 December 2015 1,932,014 11,851,315 74,554 18,807,023 - 32,664,906

At 1 January 2016 1,932,014 11,851,315 74,554 18,807,023 - 32,664,906Charge for the year 2,352,197 4,169,270 82,977 3,895,748 - 10,500,192Disposal - (1,967,564) - (162,635) - (2,130,199)Depreciation write back (1,620,926) - - - - (1,620,926)At 31 December 2016 2,663,285 14,053,021 157,531 22,540,136 - 39,413,973Carrying amount

At 31 December 2016 104,463,608 12,001,660 185,836 7,052,421 939,835 124,643,360At 31 December 2015 82,020,262 10,797,228 239,823 8,725,907 310,282 102,093,502

In terms of the Companies Act of Zambia, the Group, through its subsidiary companies, maintains registers of its property at their respective registered offices, which are available for inspection by members. Leasehold Buildings were revalued in 2016 by independent registered valuers. Valuations were made on the basis of the open market. The carrying values of the properties were adjusted to reflect their revalued amounts and the


67


resultant surplus net of deferred tax was credited to the revaluation surplus in other comprehensive income.

Title deeds for the leasehold land and buildings in Livingstone valued at K1, 210,000 are not yet in the name of the Company. The Directors are taking necessary steps to transfer title into the name of the Company.

Included under motor vehicles are motor vehicles held under finance lease agreements with carrying amounts of K4.1 million (2015: K5.9 million). At the end of the lease, the Group has the option to purchase the motor vehicles at a beneficial price. See note 34 for the lease liability disclosures.

Capital work in progress relates to branch office improvements.

Included in cost of property, plant and equipment are fully depreciated assets amounting to K13.0 million (2015: K10.8 million). Had the property been carried at cost less accumulated depreciation, the carrying amount would have been 73.6 million (2015: K35.481 million).

19 Investment property

Group Company2016 2015 2016 2015

At valuationAt 1 January 129,450,421 117,205,849 - -

Additions during the year 24,724,504 6,849,693 - -

Capitalisation of finance costs 3,454,567 17,516,858 - -

Transfer to cost of sales on sale of property units (note 10) (3,201,329) (29,132,178) - -

Transfer to property plant and equipment (19,350,000)

Disposals - (1,903,157) - -

Gains on fair value adjustment (note 11) 13,339,341 18,913,356 - -

At 31 December 148,417,504 129,450,421 - -

Investment property comprises land on Mwatusanga Road, Lusaka, LSA House, investment property under development, and buildings that are leased out to third parties.

Land on Mwatusanga Road

The land on Mwatusanga was purchased by the Group with the intention of constructing commercial properties, which will be leased to third parties and for purposes of earning a return on the investment through rental income. The land was revalued on 31 December 2016 by Sherwood Green Properties Limited, who are independent registered valuation surveyors. The valuations were made on the basis of open market value.

LSA House

LSA House is leased to Lawrence Sikutwa and Associates Limited, the Company’s ultimate holding Company. The lease is a one year renewable lease. No contingent rent is charged. The investment property was revalued by Classic Properties who are registered valuation surveyors, on the basis of open market value as at 31


18 Property, plant and equipment (Continued)

68

Annual Report 2016

December 2016. The fair value was based on market value being the estimated amount for which a property could be exchanged on the date of valuation between a willing buyer and willing seller in an arm’s length transaction after proper marketing wherein both parties each acted knowledgeably.

Investment property under development

Investment property under development relates to purchases of material and construction works of real estate development projects which include a commercial building and construction land on Independence Avenue in Woodlands, Lusaka and a housing estate and land in Roma Park, Lusaka. The land was purchased by the Group with the intention of constructing commercial properties that will be leased to third parties and for earning a return on the investment through rental income and also for sale in order to earn profit through capital appreciation. The assets under investment property under development were not available for use as at 31 December 2016.

Finance costs capitalised in investment property under development relates to borrowing costs attributable to fixed assets during construction. The amount includes interest expense and exchange differences amounting to K3.5 million (2015: K17.5 million).

The fair value of the investment property is categorised into Level 3 of the fair value hierarchy. The investment property was last revalued on 31 December 2016 by Sherwood Green Properties Limited, who are registered valuation surveyors and independent valuers with an appropriate recognised qualification and experience in the area.

Transfer to cost of sales

This relates to the cost of construction of investment property sold during the year.

Valuation techniques and significant unobservable inputs

The fair value was based on market value, being the estimated amount for which a property could be exchanged on the date of the valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties each acted knowledgeably.


19 Investment property (Continued)LSA House (Continued)

69


The following table shows the valuation technique used in measuring the fair value of investment property, as well as the significant unobservable inputs used.

Valuation technique Significant unobservable inputs Inter-relationships between Key unobservable inputs and fair value measurement

Discounted cash flows: The valuation model considers the present value of net cash flows to be generated from the property, taking into account expected rental growth rate, void periods, occupancy rate, lease incentive costs sum as rent-free periods and other costs not paid by tenants. The expected net cash flows are discounted using risk-adjusted discount rates. Among other factors, the discount rate estimation considers the quality of a building and its location (prime vs secondary) tenant credit quality and lease terms.

� Expected market rentalgrowth (2-3%). Weighted average (2.6%).

� Risk-adjusted discount rates (5-6.3%). Weighted average (5.8%).

The estimated fair value would increase (decrease) if:

� expected market rental growth were higher (lower);

� the risk-adjusted discount rate were lower (higher).

20 Financial assets at fair value through profit or loss

Group Company2016 2015 2016 2015

Zambeef Products Plc 137,085 137,085 - -

National Breweries Plc 345,085 98,488 - -

Standard Chartered Bank Plc 638,686 697,415 - -

Zain Zambia Plc 468,813 476,025 - -

Bata Shoe Zambia Plc 146,720 146,720 - -

British American Tobacco Plc 765,522 1,768,512 - -

First Quantum Minerals Plc 218,731 180,273 - -

Puma Zambia Plc 3,400 4,280 - -

Prima Re-insurance Plc 3,478,972 3,478,972 - -

Zambia National Commercial Bank Plc

85,594 383,695 - -

Copperbelt Energy Corporation Plc

1,628,632 1,562,402 - -

Zambia Sugar Plc 100,613 292,689 - -

Zambia Metal Fabricators Plc 50,000 50,000 - -

Lafarge Cement Plc 386,133 1,747,288 - -

8,453,986 11,023,844 - -

Analysis of financial assets at fair value through profit or loss


19 Investment property (Continued)Valuation techniques and significant unobservable inputs (Continued)

70

Annual Report 2016

2016No of share/

units2015

Market valueAdditions/

(disposals)

Capital appreciation/

(depreciation)2016

Market value

Zambeef Products Plc 54,834 137,085 - - 137,085

National Breweries Plc 26,545 98,488 249,988 (3,391) 345,085

Standard Chartered Bank Plc 367,065 697,415 - (58,729) 638,686

Zain Zambia Plc 14,425 476,025 - (7,212) 468,813

Bata Shoe Zambia Plc 60,131 146,720 - - 146,720

British American Tobacco Plc 312,458 1,768,512 - (1,002,990) 765,522

First Quantum Minerals Plc 60,091 180,273 - 38,458 218,731

Puma Zambia Plc 4,000 4,280 - (880) 3,400

Zambia Metal Fabricators Plc 10,000 50,000 - - 50,000

Zambia National Commercial Bank Plc 295,150 383,695 - (298,101) 85,594

Copperbelt Energy Corpora-tion Plc 1,871,991 1,562,402 (367,701) 433,931 1,628,632

Zambia Sugar plc 33,537 292,689 (73,969) (118,107) 100,613

Prime Reinsurance Plc 1,199,645 3,478,972 - - 3,478,972

Lafarge Cement Plc 74,543 1,747,288 - (1,361,155) 386,133

11,023,844 (191,682) (2,378,176) 8,453,986

2015No of share/

Units2014

Market valueAdditions/ (disposals)

Capital appreciation/

(depreciation)2015

Market value

Zambeef Products Plc 54,834 156,277 - (19,192) 137,085

National Breweries Plc 7,576 90,913 - 7,575 98,488

Standard Chartered Bank Plc 367,061 462,167 259,724 (24,476) 697,415

Zain Zambia Plc 14,425 483,238 - (7,213) 476,025

Bata Shoe Zambia Plc 60,131 120,262 - 26,458 146,720

British American Tobacco Plc 312,458 1,104,925 700,000 (36,413) 1,768,512

First Quantum Minerals Plc 60,091 239,763 - (59,490) 180,273

Investrust Bank Plc 10,000 135,000 (100,104) (34,896) -

Puma Zambia Plc 4,000 4,800 - (520) 4,280

Zambia Metal Fabricators Plc 10,000 50,000 - - 50,000

Zambia National Commercial Bank Plc 295,150 495,852 - (112,157) 383,695

Copperbelt Energy Corpora-tion Plc 2,403,696 1,490,292 - 72,110 1,562,402

Zambia Sugar plc 58,535 386,348 - (93,659) 292,689

Prime Reinsurance Plc 1,199,645 3,490,968 - (11,996) 3,478,972

Lafarge Cement Plc 74,543 1,894,776 43,955 (191,443) 1,747,288

10,605,581 903,575 (485,312) 11,023,844


20 Financial assets at fair value through profit or loss (Continued)

71


Investment securities

The above investments represent quoted equity investments held by the Group as at 31 December 2016. The equity securities have been designated at fair value through profit or loss because they are managed on a fair value basis and their performance is actively monitored. These investments amounted to K11.02 million in 2016 (2015: K10.61 million) representing equity holdings in companies that give the Group between 0.1 to 10% of the voting rights.

21 Loans receivable

Group Company2016 2015 2016 2015

Staff loans 9,567,489 2,898,740 - -

9,567,489 2,898,740 - -

Amounts receivable within one year 7,661,640 1,044,368 - -

Amounts receivable after one year 1,905,849 1,854,372 - -

9,567,489 2,898,740 - -

22 Held-to-maturity financial assets

Group Company2016 2015 2016 2015

Stanbic Bank Zambia 1,124,595 - - -

Intermarket Banking Corporation 12,382,468 - - -

Government bonds and treasury bills 120,222,852 105,931,374 - -

Madison Unit Trust Fund 5,279,352 4,633,035 - -

Bayport Financial Services Limited 3,145,316 3,122,959 - -

142,154,583 113,687,368 - -Maturity profileMaturing within one year 106,541,542 83,941,500 - -

Maturing after one year 35,613,041 29,745,868 - -

142,154,583 113,687,368 - -


20 Financial assets at fair value through profit or loss (Continued)

72

Annual Report 2016

23 Deferred tax (assets/ liabilities)Group

Movement in deferred tax balances

2016Net balance

1-Jan -16Recognised in

profit or loss

Recognised in other compre-

hensive Income Net balance

31-Dec-16Assets 31-

Dec-16Liabilities 31-Dec-16

Property, plant and equipment 3,739,769 (1,468,652) (228) 2,270,890 - 2,270,890

Intangible assets 673,812 443,265 - 1,117,077 - 1,117,077

Property, plant and equipment –revaluation 7,464,856 - 1,337,674 8,802,529 - 8,802,529

Unrealised exchange gains 1,940,654 (2,899,309) - (958,655) (958,655) -

Unrealised exchange losses (3,771,810) 2,180,019 - (1,591,791) (1,591,791) -

Allowance for impairment loss (2,450,609) (3,047,755) - (5,498,364) (5,498,364) -

Tax losses (9,204,383) (1,367,107) - (10,571,490) (10,571,490) -

Other temporary differences (336,915) (971,043) 4,144 (1,303,814) (1,303,814) -

(1,944,626) (7,130,582) 1,341,590 (7,733,618) (19,924,114) 12,190,496

2015Net Balance

1-Jan-15in profit or

loss

in other comprehensive

Income Net balance

31-Dec-15Assets 31-

Dec-15Liabilities 31-Dec-15

Property, plant and equipment 3,569,342 178,428 (8,001) 3,739,769 - 3,739,769

Intangible assets 243,179 430,633 - 673,812 - 673,812

Property, plant and equipment –revaluation 2,062,856 1 5,401,999 7,464,856

-

7,464,856

Unrealised exchange gains 206,287 1,734,367 - 1,940,654

- 1,940,654

Unrealised exchange losses (293,839) (3,477,971) - (3,771,810) (3,771,810)

-

Allowance for impairment loss (3,702,861) 1,252,252 - (2,450,609) (2,450,609)

-

Tax losses - (9,204,383) - (9,204,383) (9,204,383) -

Other temporary differences (510,243) 80,034 93,294 (336,915) (336,915)

-

1,574,721 (9,006,639) 5,487,292 (1,944,626) (15,763,717) 13,819,091

In the opinion of the directors the deferred tax assets are recoverable. The utilisation of deferred tax assets is dependent on future taxable profits being in excess of profits arising from the reversal of existing taxable temporary differences. The directors are confident that the Group will have taxable profits against which deferred tax assets will be utilised. The realisation of deferred tax assets is dependent upon the generation of future taxable income during the periods in which these temporary differences and tax losses become deductible. Management considers the projected future taxable income and tax planning strategies when making this assessment.


73


Management has embarked on a number of initiatives that, based on its projections, demonstrate increases in revenues, cash flows and profitability of the Group and hence, improvement in the financial performance for the year ended 31 December 2016 and beyond.

Management forecasts profits before tax of K24.3 million in 2017. The directors believe that the projected profits will be achieved due to the following action plans:

� Under general insurance business the Group has projected a reduction in net claims by 13% through improved operational efficiencies by underwriting and pricing the risks correctly. It is expected that the net loss ratio of 53% will reduce to 39% in 2017.

� Under general insurance the Group expects an increase in gross premiums of about 15% through organic growth of business arising from existing business as well as new business from the improved economic activities and the new distribution channels to be deployed now that the Broker link and the B2C online portal have now been fully implemented.

� Pricing of insurance services will be based on correct risk profiling. Loss making accounts to be appropriately underwritten. Advertising and entertainment will be directed and focused at the acquisition of additional business and improving the corporate image of the company.

� Under the property investment business there are various project development that will generate revenue growth is this sector. This is due to the fact that the finished units are planned to be sold in 2017 onwards.

Unrecognised deferred tax assets

Deferred income tax is calculated using the enacted income tax rate of 35% (2015: 35%). The net deferred income tax asset has not been recognised, because the Directors are not certain that the Company will generate sufficient profits to utilise the tax losses in the ensuing financial years. This is based on the historical evidence, including past levels of profitability from long term life insurance business. Reportable profits are mainly generated from life assurance which is exempt from tax under the Income Tax Act Chapter 323 of the laws of Zambia.

Group

Net unrecognised deferred tax assets amount to ZMW 31.5 million (2015: ZMW 28.1 million).

Company

Net unrecognised deferred tax assets amount to ZMW 7.5 million (2015: ZMW 7.1 million).


23 Deferred tax (assets/ liabilities) (Continued)

74

Annual Report 2016

24 Available-for-sale financial assets

Group Company2016 2015 2016 2015

National Housing Corporation Limited 147,651 149,489 - -

Madison Unit Trust Fund 145,000 145,000 - -

Lusaka Securities Exchange 500,000 500,000 - -

Other investments 40,500 2,739,332 - -

833,151 3,533,821 - -

Maturing within 12 months 685,500 3,384,332 - -

Maturing after 12 months 147,651 149,489 - -

833,151 3,533,821 - -

These are mainly equity investments in private companies and are valued at cost less provisions for impairment. These are disclosed at cost because there is no ready market for the investments that would provide evidence of their current fair values. It is not possible to determine a reliable range of estimates within which the fair value of these investments is likely to lie.

25 Inventory

Group Company2016 2015 2016 2015

Finished products 261,519 103,699 - -

Work in progress 20,592,425 16,000,000 - -

20,853,944 16,103,699 - -

The finished products comprises UBA Visa cards to be used for cash disbursements while the work in progress relates to land and works on the Hillview housing estate. The land will be sold as plots in various sizes.

26 Loans and advances to customers

Group Company2016 2015 2016 2015

Gross loans and advances to customers 257,950,529 248,927,025

-

Less: allowance for impairment (note 27) (9,815,243) (13,032,113)

-

248,135,286 235,894,912 -

The Directors have determined that there is no need for a collective portfolio impairment.


75


27 Specific impairment losses analysis

Group Company2016 2015 2016 2015

Balance at 1 January 13,032,113 10,579,604 - -

Provision write back (6,489,691) (142,131) - -

Recognised for the year (note 14) 3,272,821 2,594,640 - -

Balance as at 31 December 9,815,243 13,032,113 - -

28 Trade and other receivables

Group Company2016 2015 2016 2015

Trade receivables 10,333,888 12,745,664 - -

Prepayments 15,531,664 12,461,050 - -

Sundry receivables 5,839,297 8,891,249 - -

Other receivables 5,755,703 2,379,417 - -

37,460,552 36,477,380 - -

29 Insurance receivables

Group Company2016 2015 2016 2015

Brokers and agents balances 62,933,630 64,722,782 - -

Due from contract holders 16,028,448 12,989,772 - -

78,962,078 77,712,554 - -Less: allowance for impairment (23,196,334) (21,163,598) - -

55,765,744 56,548,956 - -

Due from insurance companies 2,421,485 2,261,090 - -

Outstanding claims 3,192,693 1,781,422 - -

Arising out of reinsurance arrangements

5,505,612 8,278,617 - -

66,885,534 68,870,085 - -

Group Company2016 2015 2016 2015

Specific impairment losses analysis

Balance at 1 January 21,163,598 17,301,914 - -

Recognised/ for the year (note 14) 2,032,736 3,861,684 - -

Balance as at 31 December 23,196,334 21,163,598 - -


76

Annual Report 2016

30 Cash and cash equivalents

Group Company2016 2015 2016 2015

Cash at bank and in hand 56,892,445 52,948,362 1,163,697 2,268,234

Short term call deposits with commercial banks 94,399,725 98,375,323 - -

Short term deposits with other financial institutions 561,907 2,499,646 - -

151,854,077 153,823,331 1,163,697 2,268,234Bank overdraft (1,128,965) (4,991,725) - -

150,725,112 148,831,606 1,163,697 2,268,234

Short term deposits

The effective interest rate on term call deposits was 25.6% (2015: 20.0%) and the deposits have an average maturity period of 365 days.

Bank overdraft - Access Bank Zambia Limited

The Group, through Madison Finance Company Limited, has an overdraft facility with Access Bank Limited with a maximum usage of K10 million. The tenure of the facility is 12 months and it expires on 24 July 2017. This facility is secured by Madison Financial Services Plc by way of guarantee, a fixed charge over the unceded portion of the net loan book to a maximum value of K21.3 million plus lien over fixed deposits amounting to K3.4 million for the term of the facility. The interest charged on the facility is the Bank of Zambia policy rate plus a margin of 15.75%.

31 Investment in subsidiaries

The Company’s interest in its subsidiaries, which are unlisted, was as follows:a. At cost

Company % holding Domicile 2016 2015Madison General Insurance Company (Z) Limited 100 Zambia 6,832,290 6,832,290

Madison Life Insurance Company (Z) Limited 100 Zambia 12,669,123 12,669,123

Madison Finance Company Limited 50 Zambia 33,219,622 33,219,622

Madison Asset Management Company Limited 100 Zambia 500,000 500,000

MGen Tanzania Insurance Company Limited 65 Tanzania 5,247,076 5,247,076

58,468,111 58,468,111

b. Movement at costAt 1 January 58,468,111 35,968,111

Subscription in preference shares - 22,500,000

At 31 December 58,468,111 58,468,111

The Group has more than 50% of the voting rights in all the entities and management has determined that the Group controls these entities.


77


During 2015, Madison Finance Company Limited issued 22.5 million convertible irredeemable preference shares with a par value of K1 each. Madison Financial Services Plc subscribed to all the shares with the effective date being 9th September 2015. The shares carry a dividend cumulative coupon rate of 30% plus a facility fee of 1% per annum which shall be reviewed annually. The preference shares do not carry voting rights.

Impairment review

Investments in subsidiaries are carried at cost less impairment. At year end, management carried out an impairment review to assess the carrying amounts using the discounted cash flow model. The following are the key assumptions used to assess impairment:

� Cash flow projections included average revenue growth levels experienced over the past 5 years; � The estimated sales volumes and price growth for the next 3 years reflecting the inflation rate and

various business activities that the Group has embarked upon such as:

� Introduction of a range of innovative products under the life and general insurance portfolio; � The improvement of operational efficiencies through IT such as the integrated broker platform for

the general insurance business. � The reduction of cost of capital by increasing deposit taking and becoming a fully fledged Small

and Medium-sized Enterprise (SME) lending bank for the micro finance business. � Under the asset and property management business, it is expected that fee income will grow due to

the growth in assets under management. Further growth is expected from the asset development, as the Group begins to commission the projects which were in the development pipeline.

A discount rate factor of 25% has been used, based on a ten year bond rate plus a margin rate of 12.5%.Based on the above, the net present value exceeded the carrying amounts of the investment. Therefore, the Group management is of the view that the carrying amount of the investment in subsidiaries together with the associated goodwill do not indicate any impairment.

32 Share capital

2016 2015Authorised 60,000,000 ordinary shares of K0.01 each 600,000 600,000

Issued and fully paid

50,000,000 ordinary shares of K0.01 each 500,000 500,000

Ordinary shares

Holders of these shares are entitled to dividends as declared from time to time and are entitled to one vote per share.


31 Investment in subsidiaries (Continued)b. Movement at cost (Continued)

78

Annual Report 2016

33 Loans and borrowings

Group Company2016 2015 2016 2015

Investrust Bank Plc (a) - 4,319,761 - -

Stanbic Bank Zambia Limited (b) 2,750,000 4,950,000 - -

Zambia National Commercial Bank Plc (c) 166,804 2,169,916 - -

Access Bank (Zambia) Limited (d) 5,917,714 8,751,542 - -

Intermarket Banking Corporation Limited (e) - 719,340 - -

First National Bank of Zambia Limited (f) 10,211,765 11,516,105 - -

Ecobank Zambia Limited (g) - 1,428,574 - -

Commercial Paper (h) - 2,732,694

First Capital Bank (i) - 4,127,512 - -

African Life Financial Services (j) - 9,022,244 - -

Shelter Afrique (k) 4,670,833 11,264,000 - -

Cavmont Bank Plc (l) 5,308,273 7,559,655 - -

Symbiotics (m) 60,090,236 35,827,050 - -

Enko Afrika Private Equity Fund (n) 20,760,566 27,148,951 20,760,566 27,148,951

European Investment Bank(o) 25,257,820 18,140,702 - -

Medium Term Note programme (p) 59,414,460 47,952,466 - -

194,548,471 197,630,512 20,760,566 27,148,951

Repayable within one year 22,085,998 37,139,497 122,208 414,655

Repayable after one year 172,462,473 160,491,015 20,638,358 26,734,296

194,548,471 197,630,512 20,760,566 27,148,951

(a) Investrust Bank PlcThe loan of K13 million is a 36 months loan with interest payable monthly at the Bank of Zambia policy rate plus a margin of 7% per annum. The loan is secured over Madison Finance Company Limited’s loan advances book, ranking parri-passu with other lenders. The loan was fully paid as at year end.

(b) Stanbic Bank Zambia LimitedThe Stanbic Bank Zambia Limited loan facility is for K11,000,000 and was effected on 7 January 2013. The loan is for 5 years and interest is charged at the prevailing Bank of Zambia Monetary Policy rate plus 12.5% margin. The loan is secured by absolute ownership of the Madison Asset Management Company Limited comprehensively insured leased vehicles, an assignment of Madison Asset Management Company’s receivables from fee income arising from fund management services and a second ranking mortgage interest over plot 316, Independence Avenue, Lusaka.

(c) Zambia National Commercial Bank PlcThe loan of K5 million is a 36 months loan with a 6 months moratorium on principal repayments effective January, 2014 on reducing balance. The loan is charged at the Bank of Zambia Policy rate plus a margin of 17.5%. It is secured by an assignment of 100% of Madison Finance Company Limited’s loan book to the value of the outstanding amount plus a corporate guarantee from Madison Financial Services Plc.


79


(d) Access Bank (Zambia) LimitedThe loan of ZMW 10 million is a 36 months loan with interest payable monthly. Interest is charged at the Bank of Zambia policy rate plus a margin of 15.75%.The loan is secured by debenture over fixed and floating assets of Madison Finance Company Limited of not more than ZMW10 million.

(e) Intermarket Banking Corporation LimitedThe loan of K4.5 million is a 36 month facility with interest payable monthly at base rate of 15.5% plus margin of 9.25%. The loan was secured with a debenture on the Madison Finance Company Limited loan book to cover 2.5 times facility amount plus interest, a corporate guarantee by Madison group and cash cover of K2.6 million. The loan has since been settled.

(f) First National Bank Zambia LimitedThese are two facilities obtained by Madison Asset Management Company Limited with the following details:

Loan 1This was originally a US$1,600,000 loan effective 19 January 2013. In 2014 the loan was converted to a Zambian Kwacha facility of K8,019,548 when the remaining balance was USD1,386,991. The revised interest on the loan is at the prevailing Bank of Zambia Monetary Policy rate plus a margin of 14.5%. The loan is repayable in 95 equal monthly instalments over the remaining term of the loan and is secured by a first legal0 ;’mortgage of USD1,600,000 over the remaining extent of stand 4746, Lusaka, and assignment of rentals over the remaining extent of stand No 4746, Lusaka. Loan 2This is a term loan facility for K5,000,000 secured on 16 April 2014. Interest on this loan is at the prevailing Bank of Zambia Monetary Policy rate plus a margin of 14.5%. The loan is secured by a Deed of Cession and Pledge covering fixed deposits of K2,500,000 and a Deed of Cession and Pledge covering Bonds/Treasury bills of K2,500,000. The loan is repayable over a term of 60 months.

(g) Ecobank Zambia LimitedThe Ecobank loan facility was fully repaid during December 2016. The facility was for K5,000,000 and was signed on 12 November 2012 with Ecobank Zambia Limited. The loan had duration of 4 years and interest payable under this facility was charged at prevailing Bank of Zambia Monetary Policy rate plus a margin of 4% per annum. The loan was secured by a charge over the Company’s investment accounts, a letter of set off on all the Company’s bank balances and 100% cash collateral in the form of funds placements in the investment account. The principal was be repaid in 42 equal monthly instalments which commenced 7 months after the date of initial drawdown. Monthly interest repayments commenced one month after the initial drawdown until final maturity.

(h) Commercial PaperThe Company had issued commercial papers to the value of K10 million for onward lending in 2013, tenor being 365 days. The commercial papers issued by Saturnia Regna Pension Trust Fund and Deloitte and Touch Trust Fund at an agreed rate of 21% per annum. These were settled during the year.


33 Loans and borrowings (Continued)

80

Annual Report 2016

(i) First Capital BankThe First Capital Bank loan facility was fully repaid during the year 2016 the facility was for K4, 000,000 and was signed on 14 October 2013 with First Capital Bank. The loan had a duration of 1 year renewable. Interest is charged at the prevailing Bank of Zambia Monetary Policy rate plus 9% margin, payable at quarterly intervals. The loan is secured by a lien over a 5 year Government bond with face value of K4.15m in the name of Madison Asset Management Company Limited maturing on 18 February 2021.

(j) African Life Financial ServicesThe facility was a money market borrowing with a 48 month tenor effective 24 April 2014 and maturing on 24 April 2016. The interest was based on the rate of a 364 days treasury bill rate plus 3.5%.

(k) Shelter Afrique The Shelter Afrique loan is for US$2,230,000 to finance a housing development project in Roma Park, Lusaka. Disbursements amounting to US$409,593 were received during the year. The loan agreement was effected on 6 June 2013. The interest on the loan is at the variable base rate prevailing plus 350 basis points per annum. The loan is secured by a first legal mortgage on the project land registered in favour of Shelter Afrique and supported by credit enhancements. The total loan is repayable over a period of two and half (2.5) years from the effective date.

(l) Cavmont Bank The loan of K10 million is a 48 months loan with interest payable monthly at Bank of Zambia policy rate plus a margin of 18.5% per annum. The loan is secured over Madison Finance owned loan book plus debenture over company assets of K10 million and an unlimited guarantee by Madison Financial Services Plc.

(m) SymbioticsThe loan of K9.5 million is a 36 month loan with interest charged at 20% per annum and payable every 180 days .The loan is secured over Madison Finance owned loan book to the value of K9.5 million.

The second loan of K12.6 million is a 36 month loan with interest charged at 20.5% per annum and payable every 180 days. The loan is secured over Madison Finance loan book to the value of K12.6 million.

The third loan of K15.5 million is a 24 month loan with interest charged at 22.35% per annum and payable every 180 days. The loan is secured over Madison Finance loan book to the value of K15.5 million.

The fourth loan of K19.2 million is a 36 months loan with interest charged at 27.5%per annum and payable every 180 days .The loan is secured over the Madison Finance Loan book to the value of K 19.2 million.



81


(n) Enko Afrika Private Equity FundThis is a US$ 2.3 million, 3 years unsecured term loan which was acquired during the year.

The loan interest is at a fixed rate of 12%, that is payable on a quarterly basis and is to be repaid in 12 instalments commencing on 10 September 2016 to 10 June 2018.

The principal amount together with a redemption premium of 30% of the principal amount shall be repaid in full in a single instalment on the final maturity date.

(o) European Investment BankThe loan of K17.8 million is a 60 month loan with interest charged at 11.8% per annum and payable every 180 days. The loan is secured over Madison Finance owned loan book to the value of K17.8 million.

The loan of K8.7 million is a 60 month loan with interest charged at 11.8% per annum and payable every 180 days. The loan is secured over Madison Finance owned loan book to the value of K 6.9 million.

(p) Medium Term Note programmeThe programme of K400 million is a 60 months programme made up of tranches of K100 million each over a four year period and is listed on the Lusaka Stock Exchange. The interest rate is 26% on subordinated, 25% on senior secured and 182 day treasury bills rate plus 450 basis points on the senior secured floating. The notes will amortise with equal semi-annual instalment starting at a specified date, after the settlement date, which will include interest plus a specified principal amount.

34 Finance lease liabilities

Group Company2016 2015 2016 2015

Future minimum lease payment

Less than one year 1,782,810 4,161,883 - -

Between 1 and 5 years 1,289,801 2,433,068 - -

Interest 492,962 (1,012,091) - -

Net unearned finance leases 3,565,573 5,582,860 - -

Amounts due within one year 1,780,169 1,212,994 - -

Amounts due after one year 1,785,404 4,369,866 - -

3,565,573 5,582,860 - -

Obligation under finance lease includes:

(a) Twenty-three motor vehicles financed by a finance lease obtained by Madison Finance Company Limited. Twenty-one (21) motor vehicles were financed through a Kwacha denominated finance lease with interest charged at an average rate of 30% calculated using the reducing balance method; and two (2) motor vehicle were financed through a US Dollar denominated finance lease charged at 12% per annum calculated using the reducing balance method. The lease periods for the motor vehicles ranges between 36 months and 48 months.



82

Annual Report 2016

(b) Three motor vehicles finance lease facilities from First National Bank Zambia under Madison Asset Management Company Limited, whose details are as follows;

� The first finance lease was signed on 17 January 2013 with First National Bank Zambia at an initial cost of K373 thousand and is attracting interest charge of 30% per annum. The lease period is 60 months and is secured on the motor vehicle under this lease.

� The second finance lease was signed on 05 May 2015 with First National Bank Zambia at an initial cost of K192 thousand and is attracting interest charge of 30% per annum. The lease period is 60 months and is secured on the motor vehicle under this lease.

� The third finance lease was signed on 06 June 2015 with First National Bank Zambia at an initial cost of K177 thousand and is attracting interest charge of 30% per annum. The lease period is 60 months and is secured on the motor vehicle under this lease.

(c) One motor finance lease agreement under Madison Capital Limited.

The finance lease was effected on 21 March 2014 with First National Bank Zambia with an initial cost of K122,000 attracting an interest charge of 18.50% per annum. The lease period is 60 months and is secured on the motor vehicle under this lease.

35 Insurance fund

Group Company2016 2015 2016 2015

General insurance 48,704,451 49,133,218 - -

Life insurance ( see note below) 172,963,997 149,008,671 - -

221,668,448 198,141,889 - -

Amounts due within one year 119,463,216 110,677,361 - -

Amounts due after one year 102,205,232 87,464,528 - -

221,668,448 198,141,889 - -

Transfer to the life insurance fund amounted to ZMW23.9 million (2015:ZMW26.3 million).

2016 2015Carrying amount 172,963,997 149,008,671

Movement in carrying amount

At 1 January 149,008,671 122,728,116

Increase in insurance fund 23,955,326 26,280,555

At 31 December 172,963,997 149,008,671


34 Finance lease liabilities (Continued)

83


Valuation methods and assumptions

General insurance

At the end of each year a proportion of the net premiums are provided for to cover portions of risk which have not expired at the reporting date. These are shown in the statement of financial position as insurance funds. The provision has been based on S33 of the Insurance Act 1997 (as amended) which requires an insurer transacting general insurance business to set aside reserves for unearned premium using the 24th method or fifty per centum of the net premium income in respect of all classes of business whichever is higher or any other method approved by the Registrar of Pensions and Insurance in writing. The basis used in these financial statements is the 24th method as authorised by the Registrar of Pensions and Insurance. Life insurance

The valuation was performed using the gross premium valuation method.

Assets and policy liabilities have been valued on methods and assumptions that are consistent with each other.

The result of the valuation methods and assumptions is that profits for insurance contracts are released appropriately over the term of each policy, to avoid the premature recognition of profits that may give rise to losses in later years.

Insurance contracts

� In the calculation of liabilities of insurance contracts, provision has been made for the following: � The best estimate of the future experience; � Margins to allow for experience fluctuations and the prudent release of profits over the policy

term; plus � Policies with negative liabilities were eliminated to ensure no policy is treated as an asset. The

liabilities would be K27.4 million lower if the negative liabilities were permitted. The component attributable to shareholders is K3.0 million. This represents an additional margin.

� For the individual life business, policy liabilities were determined by discounting the expected benefit payments, commission and expenses, less expected premium (if applicable) on a policy by policy basis. The following are the main assumptions (including margins) used to calculate these liabilities. Previous year assumptions are indicated in brackets if the assumption changed.


35 Insurance fund (Continued)

84

Annual Report 2016

Mortality

- Individual life and : 100% of SA85/90 Heavy plus 60% of Funeral business adjusted ASSA2000 AIDS model- Credit life business : 60% of SA85/90 Heavy plus 20% of adjusted

ASSSA2000 AIDS model

Rider benefit : 1 x Annual Premium Interest on reserves : 17.92% (14.62%) Future reversionary bonuses : 2.5% (2.5%) per annum compound

Renewal expenses

- Individual Life business : K478.00 (K424.00) per annum- Credit Life business : K77.00 (K68.00) per annum- Funeral Business : K67.00 (K59.00) per annum

Expense inflation : 16.69% (13.56%)

Withdrawals:- Individual and Fund Life : 20% : 1st year- Business 15% : 2nd year

10% : 3rd year 5% : Thereafter

- Funeral business : 20% : 1st year 15% : 2nd year 10% : 3rd year 5% : Thereafter

- Credit Life business : Withdrawals were ignored.

� Some of the classes within individual life have different assumptions to reflect the experience of those classes.

� The expense assumptions are based on investigations carried out during 2016 and remained unchanged from 2015. The mortality assumptions are based on investigations carried out in the years preceding 2015.

� For the group life business an incurred but not reported reserve was estimated based on the most recent run-off experience.

� For non-monthly premium group life business, an unexpired premium reserve was established. � Policyholder reasonable benefit expectations have been allowed for as all contractual benefits have

been valued. An allowance was made for future reversionary bonuses at a level consistent with current interest rate assumptions and experience of the portfolio.


35 Insurance fund (Continued)Valuation methods and assumptions (Continued)Life insurance (Continued)

85


Investment contracts

(With and without discretionary participation features)The Company does not underwrite investment contract business. All business is classified as insurance business.

Service contracts

The Company does not underwrite service contract business.

Asset valuation methods and assumptions

All assets (including the excess of assets over liabilities) have been valued at market/fair value (as described in the notes to the financial statements).

Sensitivity analysis

The following table presents the sensitivity of the value of long term insurance liabilities to movements in key assumptions used in the estimation of liabilities. Each assumption is considered in isolation.

2016 2015Actuarial liability

(Kwacha) Change %Actuarial liability

(Kwacha) Change %

Main basis 159,907,423 - 138,028,029 -

Interest -1% 169,439,772 6.0% 147,453,263 6.8%

Inflation +1% 163,823,911 2.4% 141,014,803 2.2%

Expenses +10% 168,900,146 5.6% 142,534,128 3.3%

Claims experience +10% 161,595,906 1.1% 150,754,807 9.2%

Withdrawals +10% 158,954,464 (0.6%) 139,872,254 1.3%

36 Insurance payables

Group Company2016 2015 2016 2015

Claims reported and loss adjustment expenses

5,154,958 5,447,662 - -

Claims incurred but not reported

6,668,061 5,453,851 - -

Outstanding claims 46,373,455 31,974,769 - -

Arising from reinsurance 31,068,300 42,572,986 - -

89,264,774 85,449,268 - -Less: Deferred acquisition costs (5,846,696) (6,167,184) - -

83,418,078 79,282,084 - -


35 Insurance fund (Continued)Valuation methods and assumptions (Continued)Life insurance (Continued)

86

Annual Report 2016

37 Deposits from customers

Group Company2016 2015 2016 2015

Deposits from customers 69,567,138 54,763,577 - -

Customer deposits amounting to K 66,343,656 (2015: 50,814,868) are at fixed interest rates for fixed tenors and all other deposits amounting to K3,223,482 (2015: K3,948,710) are at variable rates which range between 2.5% and 12% per annum.

38 Trade and other payables

Group Company2016 2015 2016 2015

Funds under management 260,923,440 190,499,913 - -

Deferred income 1,279,080 1,220,326 - -

Other payables and accruals 34,651,971 41,209,463 1,066,704 761,297

296,854,491 232,929,702 1,066,704 761,297


87


39 Related party transactions

Sale of goods and purchase of goods and services

In the normal course of business, insurance policies and other business transactions are entered into with related parties at terms and conditions similar to those offered to major clients. For investments in subsidiaries detailed disclosure is included in note 31.

Related party balances at year end

Amounts due from related parties

Relationship Group Company2016 2015 2016 2015

Madison Pension Trust Fund (a) Fund manager 1,411,251 481,084 - -

Madison Health Solutions Limited (b) Sister company 5,100,708 4,835,851 - -

Madison Investments, Property and Advisory Company Limited (c) Sister company 3,531,104 3,531,105 362,961 362,961

Lawrence Sikutwa and Associates Limited (d) Parent company 2,457,556 2,105,477 228,372 109,303

Amount advanced to a shareholder of MGen Tanzania Company Limited (e)

Minority shareholder 201,811 201,811 201,811 201,811

Madison Property Fund (g) Fund manager 930,633 1,491,997 - -

Madison Unit Trust (f) Fund manager 2,267,652 2,179,849 - -

SNV (g) Fund manager - 267,578 - -

Directors loans (h)Key management personnel 1,560,924 1,553,212 1,560,923 1,553,212

Silverline Travel and Tours Limited (g) Sister company 50,000 50,000 - -

Madison Finance Company Limited (g) Subsidiary - - 401,957 1,366,097

17,511,639 16,697,964 2,756,024 3,593,384

a. Madison Pension Trust Fund The balance of Madison Pension Trust Fund relates to outstanding fund management fees and no interest was charged on the balance. The amount is not secured and is payable on demand.

b. Madison Health Solutions Limited The balance mainly relates to an underwriting balance for medical insurance business that Madison Health Solutions Limited is underwriting on behalf of Madison Life Insurance Company Zambia Limited. The amount is not secured and is payable on demand.

c. Madison Investments, Property and Advisory Company LimitedThe outstanding balance mainly relates to unsecured advance at 17% interest per annum. There are no fixed repayment terms and conditions. This amount is payable on demand.


88

Annual Report 2016

d. Lawrence Sikutwa and Associates Limited The amount relates to operational costs and is interest free. The amount is not secured and is payable on demand.

e. Amount advanced to a shareholder of MGen Tanzania Insurance Company LimitedThe amount receivable from MGen Tanzania’s shareholder is interest free and has no fixed repayment term. This amount is payable on demand.

f. Madison Unit TrustThis relates to an operational current account. The amount is not secured and is payable on demand.

g. SNV, Hill View Estates, Silverline Travel, Tours Limited, Madison Property Fund and Madison Finance Company LimitedThe balances due from the remaining related parties are for expenses incurred on behalf of these related parties. The balances are repayable on demand and are interest free.

h. Directors loan This is a secured five year term loan and accrues interest at 5% per annum simple interest. It is repayable in five (5) equal yearly instalments, the first of such instalments to commerce on or before the first anniversary of the date of first disbursement of the term loan or before the anniversary day of each subsequent year from the date of first disbursement.

Group Company2016 2015 2016 2015

Amounts due to related partiesMadison Health Solutions Limited (a) 10,500 36,750 - -

Lawrence Sikutwa and Associates Limited (a) 1,178,863 503,764 - -

Madison Unit Trust (c) 11,094,052 12,255,098 6,980,433 6,499,040

Kafue River Cliff Limited (a) 963 963 - -

Madison Life Insurance Company Zambia Limited (a) - - 296,108 724,886

Madison General Insurance Company Zambia Limited (a) - - 1,706,247 3,255,497

Madison Asset Management Company Limited (a) - - 72,364 387,500

12,284,378 12,796,575 9,055,152 10,866,923

Group Company2016 2015 2016 2015

Amounts due within one year 12,284,378 12,796,575 7,348,905 4,662,833

Amounts due after one year - - 1,706,247 6,204,090

12,284,378 12,796,575 9,055,152 10,866,923

(a) Amounts are unsecured operational balances and do not attract interest. The amounts are payable on demand.


39 Related party transactions (Continued)Related party balances at year end (Continued)

89


(b) The transaction with Madison Investments Company Limited related to interest expense and arrangement fees on unsecured placements. The amount is payable on demand.

(c) This transaction relates to unsecured loans from Madison Unit Trust under the Wealth Builder Scheme. The amount is payable within five years.

Key management compensation

Group Company2016 2015 2016 2015

Salaries and other short term employee benefits 16,831,473 16,075,677 - -

Other long term benefits 2,512,420 1,638,796 - -

19,343,893 17,714,473 - -

Group Company2016 2015 2016 2015

Loans to management 3,149,611 3,199,040 - -

There was also a K6 million outstanding loans in the Executive Share Scheme of the Managing Directors of the subsidiary companies.

Directors’ fees

Directors’ fees of K584 thousand were paid by the Company during the year (2015: K377 thousand) while the Group collectively paid K4.7million (2015: K4.1 million) in directors’ fees.


39 Related party transactions (Continued)Related party balances at year end (Continued)

90

Annual Report 2016

40

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40

Fina

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risk

man

agem

ent (Continued)

92

Annual Report 2016

Company

Loans and receivables

Other Financial liabilities

Total carrying amounts

31 December 2016Financial assets not measured at fair valueCash and cash equivalents 1,163,697 - 1,163,697

Amounts due from related parties 2,756,024 - 2,756,024

3,919,721 - 3,919,721

Financial liabilities not measured at fair valueAmount due to related parties - (9,055,152) (9,055,152)

Loans and borrowings - (20,760,566) (20,760,566)

Other payables - (1,066,704) (1,066,704)

- (30,882,422) (30,882,422)

Loans and receivables

Other Financial liabilities

Total carrying amounts

31 December 2015Financial assets not measured at fair valueCash and cash equivalents 2,268,234 - 2,268,234

Amounts due from related parties 3,593,384 - 3,593,384

5,861,618 - 5,861,618

Financial liabilities not measured at fair valueAmount due to related parties - (10,866,923) (10,866,923)

Loans and borrowings - (27,148,951) (27,148,951)

Other payables (761,297) (761,297)

- (38,777,171) (38,777,171)

Risk management

(a) Introduction and overview

The Group has exposure to the following risks from its use of financial assets and liabilities: � Credit risk; � liquidity risk; � Market risk; and � Operational risk.

This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s management of capital.


40 Financial instruments – fair values and risk management (Continued)

93


(b) Risk management framework

The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Board has established Credit Committees, which are responsible for developing and monitoring Group entity risk management policies in their specified areas. All Board committees have both executive and non-executive members and report regularly to the Board of Directors on their activities.

The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions, products and services offered. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment, in which all employees understand their roles and obligations.

The Audit Committees of the respective companies in the Group are responsible for monitoring compliance with the Group entities risk management policies and procedures, and for reviewing the adequacy of the risk management framework in relation to the risks faced by the Group entities. The Group entities Audit Committees are assisted in these functions by the Group Internal Audit. Group Internal Audit undertakes both regular and ad-hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committees.

Risk management objectives and policies for mitigating insurance riskThe risk under any one insurance contract is the possibility that the insured event occurs and the uncertainty of the amount of the resulting claim. By the very nature of an insurance contract, this risk is random and therefore unpredictable.

For a portfolio of insurance contracts where the theory of probability is applied to pricing and provisioning, the principal risk that the Group faces under its insurance contracts is that the actual claims and benefit payments exceed the carrying amount of the insurance assets. This could occur because the frequency or severity of claims and benefits are greater than estimated. Insurance events are random and the actual number and amount of claims and benefits will vary from year to year from the level established using statistical techniques.

Experience shows that the larger the portfolio of similar insurance contracts, the smaller the relative variability about the expected outcome will be. In addition, a more diversified portfolio is less likely to be affected by a change in any subset of the portfolio. The Company has developed its insurance underwriting strategy to diversify the type of insurance risks accepted and within each of these categories to achieve a sufficiently large population of risks to reduce the variability of the expected outcome. Factors that aggravate insurance risk include lack of risk diversification in terms of type and amount of risk, to market risk through its insurance and investment activities, geographical location and type of industry covered.

The Company manages its insurance risk through underwriting limits, approval procedures for transactions that involve new products or that exceed set limits, pricing guidelines, and centralised management of re-insurance and monitoring of emerging issues.

The Company uses several methods to assess and monitor insurance risk exposures both for individual types of risk insured and overall risks. These methods include internal risk measurement, sensitivity analysis, scenario analysis, stress testing etc.


40 Financial instruments – fair values and risk management (Continued)Risk management (Continued)

94

Annual Report 2016

Insurance risk is managed primarily through sensible pricing, product design, risk selection, appropriate investment strategy, and re-insurance. The Company therefore monitors and reacts to changes in the general economic and commercial environment in which it operates.

Re-insurance riskThe Company cedes insurance risk to limit exposure to underwriting losses under various agreements that cover individual risks, Company risks or defined blocks of business, on a co-insurance, yearly renewable term, excess or catastrophe excess basis. These re-insurance agreements spread the risk and minimise the effect of losses. The amount of each risk retained depends on the Company’s evaluation of the specific risk, subject in certain circumstances, to maximum limits based on characteristics of coverage. Under the terms of the re-insurance agreements, the re-insurer agrees to reimburse the ceded amount in the event the claim is paid. However the Company remains liable to its policy holders with respect to ceded insurance if any re-insurer fails to meet the obligations it assumes.

Concentration riskThe underwriting strategy attempts to ensure that the underwritten risks are well diversified in terms of type and amount of risk and industry. All risks arise within Zambia and mainly under manufacturing, transport and service industries.

(c) 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 loans and advances to customers for the micro-finance and leasing business and from holding investments and from exposure to reinsurers for the insurance business. 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).

In order to manage this risk the, Board has a defined credit policy for each Group entity, which is documented and forms the basis of all credit decisions. The Group entities structure the levels of credit risks they undertake, placing limits on the amounts of risk accepted in relation to one borrower, or a group of borrowers. The Group also makes allowance for impairment against non-performing accounts, where recoverability is doubtful.

The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the statement of financial position. The maximum exposure at the reporting date was as follows:


40 Financial instruments – fair values and risk management (Continued)Risk management (Continued)(b) Risk management framework (Continued)

95


Group Carrying amountNote 2016 2015

Financial assets at fair value through profit or loss 20 8,453,986 11,023,844

Loans and advances to customers 26 248,135,286 235,894,912






Available-for-sale financial assets 24 833,151 3,533,821


682,856,297 642,907,445Off balance sheet

Financial guarantee 54,990,889 60,947,082

The guarantee is for a loan from a bank by a related entity, Chakaka Village Limited. Refer to note 42 for details.

The aging of loans receivable, loans and advances to customers, trade and other receivables and insurance receivables at the reporting date was:

Gross Impairment provision Net

2016

Not past due 325,702,231 - 325,702,231

Past due 0-3 months 28,065,489 (11,137,064) 16,928,425

Past due 4-6 months 30,897,901 (11,479,697) 19,418,204

Past due over 6 months 10,394,815 (10,394,815) -

395,060,436 (33,011,576) 362,048,860

Gross Impairment provision Net

2015

Not past due 313,922,860 - 313,922,860

Past due 0-3 months 8,505,923 (6,714,582) 1,791,341

Past due 4-6 months 33,676,716 (7,265,774) 26,410,942

Past due over 6 months 22,231,329 (20,215,355) 2,015,974

378,336,828 (34,195,711) 344,141,117


40 Financial instruments – fair values and risk management (Continued)Risk management (Continued)(c) Credit risk (Continued)

96

Annual Report 2016

Note 2016 2015Loans and advances to customers 26 248,135,286 235,894,912




362,048,861 344,141,117

Company

Carrying amount2016 2015

Cash and cash equivalent 30 1,163,697 2,268,234


Total 3,919,721 5,861,618

Company

The Group’s policy is to provide financial guarantees for subsidiaries and related parties liabilities. At 31 December 2016, the Company has issued guarantees to certain banks in respect of credit facilities granted to subsidiaries and related parties. (See note 33 and 42).

(d) Market risk

Market risk is the risk that changes in market prices, such as interest rate, 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.

(e) Interest rate risk

The principal risk to which non-trading portfolios are exposed to, is the risk from fluctuations in the future cash flows or fair values of financial instrument because of a change in market interest rates. A summary of the Group’s interest rate gap position on non-trading portfolios is as follows:


40 Financial instruments – fair values and risk management (Continued)Risk management (Continued)(c) Credit risk (Continued)

97


2016

2015

Grou

p C

arry

ing

amou

nt Z

ero

rate

in

stru

men

ts F

loat

ing

inst

rum

ents

Fix

ed

inst

rum

ents

C

arry

ing

amou

nt Z

ero

rate

in

stru

men

ts F

loat

ing

inst

rum

ents

F

ixed

in

stru

men

ts

Asse

ts

Cash

and

cas

h eq

uiva

lent

s 15

1,85

4,07

724

,769

,186

34,4

62,8

5992

,622

,032

153,

823,

331

49,7

16,1

6810

4,10

7,16

3-

Loan

s rec

eiva

ble

9,56

7,48

92,

920,

552

-6,

646,

937

2,89

8,74

0-

-2,

898,

740

Loan

s and

adv

ance

s to

cust

omer

s 24

8,13

5,28

6-

-24

8,13

5,28

623

5,89

4,91

2-

10,2

62,7

0922

5,63

2,20

3

Amou

nt d

ue fr

om re

late

d pa

rtie

s 17

,511

,639

17,5

11,6

39-

-16

,697

,964

13,1

04,5

80-

3,59

3,38

4

Hel

d to

mat

urity

Inve

stm

ents

14

2,15

4,58

3-

16,4

78,7

2512

5,67

5,85

811

3,68

7,36

8-

74,8

03,9

7138

,883

,397

Fina

ncia

l ass

ets a

t fai

r val

ue th

roug

h pr

ofit

or

loss

8,

453,

986

8,45

3,98

6-

-11

,023

,844

11,0

23,8

44-

-

Trad

e an

d ot

her r

ecei

vabl

es

37,4

60,5

5237

,460

,552

--

36,4

77,3

8036

,477

,380

--

Insu

ranc

e re

ceiv

able

s 66

,885

,534

66,8

85,5

34-

-68

,870

,085

68,8

70,0

85-

-

Avai

labl

e fo

r sal

e fin

anci

al a

sset

s 83

3,15

183

3,15

1-

-3,

533,

821

3,53

3,82

1-

-

Tota

l ass

ets

682,

856,

297

158,

834,

600

50,9

41,5

8447

3,08

0,11

364

2,90

7,44

518

2,72

5,87

818

9,17

3,84

327

1,00

7,72

4

Liab

ilitie

s

Amou

nts d

ue to

rela

ted

part

ies

12,2

84,3

785,

907,

882

-6,

376,

496

12,7

96,5

757,

745,

773

-5,

050,

802

Depo

sits

from

cus

tom

ers

69,5

67,1

38-

-69

,567

,138

54,7

63,5

77-

3,94

8,71

050

,814

,867

Bank

ove

rdra

ft 1,

128,

965

-1,

128,

965

-4,

991,

725

-4,

991,

725

-

Loan

s and

bor

row

ings

19

4,54

8,47

1-

49,7

29,4

6014

4,81

9,01

119

7,63

0,51

2-

55,7

57,1

2314

1,87

3,38

9

Fina

nce

leas

e lia

bilit

ies

3,56

5,57

3-

3,56

5,57

3-

5,58

2,86

0-

5,58

2,86

0-

Trad

e an

d ot

her p

ayab

les

296,

854,

489

35,9

31,0

49-

260,

923,

440

232,

929,

702

45,1

38,0

28-

187,

791,

674

Insu

ranc

e fu

nd

221,

668,

448

221,

668,

448

--

198,

141,

889

198,

141,

889

--

Insu

ranc

e pa

yabl

es

83,4

18,0

7883

,418

,078

--

79,2

82,0

8479

,282

,084

--

Tota

l lia

bilit

ies

883,

035,

540

346,

925,

457

54,4

23,9

9848

1,68

6,08

578

6,11

8,92

433

0,30

7,77

470

,280

,418

385,

530,

732

Inte

rest

rate

gap

(2

00,1

79,2

43)

(188

,090

,857

)(3

,482

,414

)(8

,605

,972

)(1

43,2

11,4

79)

(147

,581

,896

)11

8,89

3,42

5(1

14,5

23,0

08)


Not

es to

the

finan

cial

stat

emen

ts (c

ontin

ued)

for t

he y

ear e

nded

31

Dece

mbe

r 201

6In

Zam

bian

Kw

acha

40

Fina

ncia

l ins

trum

ents

– fa

ir v

alue

s and

risk

man

agem

ent (Continued)

Risk

man

agem

ent (

Cont

inue

d)(e

) In

tere

st ra

te ri

sk (C

ontin

ued)

98

Annual Report 2016

Com

pany

2016

2015

Car

ryin

g am

ount

Zer

o ra

te

inst

rum

ents

F

loat

ing

inst

rum

ents

F

ixed

inst

ru-

men

ts

Car

ryin

g am

ount

Zer

o ra

te

inst

rum

ents

Flo

atin

g in

stru

men

ts

Fix

ed in

stru

-m

ents

Asse

ts

Cash

and

cas

h eq

uiva

lent

s 1,

163,

697

1,16

3,69

7-

-2,

268,

234

2,26

8,23

4-

-

Amou

nt d

ue fr

om re

late

d pa

rtie

s 2,

756,

024

2,75

6,02

4-

-3,

593,

384

3,59

3,38

4-

-

3,91

9,72

13,

919,

721

--

5,86

1,61

85,

861,

618

--

Liab

ilitie

s

Amou

nts d

ue to

rela

ted

part

ies

9,05

5,15

22,

002,

355

-7,

052,

797

10,8

66,9

2310

,866

,923

Loan

s and

bor

row

ings

20

,760

,566

--

20,7

60,5

6627

,148

,951

--

27,1

48,9

51

Trad

e an

d ot

her p

ayab

les

1,06

6,70

41,

066,

704

--

761,

297

761,

297

--

30,8

82,4

223,

069,

059

-27

,813

,363

38,7

77,1

7111

,628

,220

-27

,148

,951

Inte

rest

rate

gap

(2

6,96

2,70

1)85

0,66

2-

(27,

813,

363)

(32,

915,

553)

(5,7

66,6

02)

-(2

7,14

8,95

1)

Not

es to

the

finan

cial

stat

emen

ts (c

ontin

ued)

for t

he y

ear e

nded

31

Dece

mbe

r 201

6In

Zam

bian

Kw

acha

40

Fina

ncia

l ins

trum

ents

– fa

ir v

alue

s and

risk

man

agem

ent (Continued)

Risk

man

agem

ent (

Cont

inue

d)(e

) In

tere

st ra

te ri

sk (C

ontin

ued)

99


(f) Currency risk

Currency risk is the risk of adverse movements in exchange rates that will result in a decrease in the value of foreign currency denominated assets or an increase in the value of foreign currency denominated liabilities. Risk also arises from the Group’s investments in its foreign operations. The foreign currency position is managed by the respective Group entities and is reported on a monthly basis to the Group Finance Director. A summary of the Group’s foreign currency exposure on its financial assets and liabilities in Kwacha equivalent is as follows:

31 December 2016 US$ (ZMW

equivalent) ZMW TSh (ZMW

equivalent) Total Assets Trade and other receivables - 36,890,589 569,963 37,460,552Insurance receivables 21,422,132 28,988,991 16,474,411 66,885,534Loans receivable - 9,567,489 - 9,567,489Loans and advances to customers - 248,135,286 - 248,135,286Held-to-maturity investments 3,851,661 134,309,834 3,993,088 142,154,583Financial assets at fair values through profit or loss - 8,453,986 - 8,453,986Amounts due from related parties - 17,511,639 - 17,511,639Cash and cash equivalents 10,270,783 137,896,286 3,687,008 151,854,077Available for sale financial assets - 685,500 147,651 833,151

35,544,576 622,439,600 24,872,121 682,856,297Liabilities Trade and other payables - 296,059,594 794,895 296,854,489Deposits from customers - 69,567,138 - 69,567,138Amounts due to related parties - 12,284,378 - 12,284,378Loans and borrowings 25,431,399 169,117,072 - 194,548,471Insurance fund - 211,793,066 9,875,382 221,668,448Insurance payables 20,601,117 54,003,892 8,813,069 83,418,078Bank overdraft - 1,128,965 - 1,128,965Finance lease liabilities - 3,565,573 - 3,565,573

46,032,516 817,519,678 19,483,346 883,035,540

Net (10,487,940) (195,080,078) 5,388,774 (200,179,244)



100

Annual Report 2016

31 December 2015 US$ (ZMW equivalent) ZMW

TSh (ZMW equivalent) Total

Assets

Trade and other receivables - 35,658,950 818,430 36,477,380

Insurance receivables 3,226,787 49,393,528 16,249,770 68,870,085

Loans receivable - 2,898,740 - 2,898,740

Loans and advances to customers - 235,894,912 - 235,894,912

Held-to-maturity investments - 110,388,710 3,298,658 113,687,368

Financial assets at fair values through profit or loss - 11,023,844 - 11,023,844

Amounts due from related parties - 16,697,964 - 16,697,964

Cash and cash equivalents 39,974,163 110,235,718 3,613,450 153,823,331

Available for sale financial assets - 3,384,332 149,489 3,533,821

43,200,950 575,576,698 24,129,797 642,907,445Liabilities

Trade and other payables - 232,235,278 694,424 232,929,702

Amounts due to related parties - 54,763,577 - 54,763,577

Deposits from customers - 12,744,693 51,882 12,796,575

Loans and borrowings 38,412,951 159,217,561 - 197,630,512

Insurance fund - 187,070,606 11,071,283 198,141,889

Insurance payables 30,078,249 42,940,384 6,263,451 79,282,084

Bank overdraft - 4,795,642 196,083 4,991,725

Finance lease liabilities - 5,582,860 - 5,582,860

68,491,200 699,350,601 18,277,123 786,118,924Net (25,290,250) (123,773,903) 5,852,674 (143,211,479)

The Group’s exposure to foreign currency risk is limited as all fund management transactions and associated fees and expenses are denominated in local currency.

(g) Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations from its financial liabilities. Management through regular review of the Group’s position ensures that the Group’s operations can meet the minimum levels of funds required. The table below analyses liabilities of the Group into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date.

40 Financial instruments – fair values and risk management (Continued)Risk management (Continued)(f) Currency risk (Continued)


101


Grou

p C

arry

ing

Amou

ntCo

ntra

ctua

l Ca

sh fl

ow

6 m

onth

s or

less

6

-12

mon

ths

1-2

yea

rs 2

-5 y

ears

Mor

e th

an 5

ye

ars

At 3

1 De

cem

ber 2

016

Non-

deriv

ativ

e fin

anci

al li

abili

ties

Trad

e an

d ot

her p

ayab

les

296,

854,

489

296,

854,

489

36,1

01,0

4919

5,56

5,08

065

,188

,360

--

Amou

nts d

ue to

rela

ted

part

ies

12,2

84,3

7812

,284

,378

12,2

84,3

78-

--

-Ba

nk o

verd

raft

1,12

8,96

51,

128,

965

1,12

8,96

5-

--

-De

posi

ts fr

om c

usto

mer

s69

,567

,138

69,5

67,1

3846

,129

,817

23,4

37,3

21-

--

Loan

s and

bor

row

ings

19

4,54

8,47

127

0,18

9,86

125

,590

,974

30,6

02,0

3179

,754

,919

134,

241,

937

-Fi

nanc

e le

ase

oblig

atio

ns3,

565,

573

5,18

6,68

780

9,96

598

5,27

71,

770,

331

1,62

1,11

4-

Insu

ranc

e fu

nd

221,

668,

448

221,

668,

448

78,4

16,0

9323

,855

,538

12,6

87,4

6421

,318

,314

85,3

91,0

39In

sura

nce

paya

bles

83,4

18,0

7883

,418

,078

74,6

05,0

098,

813,

069

--

-88

3,03

5,54

096

0,29

8,04

427

5,06

6,25

028

3,25

8,31

615

9,40

1,07

415

7,18

1,36

585

,391

,039

Off

bala

nce

shee

t Fi

nanc

ial g

uara

ntee

54,9

90,8

8954

,990

,889

54,9

90,8

89-

--

-

At 3

1 De

cem

ber 2

015

Non-

deriv

ativ

e fin

anci

al li

abili

ties

Trad

e an

d ot

her p

ayab

les

232,

929,

702

232,

929,

702

59,8

62,8

8211

5,49

1,88

057

,574

,940

--

Amou

nts d

ue to

rela

ted

part

ies

12,7

96,5

7512

,796

,575

-6,

592,

485

6,20

4,09

0-

-Ba

nk o

verd

raft

4,99

1,72

54,

991,

725

4,99

1,72

5-

--

-De

posi

ts fr

om c

usto

mer

s54

,763

,577

54,7

63,5

7728

,,945

,844

25,8

17,7

33-

--

Loan

s and

bor

row

ings

19

7,63

0,51

219

8,04

8,66

910

,043

,182

15,8

16,0

9262

,901

,606

109,

287,

789

-Fi

nanc

e le

ase

oblig

atio

ns5,

582,

860

5,81

1,54

01,

226,

791

1,23

7,48

12,

751,

462

595,

806

-In

sura

nce

fund

19

8,14

1,88

919

8,14

1,88

949

,509

,736

61,1

67,6

2510

,310

,239

14,5

10,3

9362

,643

,896

Insu

ranc

e pa

yabl

es79

,282

,084

79,2

82,0

8438

,186

,162

41,0

95,9

22-

--

786,

118,

924

786,

765,

761

192,

766,

322

267,

219,

218

139,

742,

337

124,

393,

988

62,6

43,8

96O

ff ba

lanc

e sh

eet

Fina

ncia

l gua

rant

ee60

,947

,082

60,9

47,0

8260

,947

,082

--

--

40

Fina

ncia

l ins

trum

ents

– fa

ir v

alue

s and

risk

man

agem

ent (Continued)

Risk

man

agem

ent (

Cont

inue

d)(g

) Li

quid

ity ri

sk (C

ontin

ued)

Not

es to

the

finan

cial

stat

emen

ts (c

ontin

ued)

for t

he y

ear e

nded

31

Dece

mbe

r 201

6In

Zam

bian

Kw

acha

102

Annual Report 2016

Company

Total carrying

amountsContractual

cash flows12months

or less 1-2 years 2-5

Years2-5

Years

More than 5

YearsAs at 31 December 2016Non-derivative liabilitiesAmount due to related parties 9,055,152 9,055,152 7,348,905 1,706,247 - - -Loans and borrowings 20,760,566 20,760,566 122,208 20,638,358 - - -Other payables 1,066,704 1,066,704 1,066,704 - - - -Total financial liabilities 30,882,422 30,882,422 8,537,817 22,344,605 - - -

Total carrying

amountsContractual

cash flows12months

or less 1 – 2 years 2- 5

Years2-5

Years

More than 5

yearsAs at 31 December 2015Non-derivative liabilitiesAmount due to related parties 10,866,923 10,866,923 4,662,833 6,204,090 - - -Loans and borrowings 27,148,951 27,148,951 414,655 26,734,296 - - -Other payables 761,297 761,297 761,297 - - - -Total financial liabilities 38,777,171 38,777,171 5,838,785 32,938,386 - - -

The contractual cash flows represent undiscounted cash flows relating to the principal and interest on the financial liability or commitment.

(h) Operational risk

Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Group’s processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of the Group’s operations and are faced by all Group entities.

The Group’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Groups’ reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity.


40 Financial instruments – fair values and risk management (Continued)Risk management (Continued)(g) Liquidity risk (Continued)

103


(i) Capital management

The Group’s objectives when managing capital are:

Insurance companies

� To comply with the insurance capital requirements required by the regulators of the insurance markets where the companies operate. The companies manage their capital on a basis of 10% of its minimum regulatory capital position. Management considers the quantitative threshold of 10% as sufficient to maximise shareholders’ return and to support the capital required to write each of its businesses in the country where the companies operate;

� To safeguard the company’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders; and

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

The local insurance regulator, Pensions and Insurance Authority (PIA), specifies the minimum amount and type of capital that must be held by an insurance company in addition to their insurance liabilities. The minimum required capital must be maintained at all times throughout the year. The Company is subject to insurance solvency regulations. The group entities have embedded in their framework the necessary tests to ensure continuous and full compliance with such regulations.

Financial institutions

� To comply with the capital requirements required by the regulators of the financial institutions markets where the Group operates.

� To safeguard the Group’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders; and

� To provide an adequate return to shareholders by pricing loan contracts commensurately with the level of risk.

The local financial institutions regulator, Bank of Zambia (BoZ), specifies the minimum amount and type of capital that must be held by a financial institution. The minimum required capital must be maintained at all times throughout the year. The Group entities have embedded in their framework the necessary tests to ensure continuous and full compliance with such regulations.

Other Group companies

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders.

The Group sets the amount of capital in proportion to its overall financing structure. The Group manages the capital structure and makes adjustments to it in the light of the economic conditions and the risk characteristic of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of the dividends paid to shareholders, return on capital to shareholders, issue new shares, or sell assets to reduce debt.



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41 Capital commitments

ZMW 2,544,389 was contracted for as at 31 December 2016 for motor vehicles out of the authorised capital commitment of ZMW 2,544,389 (2015: ZMW 1,300,000).

42 Contingent liabilities

A Group company guaranteed, for the sum of US$3.5 million plus accrued interest of US$2.04 million (K60.9 million), a loan from a bank acquired by a related entity, Chakaka Village Limited. This guarantee was called by the Bank on 11 March 2015. The Directors have since obtained a legal opinion from external lawyers who advised that the guarantee is unenforceable due to a counter claim made by Chakaka Village Limited amounting to US$12 million. On this basis, the Directors are of the view that the guarantee had a value of nil as at 31 December 2016.

43 Subsequent events

There were no subsequent events which require disclosure or adjustments of these financial statements.

44 Significant accounting polices

The Group has consistently applied the following accounting policies to all periods presented in these financial statements, unless otherwise stated.

Set out below is an index of the significant accounting policies, the details of which are available on the pages that follow:

Note number

(a) Basis of consolidation

(b) Foreign currency

(c) Interest income and expenses

(d) Investment income and expense

(e) Fee and commission

(f) Investment property rental income

(g) Insurance

(h) Lessor and lessee

(i) Income tax expense

(j) Financial instruments

(k) Impairment

(l) Property, plant and equipment

(m) Intangible assets and goodwill

(n) Investment property

(0) Provisions

(p) Employee benefits

(q) Finance income and costs

(r) Inventories

(s) Deposits from customers


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(a) Basis of consolidation

(i) Business combinations

The Group accounts for business combinations using the acquisition method when control is transferred to the Group. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. The acquisition date is the date on which control is transferred to the acquirer. Judgement is applied in determining the acquisition date and determining whether control is transferred from one party to another. Any goodwill that arises is tested annually for impairment (see note 44 (k)). Any gain on a bargain purchase is recognised in profit or loss immediately. Transaction costs are expensed as incurred, except if they are related to the issue of debt or equity securities.

The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss.

Any contingent consideration payable is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognised in profit or loss.

(ii) Subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls an investee if it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date when control ceases.Investments in subsidiaries are accounted for at cost in the Company’s separate financial statements and are tested annually for impairment (see note 31).

(iii) Non-controlling interests

Non – controlling interests (NCI) are measured at their proportionate share of the acquiree’s identifiable net assets at the acquisition date.Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.

(iv) Loss of control

When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related non – controlling interest and other components of equity. Any resulting gain or loss is recognised in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost. Subsequently it is accounted for as an equity accounted investee or as an available for sale financial asset depending on the level of influence retained.

(v) Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised income and expenses (except for foreign currency transaction gains or losses) 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.


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(b) Foreign currency

Foreign currency transactions

Transactions in foreign currencies are translated into the respective functional currencies of the Group companies at the exchange rates at the date of the transactions.

Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at the exchange rate at the reporting date. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated to the functional currency at the exchange rate when the fair value was determined. Foreign currency differences are generally recongised in profit or loss. Non-monetary items that are measured based on historical costs in a foreign currency are not translated.

However; foreign currency differences arising from the translation of the following items are recognised in other comprehensive income:

The foreign currency gain or loss on monetary items is the difference between the amortised cost in the functional currency at the beginning of the year, adjusted for effective interest and payments during the year, and the amortised cost in the foreign currency translated at the spot exchange rate at the end of the year.

Foreign operations

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated into Kwacha at the exchange rates at the reporting date. The income and expenses of foreign operations are translated into Kwacha at spot exchange rates at the dates of the transactions.

Foreign currency differences are recognised in other comprehensive income, and accumulated in the foreign currency translation reserve (translation reserve), except to the extent that the translation difference is allocated to non-controlling interests.

When a foreign operation is disposed of in its entirety or partially such that control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. If the Group disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining control, then the relevant proportion of the cumulative amount is reattributed to non – controlling interests. When the Group disposal of only part of an associate while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss.

(c) Interest income and expenses

Interest income and expenses relates to revenue from the Group’s banking and investment activities.

Interest income comprises interest income on funds invested, loans and advances and available-for-sale financial assets. Interest income and expenses are recognised in profit or loss, 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 financial liability (or, where appropriate, a shorter period) to the carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Group estimates future cash flows considering all contractual



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terms of the financial instrument, but not future credit losses.

The calculation of the effective interest rate includes transaction costs and fees and points paid or received that are an integral part of the effective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or financial liability. Interest expenses comprise interest expense on borrowings and unwinding of the discount on provisions.

(d) Investment income and expenses

Investment income comprises interest income on fund placements, rental income, fair value adjustment on investment property change in nearest value of quoted equity securities, other fair value trading gains, income from units, change in government securities dividend income and other investment income. Dividend income is recognised in profit or loss on the date that the Group’s right to received payment is established, which in the case of quoted securities is the ex-dividend date.

Investment expenses comprise changes in the fair value of financial assets at fair value through profit or loss and impairment losses on financial assets.

(e) Fees and commission

Fees and commission income and expense that are integral to the effective interest rate on a financial asset or liability are included in the measurement of the effective interest rate.

Fees and commission income which are not an integral part of the effective interest rate are generally recognised when the service has been provided. Loan and lease commitment fees are recognised as revenue when the agreement has been completed and the Group retained no part of the loan for itself.

The Group receives investment management fees in respect of services rendered in conjunction with the issue and management of investment contracts, where the Group actively manages the consideration received from its customers to fund a return that is based on investment profile that the customer selected on origination of the instrument. These services comprise an indeterminate number of acts over the lives of the individual contracts and, therefore, the Group recognises these fees on a straight line basis over the estimated lives of the contracts.

Revenue recognition policies specific to life assurance and general insurance business, except for investment management fees as noted above, are detailed below.

(f) Investment property rental income

Rental income from investment property is recognised in profit or loss on a straight line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease. Rental income from sub-leased property is recognised as other income.


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(g) Insurance

The Group undertakes both general insurance and life assurance business.

Premium recognitionThe underwriting results are determined on an annual basis. Premiums written are accounted for in the year in which the risks are assumed. Income is recognised when premiums are due from the policy holders.

Premiums are disclosed gross of commission payable to intermediaries and excludes taxes and levies based on premiums. Premiums written include adjustments to premiums written in prior accounting periods.

Provision for unearned premiums – insurance fundsAt the end of each year, a proportion of the net premiums is provided for to cover portions of risk which have not expired at the reporting date. These are shown in the statement of financial position as Insurance funds. The provision has been based on S33 of the Insurance Act, 1997 (as amended) which requires an insurer transacting general insurance business to set aside reserves for unearned premium using the 24th method or fifty per centum of the net premium income in respect of all classes of business, whichever is higher, or any other method approved by the Registrar of Pensions and Insurance in writing. The basis used in these financial statements is the 24th method, as recognised by the Registrar of Pensions and Insurance.

Unearned premium provisionThe provision for unearned premiums comprises the proportion of premiums written which is estimated to be earned in the following or subsequent financial years, computed separately for each insurance contract using the daily pro rata method, adjusted if necessary to reflect any variation in the incidence of risk during the period covered by the contract. Classification of contractsContracts under which the Group accepts significant insurance risk from another party (the policy holder) by agreeing to compensate the policy holder or other beneficiary if a specified uncertain future event (the insured event) adversely affects the policy holder or other beneficially are classified as insurance contracts. Insurance risk is risk other than financial risk. Financial risk is the risk of a possible future change in one or more of a specified interest rate, security price, commodity price, foreign exchange rate, index of prices or rates, a credit rating or credit index or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract. Insurance contracts may allow transfer of some financial risk. Once a contract is classified as an Insurance Contract, it remains classified as such until all rights and obligations are extinguished or expire.

Deferred acquisition costsThese direct and indirect costs incurred during the financial period arising from the writing or renewing of insurance contracts are deferred to the extent that these costs are recovered out of future premiums. All other acquisition costs are recognised as an expense when incurred subsequent to initial recognition, deferred acquisition cost for life insurance are amortised over the period in which the related premiums are earned.

Claims Claims incurred in respect of general and life business consist of claims and claims handling expenses paid during the financial year together with the movement in the provision for outstanding claims.



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Claims outstanding comprise provision for the Group’s estimate of the ultimate cost of settling all claims incurred but unpaid at the reporting date whether reported or not, and related internal and external claims handling expenses. Claims outstanding are assessed by reviewing individual claims and making allowance for claims incurred but not yet reported, the effect of both internal and external foreseeable events, such as changes in claims handling procedures, inflation, judicial trends, legislative changes and past experience and trends.

While the Directors consider that the gross provisions for claims and the related reinsurance recoveries are fairly stated on the basis of the information currently available to them, the ultimate liability will vary as a result of subsequent information and events and may result in significant adjustments to the amounts provided. Adjustments to the amounts of claims provisions established in prior years are reflected in the financial statements for the period in which the adjustments are made, and disclosed separately if material. The methods used, and the estimates made are reviewed regularly.

Outstanding claimsFull provision is made for the estimated cost of all claims notified but not settled at the reporting date, less re-insurance recoveries, using the best information available at that time. Provision is also made for the cost of claims incurred but not reported until after the reporting date. Any differences between these provisions and subsequent provisions or payments are charged or credited to the underwriting account in the year in which they are determined.

Re-insuranceThe Group ceded re-insurance premiums in the normal course of business for the purpose of limiting its net loss potential through the diversification of its risk. Re-insurance arrangements do not relieve the Group from its direct obligations to its policy holders.

Premiums ceded and benefits reimbursed are presented in the statement of comprehensive income and statement of financial position on a gross basis.

Reinsurance assets comprise contracts with reinsurers under which the Group is compensated for losses on one or more contracts which are classified as insurance contracts.

A reinsurance asset principally includes the reinsurers’ share of liabilities in respect of contracts with policyholders. Amounts recoverable under reinsurance contracts are recognised in a manner consistent with the reinsured risks and in accordance with the terms of the reinsurance contract. Reinsurance is presented in the statement of financial position on a gross basis.

Reinsurance assets are assessed for impairment at each reporting date. An asset is deemed impaired if there is objective evidence, as a result of an event that occurred after its initial recognition, that the Group may not recover all amounts due, and that the event has a reliably measurable impact on the amounts that the Group will receive from the reinsurer.

Insurance receivables and payables Receivables and payables arising under insurance contracts and investment contracts are recognised when due and measured at amortised cost, using the effective interest method. An allowance for impairment is established when there is objective evidence that, as a result of one or more events that occurred after the initial recognition, the estimated future cash flows have been impacted.


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(h) Lessor and lessee

Assets held by the Group under leases that transfer to the Group substantially all of the risks and rewards of ownership are classified as finance leases. The leased assets are measured initially at an amount equal to the lower of their fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the assets are accounted for in accordance with the accounting policy applicable to that asset.

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.

Determining whether an arrangement contains a lease At inception of an arrangement, the Group determines whether such an arrangement contains a lease. A specific asset is the subject of a lease if fulfilment of the arrangement is dependent on the use of that specified asset. An arrangement conveys the right to use the asset if the arrangement conveys to the Group the right to control the use of the underlying asset.

At inception or upon reassessment of the arrangement, the Group separates payments and other consideration required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes for a finance lease that it is impracticable to separate the payments reliably, then an asset and a liability are recognised at an amount equal to the fair value of the underlying asset. Subsequently the liability is reduced as payments are made and an imputed finance charge on the liability is recognised using the Group’s incremental borrowing rate. No such arrangement occurred during the year.

Assets held under other leases are classified as operating leases and are not recognised in the Group’s statement of financial position.

Payments made under operating leases are recognised in the statement of comprehensive income 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.

(i) Income tax expense

Income tax expenseIncome tax expense comprises current and deferred tax. It is recognised in profit or loss except to the extent that it relates to items recognised directly in equity or in OCI.

i. Current tax

Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to the tax payable or receivable in respect of previous years. It is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax arising from dividends.



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ii. Deferred taxDeferred tax is recognised in respect of 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:

� temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss; and

� taxable temporary differences arising on the initial recognition of goodwill.

Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. 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.

Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date.

The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. For this purpose, the carrying amount of investment property measured at fair value is presumed to be recovered through sale, and the Group has not rebutted this presumption.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

iii. Tax exposures

In determining the amount of current and deferred tax, the Group considers the impact of tax exposures, including whether additional taxes and interest may be due. This assessment relies on estimates and assumptions and may involve a series of judgements about future events. New information may become available that causes the Group to change its judgement regarding the adequacy of existing tax liabilities; such changes to tax liabilities would impact tax expense in the period in which such a determination is made.

(j) Financial instruments

Non-derivative financial assets

The Group initially recognises loans and receivables and deposits on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are recognised initially on the trade date, which is the date that the Group becomes a party to the contractual provisions of the instrument. A financial asset or liability is measured initially at fair value. For an item not at fair value through profit or loss, transaction costs that are directly attributable to its acquisition to date.

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.


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Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

The Group classifies non-derivative financial assets into the following categories: financial assets at fair value through profit or loss, held-to-maturity financial assets, loans and receivables and available-for-sale financial assets.

Financial assets at fair value through profit or loss A financial asset is classified at fair value through profit or loss if it is classified as held for trading or is designated as such upon initial recognition. Financial assets are designated at fair value through profit or loss if the Group manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Group’s documented risk management or investment strategy. Attributable transaction costs are recognised in profit or loss as incurred. Financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognised in profit or loss.

Financial assets designated at fair value through profit or loss comprise equity securities that otherwise would have been classified as available for sale.

Held-to-maturity financial assets If the Group has the positive intent and ability to hold debt securities to maturity, then such financial assets are classified as held to maturity. Held-to-maturity financial assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition held-to-maturity financial assets are measured at amortised cost using the effective interest method, less any impairment losses. Any sale or reclassification of a more than insignificant 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.

Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. Loans and receivables comprise cash and cash equivalents, and trade and other receivables, including service concession receivables.

Cash and cash equivalents In the statement of cash flows cash and cash equivalents includes bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management.

Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are designated as available for sale or are not classified in any of the above categories of financial assets. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses and foreign currency differences on available-for-sale debt instruments, are recognised in other comprehensive income and presented in the fair value reserve in equity. When an investment is derecognised, the gain or loss accumulated in equity is reclassified to profit or loss.

Available-for-sale financial assets comprise equity securities and debt securities.


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Non-derivative financial liabilities

The Group initially recognises debt securities issued and subordinated liabilities on the date that they are originated. All other financial liabilities (including liabilities designated at fair value through profit or loss) are recognised initially on the trade date, which is the date that the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expire.

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

The Group classifies non-derivative financial liabilities into the other financial liabilities category. Such financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest method.

Other financial liabilities comprise loans and borrowings, bank overdrafts, and trade and other payables.

Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any tax effects.

(k) Identification and measurement of impairment

A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.

Objective evidence that financial assets (including equity securities) are impaired can include default or delinquency by a debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, adverse changes in the payment status of borrowers or issuers in the Group, economic conditions that correlate with defaults or the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.

Loans and receivables and held-to-maturity investment securities The Group considers evidence of impairment of these assets at both an individual asset and a collective level. All individually significant assets are assessed for impairment. Those found not to be impaired are then collectively assessed for any impairment that has been incurred but not yet individually


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identified. Assets that are not individually significant are collectively assessed for impairment. Collective assessment is carried out by grouping together assets with similar risk characteristics.

In assessing collective impairment, the Group uses historical information on the timing of recoveries and the amount of loss incurred, and makes an adjustment if current economic and credit conditions are such that the actual losses are likely to be greater or lesser than suggested by historical trends

The Group considers evidence of impairment for loans and receivables and held-to-maturity investment securities at a specific asset level. All receivables and held-to-maturity investment securities are assessed for specific impairment.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against loans and receivables or held-to-maturity investment securities. Interest on the impaired asset continues to be recognised. When a subsequent event (e.g. repayment by a debtor) causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.

Available-for-sale financial assets Impairment losses on available-for-sale financial assets are recognised by reclassifying the losses accumulated in the fair value reserve in equity, to profit or loss. The cumulative loss that is reclassified from equity to profit or loss is the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any impairment loss recognised previously in profit or loss. Changes in impairment provisions attributable to application of the effective interest method are reflected as a component of interest income. If, in a subsequent period, the fair value of an impaired available-for-sale debt security increases and the increase can be related objectively to an event occurring after the impairment loss was recognised in profit or loss, then the impairment loss is reversed, with the amount of the reversal recognised in profit or loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in other comprehensive income.

(l) Impairment

Impairment of non-financial assets

The carrying amounts of the Group’s non-financial assets, other than investment property, inventories 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. For goodwill, and intangible assets that have indefinite useful lives or that are not yet available for use, the recoverable amount is estimated each year at the same time. An impairment loss is recognised if the carrying amount of an asset or its related cash-generating unit (CGU) exceeds its estimated recoverable amount.

The recoverable amount of an asset or CGU 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 or CGU. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGU. Subject


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to an operating segment ceiling test, for the purposes of goodwill impairment testing, CGUs to which goodwill has been allocated are aggregated so that the level at which impairment testing is performed reflects the lowest level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business combination is allocated to groups of CGUs that are expected to benefit from the synergies of the combination.

The Group’s corporate assets do not generate separate cash inflows and are utilised by more than one CGU. Corporate assets are allocated to CGUs on a reasonable and consistent basis and tested for impairment as part of the testing of the CGU to which the corporate asset is allocated.

Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU (group of CGUs), and then to reduce the carrying amounts of the other assets in the CGU (group of CGUs) on a pro rata basis.

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.

(m) Property, plant and equipment

Recognition and measurementItems of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses.

Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost 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.The Group’s policy is to revalue property every three to five years. The revaluation differences are credited to other comprehensive income and accumulated in equity under the heading “revaluation reserve” unless it represents the reversal of a revaluation decrease previously recognised as an expense, in which case it is recognised as income. A decrease arising as a result of a revaluation is recognised as an expense to the extent that it exceeds any amount previously credited to the revaluation surplus relating to the same asset. The revaluation surplus included in equity or property, plant and equipment is transferred directly to retain earnings when the asset is used by the Group. The amount of the surplus transferred is the difference between depreciation charges based on the revaluated carrying amount of the assets and the depreciated based on the original cost.

Capital work in progress relates to items of property, plant and equipment that are under construction and are yet to be commissioned for use. Work in progress is measured at the costs incurred in relation to the construction up to the reporting date. Capital work in progress is not depreciated.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

The gain or loss on disposal of an item of property and equipment is determined by comparing the


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proceeds from disposal with the carrying amount of the item of property and equipment, and are recognised net within other income in profit or loss. When revalued assets are sold, the amounts included in the revaluation surplus reserve are transferred to retained earnings.

When the use of a property changes from owner-occupied to investment property, the property is remeasured to fair value and reclassified as investment property. Any gain arising on remeasurement is recognised in profit or loss to the extent that it reverses a previous impairment loss on the specific property, with any remaining gain recognised in other comprehensive income and presented in the revaluation reserve in equity. Any loss is recognised immediately in profit or loss.

Subsequent expenditureExpenditure incurred to replace a component of an item of property, plant and equipment that is accounted for separately, including major inspection and overhaul expenditure is capitalised. Other subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the item of property, plant and equipment. All other expenditure is recognised in profit or loss as an expense as it is incurred.

DepreciationDepreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Leased assets under finance leases are depreciated over the shorter of the lease term and their useful lives.

The estimated useful lives for the current and comparative periods are as follows:

Leasehold buildings 50 years Motor vehicles, plant and machinery, furniture and office equipment 3 - 5 years

Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.

(n) Intangible assets

Goodwill

Goodwill that arises upon the acquisition of subsidiaries is included in intangible assets. The Group measures goodwill at the acquisition date as:

� the fair value of the consideration transferred; plus � the recognised amount of any non-controlling interests in the acquiree; plus if the business

combination is achieved in stages, the fair value of the existing equity interest in the acquiree; less � the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities

assumed.

When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.

Goodwill on acquisitions of non-controlling interestsAcquisitions of non-controlling interests are accounted for as transactions with owners in their capacity as owners and therefore no goodwill is recognised as a result of such transactions. The adjustments to non-controlling interests are based on a proportionate amount of the net assets of the subsidiary.


44 Significant accounting polices (Continued)(m) Property, plant and equipment (Continued)

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Previously, goodwill was recognised on the acquisition of non-controlling interests in a subsidiary, which represented the excess of the cost of the additional investment over the carrying amount of the interest in the net assets acquired at the date of the transaction.

Subsequent measurement Goodwill is measured at cost less accumulated impairment losses.

Other intangible assets

Other intangible assets that are acquired by the Group and have finite useful lives are measured at cost less accumulated amortisation and accumulated impairment losses.

Subsequent expenditure Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in profit or loss as incurred.

Acquired customer list at fair value

The acquired customer list is recognised at fair value using a five year discounted revenue basis, an annual impairment review is carried out by management and asset valuation is adjusted if appropriate.

Amortisation Amortisation is based on the cost of an asset less its residual value. Intangible assets, except for those not subject to amortisation, are amortised on the basis of their estimated useful lives using the straight- line method. The amortisation is recognised in profit or loss from the date that they are available for use. The estimated useful lives for the current and comparative years are as follows:

� Purchased software 4 – 5 years

� Customer lists at cost 5 years

Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.

The Group has an intangible asset in the form of an acquired customer list at fair value which is considered to have an indefinite life and is therefore not amortised.

(o) Investment property

Investment property is property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes. Investment property is measured at cost on initial recognition and subsequently at fair value with any change therein recognised in profit or loss.

Cost includes expenditure that is directly attributable to the acquisition of the investment property. The cost of self-constructed investment property includes the costs of material and direct labour, any other costs directly attributable to bringing the investment property to a working condition for their intended use and capitalised borrowing costs.

Any gain or loss on disposal of an investment property (calculated as the difference between the net


44 Significant accounting polices (Continued)(n) Intangible assets (Continued)

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proceeds from disposal and carrying amount of the item) is recognised in the profit or loss.(p) 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 measured at management’s best estimate of the expenditure required to settle the present obligation. Risks and uncertainties of the provision are factored into the determination of the best estimate.

(q) Employee benefits

Short-term employee benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

Defined contribution plan

A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an employee benefit expense in profit or loss in the periods during which services are rendered by employees. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available. Contributions to a defined contribution plan that are due more than 12 months after the end of the period in which the employees render the service are discounted to their present value.

The Group contributed to a retirement plan established for the benefit of employees. The plan is a defined contribution type, whereby the Group contributes twice the amount contributed by employees. The employees’ contribution is 5% of the employee’s basic salary. After serving a qualifying period of probation all employees are entitled to participate in the benefit plan for retirement, disability or death.

All Group employees are also members of the National Pension Scheme Authority to which both the employees and the Group contribute. Obligations for contributions are recognised as an expense in the income statement as incurred.

(r) Finance income and costs

The finance income and cost relates to the Group’s not banking financing activities.

Finance income comprises interest income on funds invested including available for sale financial assets, dividend income on preference shares, gains on the disposal of available for sale financial assets, gains on the remeasurement to fair value of any pre-existing interest in an acquiree, gains on hedging instruments that are recognised in profit or loss and reclassifications of amounts previously recognised in other comprehensive income. Interest income is recognised as it accrues in profit or loss using the effective interest method. Dividend income is recognised in profit or loss on the date that the Group’s right to receive payments is established, which in the case of quoted securities is normally the



119


ex-dividend date.Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions and contingent consideration, losses on disposal of available for sale financial assets, dividends on preference shares classified as liabilities, fair value losses on financial assets at fair value through profit or loss, impairment losses recognised on financial assets (other than trade receivables), losses on hedging instruments that are recognised in profit or loss and reclassifications of amount previously recognised in other comprehensive income.

Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective interest method.

Foreign currency gains and losses are reported on a gross basis as other income or costs.

(s) Inventories

Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the first in first out principle.

(t) Deposits from customers

Deposits are the Group’s sources of debt financing. Deposits are subsequently measured at amortised cost using the effective interest method.


44 Significant accounting polices (Continued)(r) Finance income and costs (Continued)

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Annual Report 2016

45 New standards and interpretations not yet adopted

A number of new standards, amendments to standards and interpretations are effective for annual periods beginning on or after 1 January 2016, and have not been applied in preparing these (consolidated and separate) financial statements. Those which may be relevant to the Group and Company are set out below. The Group and Company do not plan to adopt these standards early. These will be adopted in the period that they become mandatory unless otherwise indicated

Effective date Standard, Amendment or interpretation Summary of Requirements

1 January 2017 Amendments to IAS 7 Disclosure Initiative

IAS 7 Statement of Cash Flows has been amended as part of the IASB’s broader disclosure initiative to improve presentation and disclosure in financial statements.

The requiring disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flow and non-cash changes.

The Group is assessing the potential impact on its financial statements resulting from the IAS 7.

1 January 2017 Recognition for Deferred tax for unrealised losses (Amendments to IAS 12

The amendments clarify that the existence of a deductible temporary difference depends solely on a comparison of the carrying amount of an asset and its tax base at the end of the reporting period, and is not affected by possible future changes in the carrying amount or expected manner of recovery of the asset. Therefore, assuming that the tax base remains at the original cost of the debt instrument, there is a temporary difference.

The Group is assessing the potential impact on its financial statements resulting from the IAS 12.

1 January 2018 IFRS 9 Financial Instruments IFRS 9 published in July 2014, replaces the existing guidance in IAS 39 Financial Instruments: Recognition and Measurement.

IFRS 9 indicates revised guidance on the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial assets and new general hedge accounting.

The Group is assessing the potential impact on its financial statements resulting from the IFRS 9.


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Effective date Standard, Amendment or Interpretation Summary of Requirements

1 January 2018 Applying IFRS 9 Financial instruments with IFRS 4 Insurance Contracts (Amendments to IFRS 4)

This optional solution provides an overlay approach to presentation to alleviate temporary accounting mismatches and volatility.

For designated financial assets, a company is permitted to reclassify between profit or loss and other comprehensive income (OCI), the difference between the amounts recognised in profit or loss under IFRS 9 and those that would have been reported under IAS 39


1 January 2019 IFRS 16 LeasesAmendments to IAS 19

IFRS 16 was published in January 2016. It sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer (‘lessee’) and the supplier (‘lessor’). IFRS 16 replaces the previous leases Standard, IAS 17 Leases, and related Interpretations. IFRS 16 has one model for lessees which will result in almost all leases being included on the Statement of Financial position. No significant changes have been included for lessors.

The standard is effective for annual periods beginning on or after 1 January 2019, with early adoption permitted only if the entity also adopts IFRS 15. The transitional requirements are different for lessees and lessors.


Effective date Standard, Amendment or Interpretation Summary of Requirements

1 January 2017 IFRS 15 Revenue from Contracts with

Customers

This standard replaces IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfer of Assets from Customers and SIC-31 Revenue – Barter of Transactions Involving Advertising Services.

The standard contains a single model that applies to contracts with customers and two approaches to recognising revenue: at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognised.This new standard will most likely have a significant impact on the Group, which will include a possible change in the timing of when revenue is recognised and the amount of revenue recognised. The Group is currently in the process of performing a more detailed assessment of the impact of this standard on the Group and will provide more information in the year ending 31 December 2016 financial statements.

The standard is effective for annual periods beginning on or after 1 January 2017, with early adoption permitted under IFRS.


45 New standards and interpretations not yet adopted (Continued)

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Annual Report 2016

Business Loans | Agric Loans | Term Deposits Savings Accounts | Housing Finance

+260 211 231 983www.facebook.com/MFinKwachaMFinancezambia [email protected] www.mfinance.co.zm

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FINANCIALSERVICES

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NOTICE OF ANNUAL GENERAL MEETING

Notice is hereby given that 5th Annual General Meeting (AGM) of the fully paid up members of Madison Financial Services PLC in respect of the period ended 31st December 2016, will be held at the Radisson Blu Hotel, in the Dome, Lusaka, Zambia on Thursday 30th March 2017 at 10: 00 hrs, for the following purposes;

AGENDA

1. To Confirm, adopt and approve the minutes of the 4th Annual General Meeting (AGM) held on Tuesday 24th May 2016.

2. To receive and adopt the Financial Statements of the year ended 31st December, 2016 and the reports of the Chairman, Directors and Auditors.

3. To receive and consider the Directors recommendation that a final Dividend of ZMW 0.18 per share be declared for the year ended 31st December 2016 which will be payable to all shareholders registered in the books of the Company at the close of business on Friday 21st April 2017, being the record date.

4. To consider and Approve the Directors’ remuneration report for the year ended 31st December 2016 and to fix the Directors’ remuneration for the year ending 31st December 2017

5. To consider and adopt the recommendation for the ratification of the appointment and the re-appointment of the Auditors of the Company Messrs KPMG until the conclusion of the next Annual General Meeting and to authorize the Directors to fix their remuneration.

6. To re - elect directors retiring by rotation and to fill any vacancies in accordance with the Articles of Associations

7. To transact any other business that may properly be transacted at the Annual General Meeting.

A member entitled to attend and vote at the meeting is entitled to appoint a proxy to attend, speak and on a poll, vote in his/her stead. Proxy forms must be lodged at the Registered Office of the Company at LSA House, Plot No. 316, and Independence Avenue, Lusaka not less than 48 hours before the commencement of the Annual General meeting.

By order of the Board

KAFULA MWICHE Company Secretary15th March 2017.

LUSAKA STOCK EXCHANGE SPONSORING BROKER

STOCKBROKERS ZAMBIA LIMITED[MEMBER OF THE LuSE and REGULATED BY THE SECURITIES AND EXCHANGE COMMISSION OF ZAMBIA]T: +260-211-232456W: www.sbz.com.zm

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Annual Report 2016

MINUTES OF THE 1st ANNUAL GENERAL MEETING OF THE MADISON FINANCIAL SERVICES PLC, HELD IN THE DOME, RADISSON BLU HOTEL, GREAT EAST ROAD, LUSAKA ON TUESDAY 31ST MARCH, 2015 AT 10:00 HRS.

PRESENT

Dr. Lawrence S. Sikutwa Group Executive ChairmanMr. Basil Nundwe Independent Vice ChairmanMr. Ralph Gilchrist Non-Executive DirectorMr. Rhoydie Chisanga Non- Executive DirectorMs. Cindy Chiputa Executive Director (Group Finance Director)Mr. Kafula Mwiche Company Secretary

INVITEES

Chilandu Sakala KPMGMaaya Chipwayambukuma KPMGNonde Sichilima Securities & Exchange CommissionKennedy Kaela Lusaka Stock ExchangeMusa Imakando African Financial ServicesSetfree Nhapi Corp ServeSophie Mushikita Intermarket SecuritiesElizabeth Kahembe Intermarket SecuritiesMuchindu Kasongola MAMCoDavid Kombe MAMCoWendy Tembo Pangea SecuritiesMalcom Shielg Pangea SecuritiesTapiwa Mususa Stockbrokers ZambiaMumbi Ng’andwe Stockbrokers Zambia

SHAREHOLDERS

Chabala Patrick Lumbwe Agnes Nyondo ChakontaMercedes Mwansa Chiputa CindyMwiche Kafula Mwape Ignatius & Mowa Mutoni Chanda Phiri Guy David ZingalumeSimwaba Pauline Kamwendo Mundia MundiaPhiri Estele Ngenda LindundaMaubo Daniel Mwangala Jones LietoPatel Khemchandbhai Kantibhai Miyoba Chabota NelsonFidelis John Malembeka Maimbolwa MabundeNzonzo Aggai Auditor MazubaMulenga Pythias Tembo Joseph ChisoniChinyanta Athanase Chama Edward Yuku Kayabwe Muhammed Ellison MunyenyembeChiwala Kaluba Ngoma Patrick Seleta

125


Shamba Joseph Oscar Shamba Bridget ChumaStanley Sichembe Nyama Isabel BueendoElina Phiri Hamunyanga Jane KundaMwenya Mwaba and Patriciah Webson Chanda MumbaMbumwae Silumesi Mwila Bwalya Tembo Magai Lynn Siame ChapangaChapatuka Mubanga Mate Kamungoma Hope Godfrey Malama Perpetual NgalandeKasongola Emmanuel Doctor Mr. Mwaka LemmygrassSarah Narukui Mukela Mbewe Alphonso Kolinto Mtonga Michael Kalwani Rebecca MutaleRegina Kateule Sakala Monica LunguFalanga Edward Mwila Bwalya SibesoBwalya Richard Jere ChakaMutimushi Drusilla Kafula Mutimushi Dorothy KapembwaMvula Chatonda Noel Oliver Kaocha Derick Kabaso Mulenga Elisa ManjaloGarg Mahendra Prakash Simvula MasiyaletiMubiana Sepho Deborah Makondesha CillaKaonga Matthews Muuka Varsity NchimunyaKaira Faides N Nyirongo Kenney HSimpemba Peter Chikopela Zimba Chembo Mwimanzi Kedrick Mwenda MisheckNalishuwa Lubinda Kalinda OziahBanda Juliana Mukendwa Mubiana LikeChibesakunda Harry erry Julien KangwaMusambachime Christine Bwalya Mazyopa Willson

PROXIES

ON BEHALF OF PROXY

Lawrence Sikutwa & Associates Limited Dr. Lawrence S. SikutwaZFI Holdings Limited Mr Ralph Gilchrist Saturnia Regna Pension Trust Fund Predencia NgosaKcm Pension Trust Scheme Predencia NgosaScbz Nominees - Bbz Staff Pension Fund Predencia NgosaStandard Chartered Bank Pension Trust Fund Predencia NgosaStanbic Bank Pension Trust Fund Predencia NgosaCec Pension Trust Scheme Predencia NgosaLafarge Cement Zambia Plc Pension Trust Scheme Predencia NgosaSandvic Minning Pension Scheme Predencia Ngosa

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Annual Report 2016

Indeni Pension Trust Scheme Predencia NgosaAirtel Zambia Staff Pension Fund Predencia NgosaNational Breweries Pension Trust Scheme Predencia NgosaZambia Sugar Pension Trust –Scheme Predencia Ngosa Lubambe Copper Mines Pension Trust Scheme Predencia NgosaCavmont Bank Zambia Pension Trust Scheme Predencia NgosaIgnatius Mwape&Carol C Mowa Ito Mwape Baruch Carol MwapeSun International Pension Trust Scheme Predencia NgosaBuyantanshi Pension Trust Fund Predencia NgosaAfrican Life Assurance Co. Ltd Predencia NgosaScz International Ltd Pension Trust Predencia NgosaZanaco Plc Dc Pension Scheme Predencia NgosaDeloitte And Touch Pension Trust Scheme Predencia Ngosa Ecobank Zambia Limited Pension Trust Scheme Predencia NgosaYoung And Rubicam Pension Trust Scheme Predencia NgosaUti Zambia Limited Staff Pension Trust Scheme Predencia NgosaDiamond Insurance Zambia Pension Trust Scheme Predencia NgosaLungu Judith Ngalande Dr Michael LunguMuweme Kauhano Siembeli Theresa MuwemeChelwa Nachela Valentine KawimbeHamunyanga Haatiki George George Hamayanga JrKangwa William Chanda KangwaHaraba Geoffrey Mitchel Mwanza Cecillia Siabusu Sichambwalwi Ito Chabota Nathan Cecillia Siabusu SichambwaliCecillia Siabusu Sichaambwali Ito Marie Maluba Cecillia Siabusu SichambwaliCecillia Siabusu Sichaambwali Ito Chuma Sichaambwa Cecillia Siabusu SichambwaliHimunyanga Chiziya Samuel Lungu

ATTENDEES NON SHAREHOLDERS

Derrick Hanke Pangea SecuritiesCharles Etemesi Prima Reinsurance Lina Chabala Prima Reinsurance Prabhleen Kohli Professional LifeFred Siwila Stanbic Nominiees

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01/2016 CALL TO ORDERThe Chairman called the meeting to order at 10:00 hrs and welcomed everyone present. The Chairman apologised to the shareholders for the late circulation of the Annual Report.

02/2016 QUORUM The necessary quorum being present, the Chairman declared the meeting duly constituted.

03/2016 NOTICEThe Chairman read out the Notice convening the meeting as circulated.

04/2016 ADOPTION OF THE MINUTES OF THE PREVIOUS ANNUAL GENERAL MEETING HELD ON TUESDAY 31st MARCH 2015The Minutes of the previous Annual General Meeting held on Tuesday 31st March, 2015 were tabled. The attendance list was corrected to include Mr Rhoydie Chisanga as having been in attendance.

Resolution The Resolution to confirm and adopt the Minutes as a true record of the previous Annual General Meeting was proposed by Dr Emmanuel Kasongola and seconded by Mr Mundia Mundia. The members unanimously resolved to confirm and adopt the minutes.

05/2016 CHAIRMAN’S REPORTThe Chairman’s Report which was contained in the 2015 Annual Report and which had been circulated in advance was tabled before the meeting. The Chairman then proceeded to give a high level summary of the Report. The Chairman’s Report was put to the meeting and there were no comments from the members.

Resolution The Resolution to adopt the Chairman’s Report was proposed by Mr Derrick Ngubai and seconded by Mrs Agnes Chakonta. The members unanimously resolved to adopt the Chairman’s Report.

06/2016 THE DIRECTORS REPORTThe Directors Report which was contained in the 2015 Annual Report and had been circulated in advance was tabled before the meeting. The Chairman made a brief presentation on the contents of the Report to the members. The Director’s Report was put to the meeting and there were no comments from the members.

Resolution The Resolution to adopt the Directors Report was proposed by Mr Chabala Lumbwe and was seconded by Ms Cecilia Sichambwali. The members unanimously resolved to adopt the Directors’ Report.

07/2016 AUDITORS REPORTThe Auditors’ Report which was contained in the 2015 Annual Report and had been circulated in advance was tabled before the meeting. The Audit Partner Mr Maaya Chipwayambukuma proceeded to give a summary of the Report. Mr Chipwayambukuma informed the meeting that the Audit Standard would change in 2017 and there would be a lot more disclosure in the Audit Report.

Resolution The Resolution to adopt the Auditors’ Report was proposed by Mr Rhoydie Chisanga and seconded by Ms Juliana Banda. The members unanimously resolved to adopt the Auditors Report.

08/2016 AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31st DECEMBER 2015.The Audited Financial Statements for the year ended 31st December, 2015 which were contained in the 2015 Annual Report and had been circulated in advance were tabled before the meeting.

Mr Peter Simpemba Chikopela inquired on the measures being put in place to counter the loss caused by the high cost of doing business in Zambia. The Group Finance Director responded that the foreign exchange loss

128

Annual Report 2016

being referred to in the Report was caused by the rapid depreciation of the Kwacha which affected the servicing of foreign denominated obligations. To avoid such occurrences in future some assets were now being kept in United States Dollars in an attempt to match the liabilities. The meeting was further informed that Management would endeavour to eliminate all foreign exchange liabilities by the end of the year

The Chairman further responded that, the Group being part of the larger business community in Zambia would continue to lobby and engage stakeholders such as the Government to find means and ways of improving the business environment, in an effort to bring down the cost of doing business.

Resolution The Resolution to adopt the Audited Financial Statements for the year ended 31st December, 2015 was proposed by Mr Wilson Mazyopa and seconded by Mr. Peter Simpemba Chikopela. The members unanimously resolved to adopt the Audited Financial Statements for the year ended 31st December, 2015.

09/2016 DIVIDEND

The Chairman reported to the meeting that the Directors were recommending that a final dividend in the sum of K 0.14 per share for the financial year ended 31st December 2015, be declared and payable to all shareholders in the books of the Company at the close of business on 17th June 2016, being the record date.

Resolution The Resolution to approve and declare a final divided of K0.14 per share for the financial year ended 31st December, 2015 payable to all shareholders in the books of the Company at the close of business on 17th June 2016, was proposed by Mr Daniel Maubo and was seconded by Mr. Mutoni Chanda. The members unanimously resolved to adopt the resolution.

10/2016 APPOINTMENT OF AUDITORS The Chairman informed the meeting that the Group Policy was to invite Auditing Firms to tender for Audit Services after every seven years. The Current Auditors had been auditing the Group for that period and hence the Directors were proposing that the Audit Services be put to tender and the Directors be authorised to select the auditors and fix their remuneration.

Resolution The Resolution to allow the Directors to tender for Audit Services and to appoint the successful firm and fix their remuneration was proposed by Mr Guy Phiri and seconded by Mr Moses Banda. The members unanimously resolved to adopt the resolution.

11/2016 ELECTION OF DIRECTORSThe Chairman informed the meeting that that in accordance with the Articles of Association of the Company, a third of the directors namely; Dr. Lawrence Sikutwa, Mr. Basil Nundwe and Mr. Rhoydie Chisanga, were retiring from the Board but availing themselves for re-election. Mr Dilip Kapadia had earlier retired from the Board and not offered himself for re-appointment. The Board had invited Mr Peter Banda and Mrs Margaret Chalwe- Mudenda to join the Board and the two had accepted the invitation. The election of the Board members was put to the meeting.

Resolution The Resolution to elect directors who were retiring and offering themselves for re-election and that Mr Peter Banda and Mrs Margaret Chalwe- Mudenda be appointed to the Board of Directors was proposed by Mr Ellison Munyeneymbe and seconded by Ms. Estelle Phiri. The members unanimously resolved to adopt the resolution.

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12/2016 ANY OTHER BUSINESS

12.1 The Members inquired into the process which was followed to nominate directors to the Board. The Members were informed that the Board identified suitable candidates with varying skills and invited them to join the Board. The members were encouraged to send curriculum vitae’s for persons who could be considered for Board appointment.

12.2 Mr Mwenda Misheck wondered whether having had a challenging economic environment in 2015 was there a way of fortifying the business or diversifying into other areas. The Chairman responded that the Group was a diversified Group as it was in Insurance, Deposit Taking, MSME Lending and Asset Management. The Group was looking to expand into the region by setting up or acquiring Insurance businesses in East Africa and Southern Africa.

12.3 Mr Oliva Kaocha suggested that when in future, Directors were being considered for election to the Board their curriculum vitae should be circulated to the members together with the Annual Report.

There being no further business to transact, the Chairman thanked everyone in attendance and declared the meeting closed at 10: 45 hours.

CHAIRMAN DATE

SECRETARY DATE

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FORM OF PROXY

..............................................2017

I/We,.......................................................................................................(full names in block letters) of...................................................................

............................................................................................................... being a member/members of Madison Financial Services PLC hereby

appoint.......................................................................................................................................................................................................................

..........................................................................................................................................................of.......................................................................

.............................................................................. or in his/her absence ................................................................................................................

of.................................................................................................................................................................................................................................

as my/our proxy to vote for me/us on my/our behalf at the Annual/Extraordinary general meeting of the company to be held on the 30th day of March 2017 and at any adjournment of that meeting:

Unless otherwise instructed, the proxy will vote as he thinks fit.

Signed....................................................

Date.........................................................

THE FORM OF PROXY SHALL BE:a. In the case of an individual, signed by the appointer or by his Attorneyb. In the case of a Corporation, signed either by an Attorney or Officer or Officer of the Corporation or be given under sealc. In Order to be valid the form must be deposited at the designated office of the Company not less than 48 hours before the time

appointed for the holding of the meeting

NOTE:

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Tupigie +255 754 666 115

Agriculture Insurance

77, Haile Selassie Road, MasakiP. O. Box 8318, Dar es Salaam, Tanzania

Tel: +255 22 2600921 + 255 22 2600925Fax: +255 22 2600907, Email: [email protected]

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Annual Report 2016

NOTES

133


NOTES

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Madison Finance Company Ltd (MFinance)318 Independence Avenue, LusakaP.O. Box 34366, LusakaTel: +260 211 378700 – 5

Madison Asset Management Company Ltd (MAMco)316 Independence Avenue, Lusaka Tel: +260 211 255121Tel: +260 211 257151/2/4/-255080Fax: +260 211 255070/255075

Madison Life Insurance Company Zambia Ltd (MLIFE)Dar es Salaam PlaceSouth of Main Post Office, Cairo RoadP. O. Box 33384, LusakaTel: +260 211 233 112/233 113/233 941 Fax: +260 211 233 936

Madison General Insurance Company Zambia Limited (MGen)Plot 318 Independence AvenueP.O. Box 37013, LusakaTel: +260 211 378700 – 5Email: [email protected]

MGen Tanzania Limited 3rd floor, NSSF building, Water FrontDar es SalaamTanzaniaTel: +255 754 666115Fax: +255 787 233752

LSA House316 Independence Avenue, Woodlands, Lusaka

MFS Plc Head Office P.O. Box 37013Lusaka, ZambiaTel: +260 211 257151/52/54Fax: +260 211 253504

Documents

Annual Report · General Insurance Life Insurance Financial Services Asset Management Annual Report and Financial Statements