circular to shareholders regarding approval for to... · 2015-08-04 · "zse" zimbabwe...
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THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTIONThis Document is neither a prospectus nor an invitation to the public to subscribe for shares in FBC Holdings Limited ("FBCH" or "the Group" or “the Company”), but is rather issued to the shareholders of FBCH for the purposes of explaining the offer to shareholders of the Group to acquireadditional shares in FBCH on the terms and conditions set out in this Document.
Action required:1. If you are in any doubt as to the action you should take, you should immediately seek advice from your stockbroker, bank manager, legal practitioner,
accountant or other professional adviser.
2. If you have disposed of all your ordinary shares in FBCH, this document should be handed to the purchaser of such shares, banker or other agentthrough whom the disposal was effected.
3. If you no longer hold any shares in FBCH you should send this Document, as soon as possible to the agent through whom the sale of yourshareholding in FBCH was effected for onward transmission to the purchaser or transferee.
(Incorporated on 7 November 2002 Registration Number 15583/2002)
Circular to Shareholders regarding approval for:1. The authorized share capital of the Company be redenominated from eight hundred million [800,000,000] ordinary shares of ZWD0.01 (one cent)*
each to 800,000,000 (eight hundred million) ordinary shares of USD0.00001 (one thousandth of a United States cent) each and that the Directors
be authorized to transfer from the Capital Reserves an equivalent of nominal value issued Share Capital to fund the re-denomination and this
amount will amount to USD3,642.01 (three thousand six hundred and forty two United States of America Dollars and one cent) and that the
Articles of Association of the Company be amended accordingly.
*Old Zimbabwe Dollar Currency as at 31 January 2009.
2. The Directors of the Company are authorized to undertake a renounceable Rights Offer of approximately 228,312,640.00 (two hundred and twenty
eight million, three hundred and twelve thousand six hundred and forty) Ordinary Shares of a nominal value of USD0.00001 each in the Company's
authorized share capital to existing holders of the Group's ordinary shares, at a subscription price of USD0.035 (three and a half United States
cents) per share, in the ratio of sixty three (63) new ordinary shares for every one hundred (100) ordinary shares held in FBC Holdings Limited
at the close of business on Friday 23 April 2010.
3. The Directors be and are hereby authorised to take any and all steps necessary to give effect to the resolutions (1) and (2) above.
4. The balance of the authorised but unissued 209,286,344 (two hundred and nine million two hundred and eighty six thousand three hundred and
forty four) ordinary shares of the Company be placed under the control of Directors until the next AGM, to be issued in compliance with the terms
of the Company's Memorandum and Articles of Association, provided that no issue will be made which would effectively transfer control of the Company
without the prior approval of the Shareholders in a General Meeting.
and incorporating:
Notice of an extraordinary general meeting to the members of FBC Holdings Limited, to be held at 1000 hours on Monday 26 April 2010, at the
Charter House Auditorium, 70 Samora Machel Avenue, Harare, which notice was be published on Thursday 1 April 2010 in accordance with the
provisions of the Listing Requirements of the Zimbabwe Stock Exchange and the Companies Act [Chapter 24:03] of Zimbabwe, is set out at the end
of this document. Shareholders of FBC Holdings Limited are asked to complete and return the enclosed form of proxy in accordance with the
instructions printed thereon, as soon as possible, but not later than Friday 23 April 2010 at 1600 hours.
April 2010
Legal Advisors Financial Advisors Sponsoring Stock Broker
Transfer SecretariesReporting Accountants Underwriters
Dube, Manikai & HwachaTransfer Secretaries
2
TABLE OF CONTENTS
CORPORATE INFORMATION 3DEFINITIONS 4PART A: SALIENT FEATURES OF THE RIGHTS OFFER 6
A.1. DETAILS OF THE RIGHTS OFFER 6A.2. EXPECTED TIMETABLE FOR THE RIGHTS OFFER 6A.3. TERMS OF THE RIGHTS OFFER 6A.4. EFFECTS OF THE TRANSACTION ON CAPITAL STRUCTURE 7
PART B: CHAIRMAN'S LETTER 8B.1. INTRODUCTION 8B.2 PROPOSED TRANSACTION 8B.3 RATIONALE OF TRANSACTION 8B.4. BACKGROUND OF THE TRANSACTION 8B.5. APPLICATION OF FUNDS RAISED THROUGH THE RIGHTS OFFER 11B.6 CONDITIONS PRECEDENT 11B.7 UNDERWRITING 12B.8 EFFECTS OF THE RIGHTS OFFER 12B.9 DIVIDEND POLICY 14B.10 DIRECTORATE 15B.11 DIRECTORS' INTERESTS 15B.12. DIRECTORS' SERVICE CONTRACTS AND REMUNERATION 15B.13. CORPORATE GOVERNANCE 15B.14. LITIGATION 16B.15. MATERIAL CHANGES 17B.16. MATERIAL CONTRACTS 17B.17 BORROWING POWERS OF THE COMPANY 17B.18 PROVISIONS 17B.19 STATEMENT OF INDEBTEDNESS 17B.20 EXPERT CONSENTS 17B.21 DOCUMENTS AVAILABLE FOR INSPECTION 17B.22. OPINION AND VOTING RECOMMENDATION 17
PART C: DIRECTORS' RESPONSIBILITY STATEMENT 18C.1 FORWARD LOOKING STATEMENT 18C.2 DIRECTORS RESPONSIBILITY STATEMENT 18
PART D: DETAILS OF THE RIGHTS OFFER 19D.1. TERMS OF THE RIGHTS OFFER 19D.2. OPENING AND CLOSING OF THE RIGHTS OFFER 19D.3. ALTERNATIVE ACTION TO BE TAKEN BY SHAREHOLDERS 19D.4. PAYMENT PROCEDURES 20D.5. EXCHANGE CONTROL REGULATIONS 20D.6. DIVIDENDS 20D.7. LISTING AND REGISTRATION OF RIGHTS OFFER SHARES 20D.8. RIGHTS OFFER SHARE CERTIFICATES 21D.9. OLD SHARE CERTIFICATES 21D.10. EXPENSES OF THE RIGHTS OFFER 21
PART E: REPORTING ACCOUNTANTS REPORT 22
PART F: FINANCIAL INFORMATION 24
PART G: REPORT ON THE UNAUDITED PRO FORMA FINANCIAL INFORMATION 69
PART H: ANNEXURES 71H.1. ANNEXURE (I) TABLE OF ENTITLEMENTS 71H.2. ANNEXURE (II) SHARE PRICE PERFORMANCE HISTORY 72H.3. ANNEXURE (III) DETAILS OF THE UNDERWRITERS 72H.4. ANNEXURE (IV) NOTICE OF EXTRAORDINARY GENERAL MEETING 73H.5 ANNEXURE (V) PROXY FORM 74
3
CORPORATE INFORMATION
Company Secretary and Registered Office
Tichaona Mabeza
FBC Centre, 6th Floor
45 Nelson Mandela Avenue
Harare
Financial Advisors
FBC Bank Limited
FBC Centre, 1st Floor
45 Nelson Mandela Avenue
Harare
Bankers
FBC Bank Limited
45 Nelson Mandela Avenue
Harare
Underwriters
Genesis Investment Bank
2nd Floor Corner House
29 Samora Machel Avenue
Harare
Reporting Accountants & Auditors
KPMG
Old Mutual Gardens
100 The Chase
Emerald Hill
Harare
Legal Advisors
Dube, Manikai & Hwacha
6th Floor, Gold Bridge
Eastgate
Cnr Sam Nujoma & Robert Mugabe
Harare
Transfer Secretaries
First Transfer Secretaries
4th Floor, Gold Bridge
Eastgate
Cnr Sam Nujoma & Robert Mugabe Rd
Harare
Sponsoring Broker
FBC Securities Limited
2nd Floor Bank Chambers
76 S Machel Avenue
Harare
4
The following definitions apply throughout this Circular to shareholders, unless the context requires otherwise. The use of singular words
imports the plural and masculine words both feminine and neuter, and words importing natural persons shall include juristic persons
(whether corporate or incorporate and vice versa)
"Act" The Companies Act [Chapter 24:03] of Zimbabwe.
"Articles" The Articles of Association of FBC Holdings Limited.
"Board" or "Directors" The Board of Directors of FBC Holdings Limited.
"Business Day" Monday to Friday inclusive, but excluding any such day which is a public holiday in Zimbabwe.
"Circular" or
"Circular to Shareholders"
This Circular to FBC Holdings Limited's Shareholders setting out the terms and conditions of the
Rights Offer and incorporating all letters and annexures relating thereto.
"Closing date" The date on which the Rights Offer closes being 1600hrs on Friday 14 May 2010.
"Dube, Manikai & Hwacha" Dube, Manikai & Hwacha, registered legal practitioners, appointed as legal advisors to FBC Holdings
Limited in respect of the Transaction.
"EGM" The Extraordinary General Meeting of FBC Holdings Limited's Shareholders convened under the
terms and conditions set out in this Circular.
"FBCH" or "the Group"
or "the Company "
FBC Holdings Limited.
"FBC Re" FBC Reinsurance Limited
"First Transfer Secretaries" First Transfer Secretaries (Private) Limited, appointed to provide transfer secretarial services to
FBC Holdings Limited.
"Letter of Allocation" The renounceable letter of allocation to be posted to Shareholders registered as such on the Record
Date, which sets out the entitlement of the Shareholder to Rights Offer Shares.
"Non-Resident Shareholders" FBC Holdings Limited's Shareholders with non-resident status in terms of the Exchange Control
Regulations.
"Notice" The notice to FBC Holdings Limited's Shareholders containing the Resolutions incorporated in
this Circular, which was published in accordance with the Companies Act on Thursday 1 April
2010.
"NSSA" National Social Security Authority
"Opening Date" The date the Rights Offer opens and Letters of Allocation are issued, ex-rights, being 0800hrs
hours on Monday 3 May 2010.
"Ordinary Shares" or "Shares" Existing Ordinary Shares of a nominal value of ZWD0.01 to be re-demoninated to USD0.00001
each in the issued share capital of FBC Holdings Limited, which are listed on the ZSE.
"Proxy Form" The attached form of proxy on which FBC Holdings Limited's Shareholders indicate their appointed
proxy in the event that they are unable to attend the EGM.
DEFINITIONS
5
"RBZ" The Reserve Bank of Zimbabwe
"Record Date" The time and date on which the register of Shareholders will be closed to determine eligibility of
Shareholders to participate in the Rights Offer, which time and date is expected to be the close of
business (16:00 hours) on Friday 23 April 2010 in terms of the Notice.
"Resolutions" The special and ordinary resolutions contained in the Notice giving effect to:
s The redenomination of share capital;
s The Rights Offer
s The placement of authorized but unissued share capital under the control of Directors.
"Rights Offer" The proposed renounceable Rights Offer to subscribe for 228,312,640 (two hundred and twenty
eight million three hundred and twelve thousand six hundred and forty) Ordinary Shares being
offered to Shareholders, registered as such on the Record Date, at the Subscription Price, on the
basis of sixty three (63) Rights Offer shares for every one hundred (100) ordinary shares held.
"Shareholders" Holders of ordinary Shares in FBC Holdings Limited.
"Subscription Price" USD0.035 per Rights Offer share.
"the Group" FBC Holdings Limited and its subsidiary companies.
"the Transaction" The renounceable Rights Offer.
"Underwriters" Genesis Investment Bank Limited
"Underwriting Agreement" The agreement between Genesis Investment Bank Limited and FBC Holdings Limited dated 31
March 2010 relating to the underwriting by Genesis Investment Bank Limited of the Rights Offer Shares
in compliance with the ZSE Listing Requirements.
"USD" United States Dollars, the currency currently in use in Zimbabwe.
"ZSE" Zimbabwe Stock Exchange.
"ZSE Listing Requirements" The Listing Requirements of the ZSE.
"ZWD" Zimbabwe dollars.
DEFINITIONS
6
The summary presents the salient information in relation to the Rights Offer, the detailed terms and conditions of which are more fully
set out in this document. The document should accordingly be read in its entirety for a full appreciation of the rationale for, and the
implications of, the Rights Offer, as well as action required to be taken by FBCH's Shareholders.
A.1. DETAILS OF THE Rights Offer
The Board is proposing a Rights Offer to recapitalize FBCH by way of a Renounceable Rights Offer of 228,312,640 (two hundred
and twenty eight million three hundred and twelve thousand six hundred and forty) ordinary shares 0f a nominal value of
USD0.00001 each, at a Rights Offer price of USD0.035 per share, on the basis of sixty three (63) new ordinary shares for every
one hundred (100) shares in issue as at the Record Date. The Rights Offer shares represent 39% of the Company's enlarged
share capital post the proposed Rights Offer.
A.2. EXPECTED TIMETABLE FOR THE RIGHTS OFFER
Event Date
Notice of EGM published Thursday 1 April 2010
Circular to Shareholders mailed Thursday 15 April 2010
Register closes for voting at EGM Friday 23 April 2010
EGM at 1000 hours Monday 26 April 2010
Letters of Allocation mailed to shareholders Wednesday 28 April 2010
Rights Offer opens Monday 3 May 2010
FBCH share register reopens Tuesday 4 May 2010
Latest time for splitting Letters of Allocation Wednesday 12 May 2010
Last day of dealing in Letters of Allocation Thursday 13 May 2010
Rights Offer closes at 1600 hours Friday 14 May 2010
Allocation of Rights Offer Shares Monday 17 May 2010
Expected date of registering Rights Offer Shares Monday 24 May 2010
Results of the Rights Offer published Wednesday 19 May 2010
Rights Offer Share Certificates mailed Monday 24 May 2010
* The dates set out herein are expected dates and may change. Any significant changes to these dates will be announced in local
newspapers and publications
A.3. TERMS OF THE Rights Offer
Subscription price per Rights Offer Share USD0.035
Issued and fully paid up ordinary shares of USD0.00001 each 362,401,016
Number of Rights Offer Shares 228,312,640
Number of Ordinary shares post the Rights Offer 590,713,656
Percentage of enlarged ordinary share
capital available under the Rights Offer 39%
Gross Rights Offer proceeds USD7,990,942.40
Notes
s The Rights Offer shares will, following the Rights Offer, rank pari passu, in all respects with all other ordinary shares, including
the right to receive all dividends or other distributions thereafter declared, made or paid on the issued ordinary share capital
of FBCH.
PART A: SALIENT FEATURES OF THE RIGHTS OFFER
7
Share Capital Structure Pre-Rights Offer
Authorised ordinary shares of ZWD0.01 each 800,000,000
Issued and fully paid up ordinary shares of ZWD0.01 each 362,401,016
Shares under the control of directors
ordinary shares of ZWDo.01 each 437,598,984
Share Capital Structure Post Rights Offer
Authorised ordinary shares of USD0.00001 each 800,000,000
Issued and fully paid up ordinary shares of USD0.00001 each 590,713,656
Shares under the control of directors
ordinary shares of USD0.00001 each 209,286,344
Action to be taken by shareholders:-
s Attend EGM to approve the Resolutions.
s Shareholders who are unable to attend the EGM but who wish to be represented thereat, should complete and sign the
Form of Proxy enclosed with this Document, and ensure that it is returned, or posted, to the Company Secretary at 6th Floor
FBC Centre, 45 N Mandela Avenue, Harare, so that it is received by no later than Friday 23 April 2010 at 1600 hours.
s Shareholders may attend the EGM in person, notwithstanding the completion and return of a Form of Proxy.
s Ahead of 1600 hours on Friday 23 April 2010, being the Record Date, ensure that all shares that you have acquired, butnotyet registered in your name, are so registered.
PART A: SALIENT FEATURES OF THE RIGHTS OFFER
A.4 EFFECTS OF THE TRANSACTION ON CAPITAL STRUCTURE.
The Rights Offer is anticipated to have the following effects on the capital structure of FBCH:
8
PART B: CHAIRMAN'S LETTER
Dear Shareholder,
B.1. INTRODUCTION
The year 2008 leading into early 2009 marked a transitional phase in the Zimbabwean financial markets where a period of
unprecedented hyper inflation heralded the introduction of the use of multiple currencies. Although it presents new business
opportunities, the change has affected the capitalisation of businesses and consequently their ability to conduct business profitably
in the future. The aforementioned period was characterised by tight fiscal discipline through the implementation of severe cost
cutting measures and freezing of capital expenditure. The lack of liquidity in the market is curtailing real growth due to a variety
of constraints that hamper the generation of free cash which is needed to further implement shareholder value-enhancement
activities. FBCH has not been spared from this with most of its assets which were denominated in local currency becoming either
completely wiped out or rendered irrelevant in the new operating environment.
B.2 PROPOSED TRANSACTION
Pursuant to the need for FBCH to recapitalize its operations in two of its subsidiaries, FBC Building Society and FBC Reinsurance
Limited, the Directors propose a renounceable Rights Offer to holders of ordinary shares, registered as at close of business on
Friday 23 April 2010, for subscription in cash, at a price of USD0.035 (three and a half United States of America cents) each, payable
in full on acceptance, on the basis of sixty three (63) new ordinary shares for every one hundred (100) ordinary shares in issue.
Following the introduction of a multi-currency system and the de-monetisation of the Zimbabwe dollar as the functional currency,
the directors seek a conversion of the nominal share price of each FBCH ordinary share from ZWD0.01 to USD0.00001. The
authorization to convert the par value of the shares to USD0.00001, will be sought by the Board from FBCH Shareholders at the
EGM to be held Monday 26 April 2010.
Assuming the approvals are forthcoming at the EGM, Letters of Allocation in respect of the Rights Offer Shares will be posted to
Shareholders from Wednesday 28 April 2010. It is expected that the Rights Offer Shares will be listed on the ZSE with effect from
Monday 17 May 2010.
The purpose of this Circular is accordingly, to furnish shareholders with the requisite statutory and regulatory information with
respect to the Rights Offer, and to detail the actions to be taken by each shareholder in respect of the proposed corporate action.
B.3 RATIONALE OF TRANSACTION
The introduction of the use of multiple currencies in Zimbabwe has altered the operating landscape for financial institutions in
Zimbabwe. Although it presents new business opportunities, the change has affected the capitalisation of businesses and consequently
their ability to conduct business profitably in the future. FBC Bank Limited and FBC
Securities Limited are adequately capitalised with respect to statutory minimum capital and operating capital because their
assets base was converted into foreign currency denominated assets. FBC Reinsurance meets the statutory minimum capital
but there is a need to enhance its operating capital and underwriting capacity. The recapitalisation exercise is therefore being
proposed for FBC Building Society and FBC Reinsurance for the following reasons:
s Compliance with statutory minimum capital requirement in respect of FBC Building Society.
s Brand protection and enhancement following the period referred to in 1 above.s Enhance FBC Reinsurance’s underwritng capacity and financial flexibility to undertake its growth strategy.
B.4. BACKGROUND OF THE TRANSACTION4.1 Background
FBCH is an investment holding company, the company through its four subsidiaries and one associate provides a wide
range of financial services. The company is also involved in manufacturing through a 59% owned subsidiary acquired
through realisation of collateral on a non-performing loan receivable. The organisational structure of the company
is as follows:
FBC Holdings Limited, FBC Center, 45 Nelson Mandela Avenue, P.O. Box 1227Telephone: 783203/7, Harare, Zimbabwe, www.fbc.co.zw
s Enhancing profitability of both FBC Building Society and FBC Reinsurance.
9
PART B: CHAIRMAN'S LETTER
FBCH is a diversified financial services Group offering commercial banking, investment banking, mortgage and reinsurance
services. The Group has a wide national network of branches and offices through which customers can access financial
products and services. The capital raised will be used to finance two subsidiaries namely FBC Building Society and FBC
Reinsurance Limited.
4.2 FBC Building Society
4.2.1 Background Information on FBC Building Society
FBC Building Society is a registered building society which operates through six branches across Zimbabwe.
It has successfully managed to resume its core business focusing on the following core operations as at the date of this
Circular:
s Mortgage Advances
s Property Development & Land Banking
4.2.2 Future Prospects for Building Society Business
The property development industry provides the basis for mortgage business and hence it is essential to understand the
continuity of the sector in order to be able to appreciate the full value of being in the mortgage finance sector. The following
are some key indications on the estimated demand for housing units as proposed by UN Habitat:
Narration (Year) 2000 2010 2020
Levels of urbanization (%) 35.3 42.5 49.1
Population ("000") 4,459 6,380 8,652
Based on these estimates, the Government of Zimbabwe has proposed that the housing stock be delivered at a rate of
25 000 units per annum. The following are some crucial statistics which indicate the levels of demand in the sector:
Housing units delivered in period 1985-2001 162 000 units
Average rate of housing delivery 1985-2001 17 500 units
Average rate of housing delivery per annum post 2002 5 500 units
Current shortage of housing stock 250 000 units
The supply of houses under the current illiquid conditions is expected to be delivered at a rate of about 20 000
units per annum which means that the sector has ten years of work before the back log is cleared ignoring the growth in
demand as the population increases. In order for the value of the shareholder to be unlocked in this subsidiary, recapitalization
must occur to enable the opportunities in that sector to be utilized as they arise.
Table 1: Levels of Urbanization
Turnall HoldingsZimbabwe Limited
59%
FBC Bank Limited FBC Reinsurance Limited FBC Building Society FBC Securities
Eagle Insurance Limited23%
100% 100% 60% 100%
10
4.2.3 Capital Requirements
Following the impairment of all assets in Zimbabwean dollars and the impairment of land and buildings vis-a-viz the
valuation which was obtaining prior to the introduction of multi-currencies the FBC Building Society is in need of re-
capitalisation to comply with the minimum regulatory capital of USD 10 million with effect from 31 March 2010.
The Reserve Bank of Zimbabwe has certified FBC Building Society's current capital of USD 6 million giving a gap of
USD 4 million on the statutory minimum capital requirement. The following is a summary of the capitalization position
of FBC Building Society and the capital requirements:
Narration Amount (USD)
FBC Building Society's adjusted capital
including non distributable reserve 6,000,000
Less facility provided for through intercompany borrowing 1,000,000
FBC Building Society's adjusted capital 5,000,000
Statutory capital requirements for building societies 10,000,000
Shortfall required to meet statutory capital requirements 5,000,000
The capital request of USD 5 million is required to comply with statutory regulatory requirements and to enhance the
Society's profitability.
4.3 FBC Reinsurance Limited
4.3.1 Background Information on FBC Reinsurance
FBC Reinsurance provides risk transfer solutions to insurers in Africa and beyond. Its major role is to provide
underwriting capacity to allow the insurance companies to assume greater individual risks than their size would
otherwise allow, protect the insurer's (i.e. cedant's) balance sheet against catastrophic losses and larger than
predicted accumulation of claims, management advise, risk management, and financial management.
Its main products and services are as follows:
s Fire
s Motor
s Engineering
s Miscellaneous Accidents
The slow growth in the economy and proliferation of insurers requires that FBC Re aggressively pursue an
PART B: CHAIRMAN'S LETTER
acquisition and vertical integration strategy so as to remain a dominant player in the industry. An amount of
USD2.5 million is required for FBC Re to seize and recapitalize some acquisition potential at direct insurance
level. Strategically FBC Re intends to go into direct insurance in order to gain access to the primary market
and boost premium for FBC Re. The current trend has been that insurers are retaining a large chunk of the
business leaving only a small part for the Reinsurer. This has negatively impacted on the Gross Premium
Written for Reinsurance. Hence the control of a short-term direct insurer will create a direct market for FBC
Reinsurance. An injection of USD 2.5 million would assist the company in increasing its market share to levels
in excess of 15% as it will be able to underwrite greater risks.
The other key strategy is to grow the regional book whilst consolidating own position in the local market. This
alone requires additional underwriting capacity and balance sheet strength. This will improve FBC Re's retention
capacity by at least 10 percentage points whilst strengthening its security in the regional markets. Currently
FBC Re has a capitalization of USD 3 million.
11
4.3.2 Comparative Information on the Insurance Sector in Zimbabwe & Region
The economy is beginning to turn around and industrial capacity rising. This means that the demand for
insurance will increase. There will be need for more underwriting capacity if we are to maintain the leadership
position the company assumed this year. Since underwriting capacity is a function of capital, there will be need
to increase capital in order to generate more capacity to write bigger business. The amount of business written
going forward will however depend on the Capital base. The higher the capital base the more the premium.
The major continental reinsurers that FBC Reinsurance will compete with in the region have capital in excess
of USD 100 milliom.
4.3.3 Future of the Reinsurance Industry in Zimbabwe
There are two global trends which are expected to impact on the reinsurance sector in Zimbabwe as follows:
s Risk Based Capital: Risk based capital models are increasingly being used globally after the 11 September
2001 catastrophe with the reinsurance industry gearing their portfolio strategies towards an optimization
of return on target markets. The sector has not had a loss of that magnitude and once it happens in real
PART B: CHAIRMAN'S LETTER
terms without the cushion of the hyperinflationary environment the regulator will realign the capital to
global levels using the risk based capital. This change is anticipated to happen in the near future and
therefore it is essential for FBC Re to be recapitalized now to give it the benefit of being a first mover in
that regard. Likewise, major global insurers can not provide their risk capacity or their capital at lesser
conditions than other capital markets and hence they need more risk capital than before.
s Liberalization of the global economy: The liberalization of the global economy has liberated the operations
of short-term insurance with mergers and acquisitions and recapitalization exercise resulting initially in
the retention of more risks. Globally there has been a reversal of these trends as competition has reduced
profit margins of insurers and at the same time eroding their ability to absorb fluctuations leading to an
increase in reinsurance demand to generate optimal results for shareholders and capital markets. The
Zimbabwean market has also gone through these reorganizations and recapitalizations and we expect that
as competition increases the business ceded to reinsurers will increase and hence FBC Re has to be ready
to write that business and needs to be recapitalized before that happens.
B.5. APPLICATION OF FUNDS RAISED THROUGH THE RIGHTS OFFER
The consolidated capital requirements for FBCH based on subsidiary requirements are as follows:
Narration Amount (USD)
FBC Building Society: 5,000,000
FBC Reinsurance: 2,500,000
Expenses of the Offer 490,942
7,990,942
The capital is meant to ensure that FBC Building Society complies with statutory minimum capital requirements
and to ensure that FBC Re has the appropriate critical mass to operate as a reinsurer.
B.6 CONDITIONS PRECEDENT
The Rights Offer contemplated herein is subject to the following Conditions Precedent:
s Passing of Resolutions to be tabled before Shareholders at the EGM to be held Monday 26 April 2010 seeking to convert
the nominal value of the shares from ZWD0.01 to USD0.00001 ordinary shares, subject to approval by the Registrar of
Companies; and
12
B.7 UNDERWRITING
Shareholders holding about 60% of the issued share capital have issued irrevocable Letters of Undertaking to follow their righs.Genesis Investment Bank Limited has agreed to underwrite the balance of the offer in an Underwriting Agreement dated 31March 2010, a copy of which is available for inspection.
B.8 EFFECTS OF THE RIGHTS OFFER
8.1 Share Capital8.1.1 Share Capital Before The Rights Offer
Set out below is the current authorized and issued share capital of FBCH, before the proposed Rights Offer:
PART B: CHAIRMAN'S LETTER
s Passing of the Resolution to be tabled before members at the EGM to be held on Monday 26 April 2010 authorizing the
Directors to undertake the Rights Offer in accordance with the terms and conditions set out in this Circular to Shareholders.
Number of FBCH sharesCurrent authorized share capital:
Ordinary shares of a nominal value ZWD0.01 each 800,000,000
Current issued and fully paid share capital:
Ordinary shares of a nominal value of ZWD0.01 each 362,401,016
Authorised but unissued ordinary shares currently under the control of the Directors 437,598,984
The unissued share capital of FBCH under the control of Directors of the Group is subject to the restrictions
set out in the Companies Act and the ZSE Listing Requirements.
8.1.2 Share Capital After Rights Offer
Number of FBCH sharesAuthorised share capital:
Ordinary Shares of a nominal value of USD0.00001 each 800,000,000
Issued and fully paid share capital:
Issued share capital before the Rights Offer of USD0.00001 each 362,401,016
Approximate number of Rights Offer Shares proposed to
be issued in terms of the Rights Offer 228,312,640
Approximate number of ordinary shares in issue after Rights Offer 590,713,656
Approximate number of authorized but unissued ordinary
shares under the control of Directors after the EGM 209,286,344
PART B: CHAIRMAN'S LETTER
13
8.2 Shareholding Structure
8.2.1 Before the Transaction
The shareholding structure for FBC Holdings in terms of the top 10 shareholders as at 31 March 2010 is as
follows:
Shareholder No of Shares Held % Held
NSSA 91,386,943 25.22%
Segment Investments 45,227,034 12.48%
Scaiflow Investments 26,012,915 7.18%
LAPF 22,332,676 6.16%
Bartlous Investments 12,492,015 3.45%
Tirent Investments 12,126,634 3.35%
Rapid Investments 6,942,136 1.92%
Herbcorn Engineering 6,290,487 1.74%
Setma (Private) Limited 6,179,832 1.71%
Dyreal Restaurant (Pvt) Ltd 6,179,376 1.71%
Subtotal 235,170,048 64.89%
Others 127,230,968 35.11%
Total 362,401,016 100.00%
8.3 Directors' Responsibility Statement
The Directors believe that the proposed Rights Offer is in the best interests of both the Company and its shareholders,
as it enables the Company to address the critical requirements for the recapitalization of its operations, including
enhancement of business development capacity. Accordingly, the Directors intend to vote in favor of the Resolutions
with respect to their own shareholdings as reflected below.
Shareholder No. of Shares Held % Held Total Shares % Held
NSSA 91,386,943 25.22% 57,573,774 148,960,717 25.22%
Segment Investments 45,227,034 12.48% 28,493,031 73,720,065 12.48%
Scaiflow Investments 26,012,915 7.18% 16,388,136 42,401,051 7.18%
LAPF 22,332,676 6.16% 14,069,586 36,402,262 6.16%
Bartlous Investments 12,492,015 3.45% 7,869,969 20,361,984 3.45%
Tirent Investments 12,126,634 3.35% 7,639,779 19,766,413 3.35%
Rapid Investments 6,942,136 1.92% 4,373,546 11,315,682 1.92%
Herbcorn Engineering 6,290,487 1.74% 3,963,007 10,253,494 1.74%
Setma (Private) Limited 6,179,832 1.71% 3,893,294 10,073,126 1.71%
Dyreal Restaurant (Pvt) Ltd 6,179,376 1.71% 3,893,007 10,072,383 1.71%
SUBTOTAL 235,170,048 64.89% 148,157,129 383,327,177 64.89%
Others 127,230,968 35.11% 80,155,510 207,386,478 35.11%
Total 362,401,016 100.00% 228,312,639 590,713,655 100.00%
8.2.2 Shareholding Structure Post Transaction
The shareholding structure (assuming all shareholders follow their rights) after the transaction is anticipated
to be as follows:
No. of Shares Issued
Before the Transaction After Transaction
14
PART B: CHAIRMAN'S LETTER
8.4 Management
The Rights Offer will have no impact on the composition of the Company's senior management team. The Executive
Directors and senior management will continue to hold approximately 8% of the Company's issued share capital after
the Rights Offer, if they follow their rights.
Before Rights Offer Rights Offer After Rights Offer
USD USD USD
Assets
Cash and cash equivalent 81,226,175 7,500,000 88,726,175
Trading assets 212,377 - 212,377
Loans and advances to customers 21,693,546 - 21,693,546
Investment securities 1,686,142 1,686,142
Investment securities held for sale 1,062,534 - 1,062,534
Other assets 13,852,516 - 13,852,516
Investment in associate 437,310 - 437,310
Investment in properties 575,000 - 575,000
Property, plant and equipment 43,406,436 - 43,406,436
TOTAL ASSETS 164,152,036 7,500,000 171,652,036
Equity And Liabilities
Capital and reserves
Share capital 3,624 2,283 5,907
Share premium - 7,497,717 7,497,717
Retained earnings 4,835 929 - 4,835 929
Other Reserves 32,823,632 - 32,823,632
Non - controlling interest 11,327,316 - 11,327,316
Shareholders' equity 48,990,501 7,500,000 56,490,501
Liabilities
Deposits from Banks 1,330,696 1,330,696
Deposits from customers 94,816,788 94,816,788Current tax liabilities 1,240,889 1,240,889
Deferred tax liabilities 8,293,603 8,293,603
Other liabilities 9,479,559 - 9,479,559
115,161,535 - 115,161,535
TOTAL EQUITY AND LIABILITIES 164,152,036 7,500,000 171,652,036
B.9 DIVIDEND POLICY
FBCH pays a dividend based on three times dividend cover of cash or near cash profits depending on the need to retain capital
within the business. This policy will be maintained after the transaction.
8.5 Financial Impact
The following are the expected financial implications of the proposed transaction:
15
PART B: CHAIRMAN'S LETTER
Name Designation
Herbert Nkala Group Non-Executive Chairman
Livingstone T. Gwata Group Chief Executive
John Mushayavanhu Deputy Chief Executive Officer
Kenzias Chibota Non-Executive Director
Gertrude Chikwava Non-Executive Director
Philip M. Chiradza Non-Executive Director
James M. Matiza Non-Executive Director
Johnson R. Mawere Non-Executive Director
Shingirai A. Munyeza Non-Executive Director
Godfrey Nhemachena Non-Executive Director
Nancy Saungweme Non-Executive Director
Stanley Kudenga Executive Director
Trynos Kufazvinei Group Finance Director
Webster Rusere Executive Director
B.11 DIRECTORS' INTERESTS
As at 31 March 2010 (being the last practicable date for publication of this Circular), the direct and indirect interests of Directors
of FBCH and their immediate families in FBCH shares were as follows:
NAME DIRECT HOLDING INDIRECT HOLDING TOTAL
L.T. Gwata 79,706 12,772,793 12,852,499
J. Mushayavanhu 63,326 12,126,634 12,189,960
W. Rusere 48,145 48,145
T. Kufazvinei 148,249 3,881,426 4,029,675
G.G. Nhemachena 5,960 5,960
Total 345,386 28,780,853 29,126,239
B.12. DIRECTORS' SERVICE CONTRACTS AND REMUNERATION
With regard to Directors of FBCH, there will be no changes to their service contracts and remuneration as a result of the Rights
Offer. Non-Executive Directors are paid a fee and an attendance allowance at Board meetings. Executive Directors operate under
service contracts. Board meetings are held at least four times a year and more regularly when required. The Executive Remuneration
Committee makes recommendation to the Board on the level of Directors fees to be paid to Non-executive Directors.
B.13. CORPORATE GOVERNANCE
FBCH recognises its responsibility to its stakeholders and is fully committed to the sound principles of Corporate Governance
and adheres to generally accepted Corporate Governance principles. The Board meets at least once a quarter and is governed
by its terms of reference and Board Charter.
13.1 Board CommitteesTo assist the board in the discharge of its responsibilities, a number of committees have been established, of which the
following are the most significant:
s Board Finance and Strategy Committee
The Board Finance and Strategy Committee have written terms of reference. It is chaired by a Non-Executive Director.
Meetings of the committee are attended by senior executives by invitation. This committee is constituted at Group
level and oversees the subsidiary companies.
B.10 DIRECTORATE
The FBCH board consists of the following directors:
16
PART B: CHAIRMAN'S LETTER
The committee meets four times every year to review the following:
s The Group Performance against agreed benchmarks,
s The Group's assets and liabilities,
s Group's strategy and budget,
s Group's financial statements and accounting policies,
s The adequacy of the Group's management information system
s Board Asset and Liability Committee (ALCO)
The committee falls directly under the Bank and is chaired by a Non-Executive Director. It is responsible for
the continuous monitoring of the Bank's assets and liabilities.
s Board Human Resources and Remuneration Committee
The committee's primary objective is to ensure that the right caliber of management is attracted and retained.
The committee is also responsible for the human resources policy issues, terms and conditions of services.
Non-Executive Directors are remunerated by fees and do not participate in any performance related schemes.
s Board Credit Committee
The committee sets the Group's credit policy and also approves credit applications above management's
authorized limits. The committee is responsible for the overall quality of the Group's credit portfolio. The
Divisional Director of Credit and Risk Management attends the committee meetings by invitation.
s Board Audit Committee
The Audit and Risk Management Committee reviews all published accounts of the company; reviews the scope
and the independence of the internal and external audits; monitors and assesses the systems for internal
compliance and control, and advises on the appointment, performance and remuneration of external auditors.
s Board Risk and Compliance Committee
The committee is constituted at Group level and is responsible for the Group Risk Management function. It
is chaired by a Non-Executive Director.
s Board Loans Review Committee
The committee falls directly under the Bank, has terms of reference and comprises Non-Executive Directors
only. Meetings of the committee are attended by invitation, by the Managing Director of the Bank, the Divisional
Director of Credit and Risk management and the Group Chief Executive. The committee is responsible for
ensuring that the Bank's loan portfolio and lending abide by approved credit policy as approved by the Board
of Directors and is in compliance with RBZ requirements. It also ensures that problem loans are properly
identified, classified and placed on non-accrual in accordance with the Reserve Bank guidelines. The committee
also ensures that adequate provisions are made for potential losses and write-offs of losses identified are made
in the correct period.
B.14. LITIGATION
The Directors are aware of the following legal proceedings in which FBC Bank Limited, a subsidiary of the FBC Group is involved:-
There are criminal charges against six (6) former employees of FBC Bank, Mutare Branch who have been charged with fraud/theft.
Five have appeared in court and one is still at large. A civil case will be instituted against the six employees for loss incurred by
the Bank.
It is not believed that the above indicated legal proceedings will have any material adverse effect on the Company's assets,
performance, operations and future prospects.
As far as the Directors are aware, other than as disclosed above FBCH is not involved in any litigation or arbitration proceedings
which may have or have had during the past 12 months preceding the date of this Circular, significant effect on the financial
position of the Group, nor is the Group aware of any such material litigation, dispute or arbitration proceedings pending or
threatened.
17
PART B: CHAIRMAN'S LETTER
B.15. MATERIAL CHANGES
The Directors confirm that between 31 March 2010 (being the date of the last published financial statements of FBC Holdings
Limited) and the date of this Circular; there have been no material changes in the assets and liabilities of the FBCH.
B.16. MATERIAL CONTRACTS
Other than in the course of normal business, no material contracts have been entered into by FBCH in the past twelve months.
B.17. BORROWING POWERS OF THE COMPANY
The Directors have complied with the provisions of the Group's Articles of Association in terms of borrowings which allows the
Directors to exercise all the powers of the Group to borrow money and to mortgage or charge its undertaking, property and
uncalled capital, or any part thereof, and to issue debentures, debenture stock and other securities whether outright or as security
for any debt, liability or obligation of the Society or of any third party.
B.18. PROVISIONS
There are no provisions for which the Group has a present legal or constructive obligation, as a result of past events and there
is no anticipated outflow of resources embodying economic benefits required to settle the obligation.
B.19. STATEMENT OF INDEBTEDNESS
The Directors are of the opinion that the Group is now, and will at the time of executing the proposed Rights Offer, be in a
position to service all its financial obligations as they fall due, and that the issued share capital and working capital of the Group
will provide adequate finance to the Group's foreseeable working capital requirements within the next 12 (twelve) months. As
at 31 December 2009, the Group had no borrowing of a material nature, and assuming that the Rights Issue is approved, the
Directors do not anticipate any need for debt financing arising in the foreseeable future.
B.20. EXPERTS CONSENTS
Dube, Manikai and Hwacha, First Transfer Secretaries FBC Bank Limited, Genesis Investment Bank Limited, and KPMG have
given, and not withdrawn, their consents, and as at date of issue of this circular, to its issue with the inclusion of their names
B.21. DOCUMENTS AVAILABLE FOR INSPECTION
The following documents, or copies thereof, will be available for inspection at the registered office of FBC Holdings Limited, as
well as at the offices of FBC Bank Limited, (whose address details are provided in the "Corporate Information" section
at the beginning of this Circular), during normal business hours until Monday 24 May 2010:
s This Circular
s Memorandum and Articles of Association of FBC Holdings Limited
s FBCH Annual Report as at 31 December 2009
s The Report of the Reporting Accountants on the financial information of FBC Holdings Limited
s Underwriting agreements
s Irrevocable letters issued by the major shareholders of FBC Holdings Limited to take up their rights pursuant to the
Rights Offer and,
s Signed Letters of Consent
B.22. OPINION AND VOTING RECOMMENDATION
The Directors consider the Rights Offer to be fair and reasonable so far as the shareholders of FBCH are concerned and to be
in the best interests of FBCH.
The Directors unanimously recommended that shareholders vote in favor of the Resolutions at the EGM and follow their rights.
Yours Sincerely
Herbert Nkala
(Group Chairman)
and reports in the forms and contexts in which they appear.
18
PART B: CHAIRMAN'S LETTER
C.1 FORWARD LOOKING STATEMENT
This Circular includes certain statements, estimates and forecasts, which are forward looking and are based on the current
expectations of FBCH and the Directors. The forward looking statements are subject to certain risks, uncertainties and
other factors some of which are beyond the control of FBCH and the Directors, difficult to predict and could cause actual
results to differ materially from those in the projections and forecasts. In making their considerations, Shareholders are
advised to make their own independent assessment and, in this regard, to consult their own professional advisers.
C.2 DIRECTORS RESPONSIBILITY STATEMENT
The Directors whose names appear hereunder, collectively and individually accept full responsibility for the accuracy of
the information given in this Circular and certify that to the best of their knowledge and belief there are no other facts, the
omission of which would make any statement in this Circular misleading and that they have made all reasonable enquiries
to ascertain such facts.
The Directors also confirm that this Circular includes all such information within their knowledge (or which it would be
reasonable for them to obtain by making enquiries) that investors and their professional advisors would require and
reasonably expect to find for purposes of making informed assessment of the assets and liabilities, financial position, profits
and losses and prospects of FBCH in order to vote at the EGM.
The proposal on the Rights Offer was placed for the Board's consideration, following the Meeting, the Directors unanimously
undertook as they hereby do, to recommend that all FBCH shareholders exercise their rights in terms of the Rights Offer.
Signed at Harare, by the following, being Directors of FBCH:
Name Designation Signature
Herbert Nkala Group Non-Executive Chairman
Livingstone T. Gwata Group Chief Executive
John Mushayavanhu Deputy Chief Executive Officer
Kenzias Chibota Non-Executive Director
Gertrude Chikwava Non-Executive Director
Philip M. Chiradza Non-Executive Director
James M. Matiza Non-Executive Director
Johnson R. Mawere Non-Executive Director
Shingirai A. Munyeza Non-Executive Director
Godfrey Nhemachena Non-Executive Director
Nancy Saungweme Non-Executive Director
Stanley Kudenga Executive Director
Trynos Kufazvinei Group Finance Director
Webster Rusere Executive Director
(Signed on Original Copy)
19
PART C: DIRECTORS' RESPONSIBILITY STATEMENT
D.1. TERMS OF THE RIGHTS OFFER
228,312,640 (two hundred and twenty eight million three hundred and twelve thousand six hundred and forty) Ordinary
Shares in the authorized but unissued share capital of FBC Holdings are hereby offered to FBC Holdings Shareholders,
registered as at close of business on Monday 26 April 2010, being the Record Date, for subscription in cash at a price of
USD0.035 each, payable in full on acceptance, in the ratio of sixty three (63) new ordinary shares for every one hundred
(100) ordinary shares held.
Fractions of Rights Offer Shares arising will be rounded to the nearest whole ordinary share.
The new ordinary shares being offered to members will rank pari passu with the existing ordinary shares of the Group
from the date of issue.
Renounceable Letters of Allocation
The renounceable Letter of Allocation to be posted to Shareholders from Wednesday 28 April 2010 sets out the entitlement
of the person to whom the Circular is addressed.
D.2. OPENING AND CLOSING OF THE RIGHTS OFFER
The Rights Offer opens at 0800 hours on Monday 3 May 2010 and will close at 1600 hours on Friday 14 May 2010.
The last day for the dealing in Letters of Allocation will be Thursday 13 May 2010 at 1200 hours.
D.3. ALTERNATIVE ACTION TO BE TAKEN BY SHAREHOLDERS
3.1 Acceptance
Shareholders who wish to accept the Rights Offer must return the renounceable Letter of Allocation in accordance
with the instructions contained therein, together with payment as required in section D4 of this Circular to the
following address:
First Transfer Secretaries (Private) Limited
4th Floor, Gold Bridge
Eastgate
Cnr Sam Nujoma & Robert Mugabe Rd
Harare
The completed Letter of Allocation must reach the above address by no later than 1600 hours on Friday 14 May
2010. The application will be considered complete only when the relative payment has been cleared.
Non-resident shareholders are required to fulfill the Exchange Control requirements set out in paragraph D5 of
this Circular.
3.2 Splitting
Shareholders who wish to accept only a portion of the shares allocated in terms of this Rights Offer can do so by
subscribing in part for the Rights Offer and selling the remaining Letters of Allocation through ZSE.
A Letter of Allocation may be split into smaller denominations by completing the Letter of Allocation in accordance
20
PART D: DETAILS OF THE RIGHTS OFFER
with the instructions contained therein. Dealing in the Letters of Allocation will commence on Monday 3 May
2010. The last day of splitting the Letters of Allocation will be Wednesday 12 May 2010 at 1200 hours.
3.3 Renunciation
The Letters of Allocation will provide for renunciation of rights in favor of third parties and will contain detailed
instruction in respect of renunciation.
D.4. PAYMENT PROCEDURES
4.1 Residents / Local Shareholders
Payment must be made by cash deposit or bank transfer, for the full amount in respect of the shares for which
resident shareholders make application.
Cash deposits or bank transfers should be made to the following account:
Account Name FBC Holdings Rights Issue
Bank FBC Bank Limited
Branch 8055
Account Number 203100003
Swift Code FBCPZWHA
4.2 Offshore / Foreign shareholders
Payment must be made through telegraphic transfer, cheque or bank draft, drawn in the currency of the United
States Dollars, for the full amount in respect of shares for which foreign shareholders make application.
Telegraphic Transfers, cheques or drafts should be made out in favor of "FBC Holdings Rights Offer". Cheques
or bank drafts should be crossed 'not negotiable' and must be accompanied by a Letter of Allocation.
Applications will be regarded as complete only when the funds are reflecting in the respective account.
D.5. EXCHANGE CONTROL REGULATIONS
Non-resident shareholders of FBC Holdings are advised to consult their professional advisors or bankers regarding their
individual Exchange Control position in relation to their participation in the Rights Offer described in the Circular to
shareholders.
D.6. DIVIDENDS
The Rights Offer Shares will be eligible for participation in any dividends declared by the Directors from time to time.
D.7. LISTING AND REGISTRATION OF RIGHTS OFFER SHARES
The listing committee of the ZSE has granted a primary listing for, and permission to deal in, all renounceable Letters of
Allocation (nil Paid) relating to the new Rights Offer Shares, between Monday 3 May 2010 and Monday 24 May 2010.
Renounceable Letters of Allocation may be negotiated and sold, subject to Exchange Control Regulations, the details of
which are provided in paragraph D3 and D5 of this Circular.
Application has been made to the ZSE, for the Rights Offer shares offered in terms of the Rights Offer to be listed on the
ZSE from Monday 24 May 2010.
21
PART D: DETAILS OF THE RIGHTS OFFER
Persons becoming Shareholders as a result of the Rights Offer will be placed on FBC Holding's share register. The Transfer
Secretaries in respect of the Rights Offer Shares are First Transfer Secretaries, whose details are set out in the "Corporate
Information" section at the beginning of this Circular.
D.8. RIGHTS OFFER SHARE CERTIFICATES
New Rights Offer share certificates will be posted as from Monday 24 May 2010 (at the risk of Shareholder) to the
Shareholder or renouncee's address as recorded on the Letter of Allocation unless written confirmation of any change of
address is received on time.
D.9. OLD SHARE CERTIFICATES
The old share certificates will remain valid and existing, and will be replaced with new certificates as shareholders transact.
D.10. EXPENSES OF THE RIGHTS OFFER
The expenses of the Rights Offer, amounting to approximately USD490,942.00 (four hundred and ninety thousand nine
hundred and forty two United States of America Dollars) which relate to various printing, distribution, advisory,
regulatory fees and such other charges, will be paid by FBC Holdings out of the proceeds of the Rights Offer.
PART E : REPORTING ACCOUNTANTS REPORT
KPMG Telephone +263 (4) 302600Mutual Gardens +263 (4) 303700100 The Chase (West), Emerald Hill Telefax +263 (4) 303699P O Box 6, HarareZimbabwe
KPMG, a Zimbabwe partnership and a member firm ofthe KPMG network of independent member firms affiliatedwith KPMG international, a Swiss co-opertive.22
15 April 2010
The DirectorsFBC Holdings Limited6th Floor, FBC Centre45 Nelson Mandela AvenueHarare
Dear Sirs
REPORT OF THE INDEPENDENT REPORTING ACCOUNTANT ON THE HISTORICAL FINANCIAL INFORMATION OF FBCHOLDINGS LIMITED
IntroductionThe directors of FBC Holdings Limited and its subsidiaries ("FBCH" or "the Group") are proposing to raise an amount of US$7,990,942.40 by wayof a renounceable Rights Offer to the registered holders of ordinary shares in FBCH, as at 23 April 2010, to subscribe for approximately 228 312640 (two hundred and twenty eight million, three hundred and twelve thousand, six hundred and forty) ordinary shares of a nominal value ofUS$0.00001 each in the issued share capital of FBCH, at a subscription price of US$0.035 per ordinary share, on the basis of 63 new ordinary sharesfor every 100 ordinary shares already held ("the Rights Offer"). The amount is being raised for the purpose of recapitalization of FBC Building Society,a 60% owned subsidiary of FBCH and FBC Reinsurance Limited, a 100% owned subsidiary of FBCH.
KPMG have been auditors of FBCH since inception. The modifications contained in the audit report for the year ended 31 December 2009 areindicated below in this report.
In terms of Section 8.3 of the Zimbabwe Stock Exchange ("ZSE") Listing Requirements, we present our report in respect of the audited historicalfinancial information of the Group as at and for the year ended 31 December 2009.
Change in functional currencyThe Group operated in a hyperinflationary environment up to 1 January 2009 when the use of multiple currencies was effectively adopted and thefull year results to 31 December 2009 are thus stated in United States dollars. Owing to the inability to apply the requirements of InternationalAccounting Standard (IAS) 29 (Financial Reporting in Hyperinflationary Economies) due to unavailability of indices since July 2008 from theZimbabwe Central Statistical Office ("CSO") and the prevalence of multiple exchange rates during the same period, the Group was unable to complywith the provisions of IAS 21 (The Effects of Changes in Foreign Exchange Rates) applicable to transactions and balances measured prior to 1 January2009 in the currency of a hyperinflationary economy (i.e. Zimbabwe dollars). In addition the Zimbabwe dollar was demonetised by the Minister ofFinance from 15 July 2009 onwards.
The financial information for the periods to 31 December 2008 was stated in Zimbabwe dollars and has not been included in the Circular by thedirectors due to the reasons noted above and the limitations to financial reporting that obtained during the financial year ended 31 December 2008,which are enunciated in the joint press statement issued by the Public Accountants and Auditors Board ("PAAB"), Zimbabwe Accounting PracticesBoard ("ZAPB") and the Zimbabwe Stock Exchange in March 2009.
ResponsibilitiesThe directors of the Group are solely responsible for the compilation, contents and presentation of the circular to shareholders ("the Circular") dated15 April 2010 of which this report is a part, and for the financial statements and other financial information from which the financial informationcontained in the Circular has been prepared, in accordance with International Financial Reporting Standards ("IFRSs") and other applicableregulations and guidance, as may be applicable to the Group from time to time. This responsibility includes: designing, implementing and maintaininginternal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due tofraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
We report on the financial information in accordance with the requirements of Section 8.3 of the Listing Requirements of the Zimbabwe StockExchange.
Audit Opinion
Year ended 31 December 2009We have reproduced sections of our audit report in respect of the financial year ended 31 December 2009 which indicate the modifications to ouraudit report on the Group's financial statements for the period:
"Basis for adverse opinion on the group's financial performance and cash flows and unqualified opinion on the group and the company's financialposition
23
PART E: REPORTING ACCOUNTANTS REPORT
The financial statements have been prepared in accordance with International Financial Reporting Standards, except for the following standards:s International Accounting Standard (IAS 21), The Effects of Changes in Foreign Exchange Rates; ands International Accounting Standard (IAS 29), Financial Reporting in Hyperinflationary Economies.
The directors' report describes the basis of preparation of the financial statements in the circumstances that have given rise to a change in the group'sfunctional currency from the Zimbabwe dollar to the United States dollar, and offers an explanation for departing from these standards. The directors'report also indicates that it is not possible to quantify the effects of these departures on the group's financial performance and cash flows for theyear and that there is no effect on the group and company's financial position as at 31 December 2009.
Adverse opinion on the group's financial performance and cash flows and unqualified opinion on the group and the company's financial position
In our opinion, because of the significance of the matters described in the preceding paragraphs, the financial statements of FBC Holdings Limiteddo not give a true and fair view of the group's financial performance and cash flows for the year ended 31 December 2009 in accordance withInternational Financial Reporting Standards.
In our opinion, the financial statements give a true and fair view of the group and company's financial position as at 31 December 2009 in accordancewith International Financial Reporting Standards.
Report on other legal and regulatory requirements
In accordance with the requirement and recommendation contained in the Joint Media Statement on the Report of the Independent Auditor issuedby the Public Accountants and Auditors Board, the Zimbabwe Accounting Practices Board and the Zimbabwe Stock Exchange - Guidance 3/2010,approved for issue on 18 March 2010, we report as follows:s In our opinion the group has complied, in all material respects, with the financial reporting guidance in the Joint Media Statement on the
Impact on Financial Reporting as a Consequence of the Change in Functional Currency issued by the Public Accountants and Auditors Board,the Zimbabwe Accounting Practices Board and the Zimbabwe Stock Exchange, approved for issue on 5 August 2009, with which the directors'have elected to comply.
s The financial statements have not been prepared in compliance with all the requirements of the Companies Act (Chapter 24:03) and StatutoryInstruments (SI 33/99 and SI 62/96) as the group has not been able to comply with the requirements of International Financial ReportingStandard IAS 21, The Effects of Changes in Foreign Exchange Rates, as well as certain other matters, and has not presented comparativeinformation."
Format of the accountants reportAs the purpose of the financial information differs from the purpose of the financial statements prepared for members, the financial informationin the Circular in Part F is not intended to comply in full with the presentation and disclosure requirements of the Companies Act [Chapter 24:03]and IFRSs promulgated by the International Accounting Standards Board ("IASB").
Our report shall not in any way constitute recommendations regarding the completion of the transaction or the issue of the Circular to shareholders.
Yours faithfully
KPMGChartered Accountants (Zimbabwe)Harare
24
PART F: FINANCIAL INORMATION
1. General Information
The main business of the company, which is incorporated in Zimbabwe, is investment holding in companies which provide
commercial banking services, mortgage loans, stock broking and reinsurance services. The company is also involved in manufacturing
through a 59% owned subsidiary acquired through realisation of collateral on a non-performing loan receivable.
2 Basis of Preparation
The consolidated financial statements have been prepared based on the historical cost approach except for the following
classes of assets which are stated at fair value:
s Financial instruments carried at fair value
s Investment property
s Freehold land and buildings
s Plant
(a) Change in functional currency
Following the introduction of the national multi-currency regime in February 2009, it should be noted that the
functional currency in use in the Group for practical purposes is the United States Dollar (US$) with effect from
the 1st of January 2009.
(b) Non-compliance with International Financial Reporting Standard
The financial statements do not comply with IFRSs in the manner noted in the following paragraphs:
IAS 21: The Effects of Changes in Foreign Exchange Rates requires that an entity restates its comparatives upon
a change in functional currency by using the closing exchange rate as at the previous year end. As there
were numerous exchange rates that prevailed as at the end of 2008, an appropriate closing exchange rate
could not be determined for purposes of the required restatement.
IAS 29: Financial reporting in hyperinflationary economies requires that all transactions and balances that are
in the currency of a hyperinflationary economy should be adjusted for the effects of inflation before
conversion to the alternative presentation currency using the spot exchange rate at the date of conversion.
Due to lack of inflation indices, which were last published in July 2008, such a requirement could not
be complied with.
The financial statements have not complied with IAS 1: Presentation of financial statements as they do
not show prior period comparatives. Due to the hyperinflationary environment prevailing in 2008,
comparatives could not be objectively converted to the new functional and presentation currency due to
a multiplicity of exchange rates and unavailability of inflation indices from August to December 2008.
(c) Basis of determination of opening balances
In view of the difficulties noted in part (b) of the basis of preparation, with regards to complying with the
requirements of IFRSs in respect of IAS 29 and IAS 21, the Group applied guidance issued jointly by the PAAB,
the ZAPB and the Zimbabwe Stock Exchange in August 2009. In this respect the following procedures were followed
in coming up with opening balances from the old functional currency (Zimbabwe dollars) to the new functional
currency (United States of America dollars):
s Cash and financial instruments denominated in currencies other than the Zimbabwe dollar were converted
into United States of America dollars using the cross exchange rates prevailing on 1 January 2009
s Monetary assets and liabilities denominated in Zimbabwe dollars including loans and advances which were
not renegotiated into amounts denominated in other currencies were taken as nil .
s Deposits in other currencies other than the Zimbabwe dollars were converted using the cross exchange rates
prevailing on 1 January 2009. Deposits denominated in Zimbabwe dollars were taken as nil.
25
FBC HOLDINGS LIMITED ACCOUNTING POLICIES
s Other liabilities were determined by establishing settlement amounts with the creditor or supplier.
s Owner occupied properties were carried at fair values determined by independent external valuers as at 31
December 2008.
s Other property, plant and equipment were carried at deemed costs, being either the estimated fair value
amounts or depreciated replacement costs determined by independent external valuers as at 31 December
2008.
s Other assets were valued using the fair values prevailing in the market.
s Non-distributable reserve was derived as the difference between total assets and total liabilities as stated in
the new functional currency, United States of America dollars at 1 January 2009.
s Deferred tax was calculated using the balance sheet liability method in line with IAS12 and was provided for
at effective tax rates against the carrying amounts of all property, plant and equipment. Initially nil income
tax values were applied to these opening balances until guidance on the implementation of transitional
provisions was issued which resulted in the opening balances being adjusted for these provisions. Thus subject
to Zimra approval, which is still outstanding.
s The impact of share based payment transactions on the Group’s opening balances could not be established
as at 1 January 2009 due to the unavailability of key inputs into the Black Scholes Model which the Group
used to ascertain the fair value of its share options. At 31 December 2009 the Intrinsic Value Method was
then applied in determining the fair value of these share options due to the difficulty experienced in applying
the Black Scholes Model.
(d) Use of estimates and judgments
The preparation of financial statement in conformity with IFRSs requires management to make judgments,
estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities,
income and expenses. These estimates and associated assumptions are based on historical experience and various
other factors that are believed to be reasonable under the circumstances, the results of which form the basis of
making the judgments about carrying values of assets and liabilities that are not readily apparent from other
services. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on
an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised
and in any future periods affected.
In particular, information about significant areas of estimation uncertainty and critical judgments in applying
accounting policies that have the most significant effect on the amount recognized in the financial statements are
listed below:
s Share based payments
s Loan loss impairment
s Fraud recoveries
s Deferred taxation
s Impairment of non-financial assets
s Useful lives of classes of PPE
s Opening balances
s Exchange gains/ losses/ use of average exchange rates
s Provision for technical assets and liabilities
s Contingent assets and liabilities
(e) Basis of consolidation
(i) Subsidiaries
Subsidiaries are entities controlled by the Group. Control exists when the Group has the power, directly or
indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities.
In assessing control, potential voting rights that presently are exercisable or convertible are taken into account.
The financial statements of subsidiaries are included in the consolidated financial statements from the date
that control commences until the date control ceases.
26
(ii) Acquisitions from entities under common control
Business combinations arising from transfers of interests in entities that are under the control of the shareholder that
controls the Group are accounted for as if the acquisition had occurred at the beginning of the earliest comparative
period presented or, if later, at the date that common control was established; for this purpose comparatives are
restated. The assets and liabilities acquired are recognised at the carrying amounts recognised previously in the Group's
controlling shareholder's consolidated financial statements. The components of equity of the acquired entities are
added to the same components within Group equity except that any share capital of the acquired entities is recognised
as part of share premium. Any cash paid for the acquisition is recognised directly in equity.
(iii) Transactions eliminated on consolidation
Intra-group balances and any unrealised income and expenses arising from intra-group transactions are eliminated
in preparing the consolidated financial statements. Unrealised losses are eliminated in the same way as unrealised
gains but only to the extent that there is no evidence of impairment.
(iv) Investments in associates
Investments in associates are accounted for by the equity method of accounting. Under this method the company's
share of post-acquisition profit or losses of associates is recognized in the statement of comprehensive income and
its share of post acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition
movements are adjusted against the cost of investment. Associates are entities over which the Group generally has
between 20% to 50% of the voting rights, or over which the Group has significant influence, but which it does not
control. Unrealized gains on transactions between the Group and its associates are eliminated to the extent of the
Group's interest in associates: unrealized losses are eliminated unless the transaction provides evidence of an impairment
of the assets transferred. The Group's investment in associates includes goodwill (net of accumulated amortization)
on acquisition. When the Group's share of losses in the associate equals or exceeds the interest in associate, the Group
does not recognize further losses, unless the Group has incurred obligations or made payments on behalf of the
associate.
Investments in associates classified as held for sale are accounted for at fair value through profit or loss, with any gains
or losses being recognized in the statement of comprehensive income.
(f) Share capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from
the proceeds. Incremental costs directly attributable to the issue of new shares or options, or for the acquisition of a
business, are included in the cost of acquisition as part of the purchase consideration.
Where any Group company purchases the Company's equity share capital (treasury shares), the consideration paid,
including any directly attributable incremental costs, is deducted from equity attributable to the Company's equity
holders until the shares are cancelled or disposed of. Where such shares are subsequently sold or reissued, any
consideration received, net of any directly attributable incremental transaction costs, is included in equity attributable
to the Company's equity holders.
(g) Foreign currency transactions
Transactions in foreign currencies are translated to the United States dollar (US$) at exchange rates ruling at the dates
of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are
retranslated to the functional currency at the exchange rate at that date, after adjustment for effective interest and
payments during the period. Non-monetary assets and liabilities, denominated in foreign currencies, that are measured
at fair value are restated to the functional currency at the date that fair value was determined. Foreign currency
differences are recognized in the statement of comprehensive income.
FBC HOLDINGS LIMITED ACCOUNTING POLICIES
(h) Financial instruments
(i) Classifications
(a) Held-to-maturity
Held-to-maturity financial assets are non-derivative assets with fixed or determinable payments and fixed maturity
that the Group has the positive intent and ability to hold to maturity, and which are not designated at fair value
through profit or loss or available-for-sale.
(b) Fair value through profit or loss
This category has two subcategories:
s Designated. The first includes any financial asset that is designated on initial recognition as one to be
measured at fair value with fair value changes in profit or loss.
s Held for trading. The second such category includes financial assets that are held for trading. All derivatives
(except those designated hedging instruments) and financial assets acquired or held for the purpose of selling
in the short term or for which there is a recent pattern of short-term profit taking are considered to be held
for trading.
(c) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted
in an active market other than:
s those that the entity intends to sell immediately or in the near term which may be classified as held for
trading, and those that the entity upon initial recognition designates as at fair value through profit or loss;
s those that the entity upon initial recognition designates as available for sale; or
s those for which the holder may not recover substantially all of its initial investment, other than because of
credit deterioration which shall be classified as available for sale.
(d) Available-for-sale
Available-for-sale financial assets are non-derivative investments that are not designated as another category
of financial assets. Unquoted equity securities whose fair value cannot be reliably measured are carried at cost.
All other available-for-sale investments are carried at fair value.
(ii) Initial recognition
The Group initially recognises loans and advances, deposits, debt securities issued and subordinated liabilities on the
date that they are originated. All other financial assets and liabilities (including assets and liabilities designated at fair
value through profit or loss) are initially recognized on the trade date at which the Group becomes a party to the
contractual provisions of the instrument.
Initially, financial assets and liabilities are measured at fair value (including transaction costs, for assets and liabilities
not measured at fair value through profit or loss).
(iii) Subsequent measurement
Subsequently, financial assets and liabilities (including derivatives) are measured at fair value, with the following
exceptions:
s Loans and receivables, held-to-maturity investments, and non-derivative financial liabilities are measured at
amortised cost using the effective interest method.
s Investments in equity instruments with no reliable fair value measurement (and derivatives indexed to such
equity instruments) are measured at cost.
s Financial assets and liabilities that are designated as a hedged item or hedging instrument are subject to
measurement under the hedge accounting requirements of the IAS 39.
s Financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition, or that are
accounted for using the continuing-involvement method, are subject to particular measurement requirements.
FBC HOLDINGS LIMITED ACCOUNTING POLICIES
28
(iv) Derecognition
The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it
transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially
all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets
that is created or retained by the Group is recognised as a separate asset or liability.
The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expire.
The Group enters into transactions whereby it transfers assets recognised on its statement of financial position, but
retains either all risks and rewards of the transferred assets or a portion of them. If all or substantially all risks and
rewards are retained, then the transferred assets are not derecognised from the statement of finanical position.
Transfers of assets with retention of all or substantially all risks and rewards include, for example, securities lending
and repurchase transactions. When assets are sold to a third party with a concurrent total rate of return swap on
the transferred assets, the transaction is accounted for as a secured financing transaction similar to repurchase
transactions. In transactions where the Group neither retains nor transfers substantially all the risks and rewards
of ownership of a financial asset, it derecognises the asset if control over the asset is lost.
The rights and obligations retained in the transfer are recognised separately as assets and liabilities as appropriate.
In transfers where control over the asset is retained, the Group continues to recognise the asset to the extent of its
continuing involvement, determined by the extent to which it is exposed to changes in the value of the transferred
asset.
The Group also derecognises certain assets when it charges off balances pertaining to the assets deemed to be
uncollectible.
(v) Offsetting
Financial assets and liabilities are set off and the net amount presented in the statement of financial position when,
and only when, the Group has a legal right to set off the amounts and intends either to settle on a net basis or to
realise the asset and settle the liability simultaneously.
Income and expenses are presented on a net basis only when permitted by the accounting standards, or for gains
and losses arising from a group of similar transactions such as in the Group’s trading activity.
(vi) Amortised cost measurement
The amortised cost of a financial asset or liability is the amount at which the financial asset or liability is measured
at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective
interest method of any difference between the initial amount recognised and the maturity amount, minus any
reduction for impairment.
(vii) Fair value measurement
The determination of fair values of financial assets and financial liabilities is based on quoted market prices or dealer
price quotations for financial instruments traded in active markets. For all other financial instruments fair value is
determined by using valuation techniques. Valuation techniques include net present value techniques, the discounted
cash flow method, comparison to similar instruments for which market observable prices exist, and valuation models.
(viii) Identification and measurement of impairment
At each statement of financial position date the Group assesses whether there is objective evidence that financial
assets not carried at fair value through profit or loss are impaired. Financial assets are impaired when objective
evidence demonstrates that a loss event has occurred after the initial recognition of the asset, and that the loss event
has an impact on the future cash flows on the asset that can be estimated reliably.
FBC HOLDINGS LIMITED ACCOUNTING POLICIES
29
The Group considers evidence of impairment at both a specific asset and collective level. All individually
significant financial assets are assessed for specific impairment. All significant assets found not to be
specifically impaired are then collectively assessed for any impairment that has been incurred but not yet
identified. Assets that are not individually significant are then collectively assessed for impairment by grouping
together financial assets (carried at amortised cost) with similar risk characteristics.
Objective evidence that financial assets (including equity securities) are impaired can include default or
delinquency by a borrower, restructuring of a loan or advance by the Group on terms that the Group would
not otherwise consider, indications that a borrower or issuer will enter bankruptcy, the disappearance of an
active market for a security, or other observable data relating to a group of assets such as adverse changes
in the payment status of borrowers or issuers in the group, or economic conditions that correlate with defaults
in the group.
In assessing collective impairment the Group uses historical trends of the probability of default, timing of
recoveries and the amount of loss incurred, adjusted for management’s judgement as to whether current
economic and credit conditions are such that the actual losses are likely to be greater or less than suggested
by historical trends. Default rates, loss rates and the expected timing of future recoveries are regularly
benchmarked against actual outcomes to ensure that they remain appropriate.
Impairment losses on assets carried at amortised cost are measured as the difference between the carrying
amount of the financial assets and the present value of estimated cash flows discounted at the assets’ original
effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against
loans and advances. Interest on the impaired asset continues to be recognised through the unwinding of the
discount.
When a subsequent event causes the amount of impairment loss to decrease, the impairment loss is reversed
through profit or loss.
The Reserve Bank of Zimbabwe requires the Group to provide statutory provisions rather than impairment
losses on loans and advances in accordance with IAS39. Where the statutory provisions are higher than the
IAS39 impairment losses, the excess is treated as an appropriation to regulatory provisions reserve.
Impairment losses on available-for-sale investment securities are recognised by transferring the difference
between the amortised acquisition cost and current fair value out of equity to profit or loss. When a subsequent
event causes the amount of impairment loss on an available-for-sale debt security to decrease, the impairment
loss is reversed through profit or loss.
However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is
recognised directly in equity. Changes in impairment provisions attributable to time value are reflected as
a component of interest income.
(ix) Designation at fair value through profit or loss
The Group has designated financial assets and liabilities at fair value through profit or loss when either:
s the assets or liabilities are managed, evaluated and reported internally on a fair value basis;
s the designation eliminates or significantly reduces an accounting mismatch which would otherwise
arise.
FBC HOLDINGS LIMITED ACCOUNTING POLICIES
30
(i) Cash and cash equivalents
Cash and cash equivalents include notes and coins on hand, unrestricted balances held with the Central Bank and
highly liquid financial assets with original maturities of less than three months, which are subject to insignificant
risk of changes in their fair value, and are used by the Group in the management of its short-term commitments.
Cash and cash equivalents are carried at amortised cost in the statement of financial position.
(j) Loans and Advances
Loans originated by the Group by providing money directly to the borrower other than those that are originated
with the intent of being sold immediately or in the short term which are recorded as trading assets, are categorized
as loans originated by the Group and are carried at amortised cost using the effective interest method, which is
defined as the fair value of cash consideration given to originate those loans as is determinable by reference to
market prices at origination date. Third party expenses, such as legal fees, incurred in securing a loan are treated
as part of the cost of the transaction.
Originated loans include mortgage advances, loans and advances to banks and customers, mortgage advances and
secured and unsecured loans. All mortgage advances, secured and unsecured loans are recognized when cash is
advanced to borrowers.
Provisions for bad and doubtful debts are held in respect of loans and advances to customers.
s Specific provisions against bad and doubtful debts are made on the basis of regular reviews of loans and
advances.
s General provisions are made in relation to losses which, though not separately identified are known from
experience to exist in any loan portfolio.
Provisions are applied to write off an advance when all security has been realised and further recoveries are
considered to be unlikely. Interest on loans and advances is accrued to income until such time as reasonable doubt
exists about its ability to collect; thereafter and until all or part of the loan is written off, interest continues to
accrue on customers' accounts, but is not included in income. Such suspended interest is deducted from loans and
advances to customers.
(k) Investments securities
Investment securities are initially measured at fair value plus incremental direct transaction costs except that
transaction costs for fair value through profit or loss are immediately expensed and subsequently accounted for
depending on their classification as either held-to-maturity, fair value through profit or loss, or available-for-sale.
Interest income is recognised in profit or loss using the effective interest method. Dividend income is recognised
in profit or loss when the Group becomes entitled to the dividend. Foreign exchange gains or losses on available-
for-sale debt security investments are recognised in profit or loss.
Other fair value changes are recognised directly in equity until the investment is sold or impaired and the balance
in equity is recognised in profit or loss.
(l) Property, plant and equipment
(i) Recognition and measurement
Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment
losses, with the exception of Freehold land and buildings which is valued annually by an independent
appraiser.
FBC HOLDINGS LIMITED ACCOUNTING POLICIES
31
Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-
constructed assets includes the cost of materials and direct labour, any other costs directly attributable to
bringing the asset to a working condition for its intended use, and the costs of dismantling and removing
the items and restoring the site on which they are located. Purchased software that is integral to the functionality
of the related equipment is capitalized as part of that equipment.
When parts of an item of property or equipment have different useful lives, they are accounted for as separate
items (major components) of property, plant and equipment.
(ii) Subsequent costs
The cost of replacing part of an item of property or equipment is recognised in the carrying amount of the
item if it is probable that the future economic benefits embodied within the part will flow to the Group and
its cost can be measured reliably. The costs of the day-to-day servicing of property, plant and equipment are
recognised in profit or loss when incurred.
(iii) Depreciation
Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part
of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term
and their useful lives. Land is not depreciated.
Depreciation methods, useful lives and residual values are reassessed at the reporting date.
Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are
included in the statement of comprehensive income.
Freehold land and buildings are reported at open market value whilst subsequent additions between valuation
dates are shown at cost. Any revaluation surplus is credited to the revaluation reserve except to the extent
that it reverses a revaluation loss of the same asset previously recognized in the statement of comprehensive
income. A revaluation loss is recognized in the statement of comprehensive income to the extent that it offsets
a previous surplus on the same asset.
(m) Investment properties
Investment property is property held either to earn rental income or for capital appreciation or for both. Other
property has been acquired through the enforcement of security over loans and advances.
Investment property is initially measured at cost and subsequently measured at fair value with any changes therein
recognised in profit or loss in other operating income.
(n) Intangible assets
(i) Goodwill
Goodwill (negative goodwill) arises on the acquisition of subsidiaries. Goodwill represents the excess of the
cost of the acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and
contingent liabilities of the acquiree. When the excess is negative (negative goodwill), it is recognised
immediately in profit or loss.
Acquisitions of minority interests
Goodwill arising on the acquisition of a minority interest in a subsidiary represents the excess of the cost of
the additional investment over the carrying amount of the net assets acquired at the date of exchange.
FBC HOLDINGS LIMITED ACCOUNTING POLICIES
32
Subsequent measurement
Goodwill is measured at cost less accumulated impairment losses.
(o) Leased assets
Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as
finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair
value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted
for in accordance with the accounting policy applicable to that asset.
Other leases are operating leases and, except for investment property, the leased assets are not recognised on the
Group’s statement of financial position. Investment property held under an operating lease is recognised on the
Group’s statement of financial position at its fair value.
(p) Impairment of non-financial assets
The carrying amounts of the Group’s non-financial assets, other than investment property and deferred tax assets,
are reviewed at each reporting date to determine whether there is any indication of impairment. If any such
indication exists then the asset’s recoverable amount is estimated. The recoverable amount of goodwill is estimated
at each reporting date.
An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable
amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that largely are
independent from other assets and groups. Impairment losses are recognised in profit or loss. Impairment losses
recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill
allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a
pro rata basis.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less
costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using
a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific
to the asset.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised
in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer
exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable
amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the
carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had
been recognised.
(q) Deposits, debt securities issued and subordinated liabilities
Deposits, debt securities issued and subordinated liabilities are the Group’s sources of debt funding.
When the Group sells a financial asset and simultaneously enters into a “repo” or “stock lending” agreement to
repurchase the asset (or a similar asset) at a fixed price on a future date, the arrangement is accounted for as a
deposit, and the underlying asset continues to be recognised in the Group’s financial statements.
The Group classifies capital instruments as financial liabilities or equity instruments in accordance with the
substance of the contractual terms of the instrument.
Deposits, debt securities issued and subordinated liabilities are initially measured at fair value plus transaction
costs, and subsequently measured at their amortised cost using the effective interest method, except where the
Group chooses to carry the liabilities at fair value through profit or loss.
FBC HOLDINGS LIMITED ACCOUNTING POLICIES
33
The Group carries some deposits, debt securities and subordinated liabilities at fair value, with fair value changes
recognised immediately in profit or loss.
(r) Provisions
A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that
can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the
obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects
current market assessments of the time value of money and, where appropriate, the risks specific to the liability.
A provision for restructuring is recognised when the Group has approved a detailed and formal restructuring plan,
and the restructuring either has commenced or has been announced publicly. Future operating costs are not
provided for.
A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a
contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured
at the present value of the lower of the expected cost of terminating the contract and the expected net cost of
continuing with the contract. Before a provision is established, the Group recognises any impairment loss on the
assets associated with that contract.
(s) Financial guarantees
Financial guarantees are contracts that require the Group to make specified payments to reimburse the holder for
a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt
instrument.
Financial guarantee liabilities are initially recognised at their fair value, and the initial fair value is amortised over
the life of the financial guarantee. The guarantee liability is subsequently carried at the higher of this amortised
amount and the present value of any expected payment (when a payment under the guarantee has become probable).
Financial guarantees are included within other liabilities.
(t) Employee benefits
(i) Post employment benefits
Post employment benefits are employee benefits (other than termination benefits) which are payable after
completion of employment.
Obligations for contributions to defined contribution pension plans are recognised as an expense in profit
or loss when they are due. Prepaid contributions are recognized as an asset to the extent that a cash refund
or a reduction in the future payments is available.
Pension obligation
The Group provides for retirement benefit obligation in respect of its employees as follows;
s FBCH Pension Fund – Defined Contribution Fund
s National Social Security Authority (NSSA) - Defined Benefit Fund. Contributions to NSSA are made in
terms of statutory regulations and are charged against income as incurred
A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate
entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not
hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior
periods.
FBC HOLDINGS LIMITED ACCOUNTING POLICIES
34
(ii) Profit sharing and bonus plans
The Group recognizes a liability and an expense for profit sharing and bonuses based on a formula that takes
into consideration the profit attributable to the company’s shareholders after an external audit. The Group
recognizes a provision where contractually obliged or where there is a past practice that has created a
constructive obligation.
(iii) Termination benefits
Termination benefits are benefits payable as a result of the Group’s decision to terminate employment before
normal retirement date (or contractual date) or employee’s decision to accept voluntary redundancy in
exchange of those benefits. Termination benefits are recognised as an expense when the Group is demonstrably
committed, without realistic possibility of withdrawal, to a formal detailed plan to terminate employment
before the normal retirement date. Termination benefits for voluntary redundancies are recognised if the
Group has made an offer encouraging voluntary redundancy, it is probable that the offer will be accepted,
and the number of acceptances can be estimated reliably.
(iv) Short-term benefits
Short-term benefits are employee benefits (other than termination benefits) which fall due wholly within
twelve months after the end of the period in which the employees render services. Short-term employee
benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.
A provision 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.
(v) Share-based payment transactions
The grant date fair value of options granted to employees is recognised as an employee expense, with a
corresponding increase in equity, over the period in which the employees become unconditionally entitled
to the options. The amount recognised as an expense is adjusted to reflect the actual number of share options
that vest.
The fair value of the amount payable to employees in respect of share appreciation rights, which are settled
in cash, is recognised as an expense, with a corresponding increase in liabilities, over the period in which
the employees become unconditionally entitled to payment.
(u) Earnings per share
The Group presents basic, diluted and headline earnings per share (EPS) data for its ordinary shares. Basic EPS
is calculated by dividing the profit or loss attributable to ordinary shareholders of the Group by the weighted
average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the
profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding
for the effects of all dilutive potential ordinary shares, which comprise share options granted to employees.
(v) Operating segments
A segment is a distinguishable component of the Group that is engaged either in providing products or services
(business segment), or in providing products or services within a particular economic environment (geographical
segment), which is subject to risks and rewards that are different from those of other segments. The Group’s
primary format for segment reporting is based on business segments.
(w) Interest
Interest income and expense are recognised in the statement of comprehensive income using the effective interest
method. The effective interest rate is the rate that exactly discounts the estimated future cash payments and
receipts through the expected life of the financial asset or liability (or, where appropriate, a shorter period) to the
carrying amount of the financial asset or liability. The effective interest rate is established on initial recognition
of the financial asset and liability and is not revised subsequently.
FBC HOLDINGS LIMITED ACCOUNTING POLICIES
35
The calculation of the effective interest rate includes all fees and charges paid or received, transaction costs, and
discounts or premiums that are an integral part of the effective interest rate. Transaction costs are incremental
costs that are directly attributable to the acquisition, issue or disposal of a financial asset or liability.
Interest income and expense presented in the statement of comprehensive income include:
s interest on financial assets and liabilities at amortised cost on an effective interest rate basis
s interest on available-for-sale investment securities on an effective interest basis
Interest income and expense on all trading assets and liabilities are considered to be incidental to the Group’s
trading operations and are presented together with all other changes in the fair value of trading assets and liabilities
in net trading income.
(x) Net trading and dealing income
Net trading income comprises gains less losses related to trading assets and liabilities, and includes all realised
and unrealised fair value changes, interest, dividends and foreign exchange gains or losses.
(y) Fees and commissions
Fees and commission income and expenses that are integral to the effective interest rate on a financial asset or
liability are included in the measurement of the effective interest rate. Other fees and commission income, including
account servicing fees, investment management fees, sales commission, placement fees and syndication fees, are
recognised as the related services are performed. When a loan commitment is not expected to result in the draw-
down of a loan, loan commitment fees are recognised on a straight-line basis over the commitment period.
Other fees and commission expense relates mainly to transaction and service fees, which are expensed as the
services are received.
(z) Dividends
Dividend income is recognised when the right to receive income is established. Usually this is the ex-dividend date
for equity securities. Dividends are reflected as a component of net trading income, net income on other financial
instruments at fair value or other operating income based on the underlying classification of the equity instrument.
(aa) Lease payments made
Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the
lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the
lease.
Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction
of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce
a constant periodic rate of interest on the remaining balance of the liability. Contingent lease payments are
accounted for by revising the minimum lease payments over the remaining term of the lease when the lease
adjustment is confirmed.
(ab) Income tax expense
Income tax expense comprises current and deferred tax. Income tax expense is recognised in the statement of
comprehensive income except to the extent that it relates to items recognised directly in equity, in which case it
is recognised in equity.
FBC HOLDINGS LIMITED ACCOUNTING POLICIES
36
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively
enacted at the statement of financial position date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the statement of financial position method, providing for temporary differences
between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for
taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition
of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and
that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the
extent that they probably will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that
are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted
or substantively enacted by the reporting date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available
against which the asset can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced
to the extent that it is no longer probable that the related tax benefit will be realised.
Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability
to pay the related dividend is recognised.
(ac) Insurance contracts
Recognition and measurement
(i) Revenue
Gross premiums written reflect business written during the year, and exclude any taxes or duties based on
premiums. Premiums written include estimates for ‘pipeline’ premiums and adjustments to estimates of
premiums written in previous years. The earned proportion of premiums is recognized as revenue. Premiums
are earned from the date of attachment of risk, over the indemnity period, based on the pattern of the risks
underwritten.
(ii) Unearned premium provision
The provision of unearned premiums comprises the proportion of premiums of gross 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.
(iii) Claims
Claims incurred comprise the settlement and handling costs of paid and outstanding claims arising from
events occurring during the financial year together with adjustments to prior year claims provisions.
Claims outstanding comprise provisions for the company’s estimate of the ultimate cost of settling all the
claims incurred but unpaid at the statement of financial position date whether reported or not, and related
internal and external claims handling expenses and an appropriate prudential margin. 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 claims handling procedures, inflation,
judicial trends, legislative changes and past experience and trends.
Provisions for claims outstanding are not discounted. Adjustments to claims provisions established in prior
years are reflected in the financial statements of the period in which the adjustments are made and disclosed
separately if material. The methods used, and the estimates made, are reviewed regularly.
FBC HOLDINGS LIMITED ACCOUNTING POLICIES
37
(iv) Unexpired risk provision
Provision is made for unexpired risks arising from general insurance contracts where the expected value of
claims and expenses attributable to the unexpired periods of policies in force at the statement of financial
position date exceeds the unearned premiums provision in relation to such policies after the deduction of
any deferred acquisition costs. The provision of unexpired risk is calculated by reference to classes of business
which are managed together, after taking into account the future investment return on investments held to
back the unearned premiums and unexpired claims provision.
(ad) Reinsurance assets
The company cedes reinsurance in the normal course of business for the purpose of limiting its net loss
potential through the diversification of its risks. Assets, liabilities and income expense arising from ceded
reinsurance contracts are presented separately from the related assets, liabilities, income and expense from
the related insurance contract because the reinsurance arrangements do not relieve the company from its
direct obligations to its policyholders.
Only rights under contracts that give rise to a significant transfer of insurance risk are accounted for as
reinsurance assets. Rights under contracts that do not transfer significant insurance risk, are accounted for
as financial instruments.
Reinsurance premiums for ceded reinsurance are recognized as an expense on a basis that is consistent with
the recognition basis for the premiums on the related insurance contract. For general insurance business,
reinsurance premiums are expensed over the period that the reinsurance cover is provided based on the
expected pattern of the reinsured risks. The unexpensed portion of ceded reinsurance premiums is included
in the reinsurance assets.
The net amounts paid to the reinsurer at the inception of a contract may be less than the reinsurance assets
recognized by the company in respect of rights under contracts. Any difference between the premium due
to the reinsurer and the reinsurance asset recognized is included in the statement of comprehensive income
in the period in which the reinsurance premium is due.
The amounts recognized as reinsurance assets are measured on a basis that is consistent with the measurement
of the provisions held in respect of the related insurance contracts.
Reinsurance assets include recoveries due from reinsurance companies in respect of claims paid. These are
classified as loans and receivables and are included within insurance and other receivables in the statement
of financial position.
Reinsurance assets are assessed for impairment at each balance sheet 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 company
may not recover all amounts due, and that the event has a reliably measurable impact on the amounts that
the company will receive from the retrocessionaire.
(vi) Deferred acquisition costs
Costs incurred in acquiring general insurance, annuity and life assurance contracts are deferred to the extent
that they are recoverable out of future margins. Acquisitions costs include direct cost such as commission
and medical fees and indirect costs such as administrative expenses connected with the processing of proposals
and issuing of policies.
Deferred acquisition costs are amortised over the period in which the costs are expected to be recoverable
out of future margins in the revenue from the related contracts. The rate of amortization is consistent with
the pattern of emergency of such margins.
FBC HOLDINGS LIMITED ACCOUNTING POLICIES
38
For general insurance contracts the deferred acquisition cost asset represents the proportion of acquisition
costs which corresponds to the proportion of gross premiums written which is unearned at the statement
of financial position date.
(ae) Related parties
Parties are considered to be related if one party has the ability to control the other party or exercise significant
influence over the other party in making financial and operating decisions. The Group has related party
relationships with its shareholders, subsidiaries, associates and key management employees. Transactions
and balances with related parties are shown in note 11.
(af) Revenue
This accounting policy specifically relates to the manufacturing subsidiary.
Revenue represents amounts invoiced to customers for goods supplied and services rendered, net of value
added tax and allowances for defective goods. Revenue from the sale of goods is recognized when the significant
risks and rewards of ownership have been transferred to the buyer. Revenue is measured at the fair value
of the consideration received or receivable. No revenue is recognized if there are significant uncertainties
regarding recovery of the consideration due, measurement of the associated costs incurred to earn the revenue
or the possible return of the goods.
(ag) Inventories
This accounting policy specifically relates to the manufacturing and building society subsidiaries.
Inventories are valued at the lower of cost and estimated net realisable value. Cost is determined on the
weighted average basis. Estimated net realizable value is the estimated selling price in the ordinary course
of business less any costs of completion and disposal.
39
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2009 2009
Notes US$
Assets
Cash and cash equivalents 1 81 226 175
Trading assets 2.1 212 377
Loans and advances to customers 3.1 21 693 546
Investment securities 2.2 1 686 142
Investment securities held for sale 2.3 1 062 534
Other assets 3.2 13 852 516
Investment in associate 4 437 310
Investment properties 5 575 000
Property, plant and equipment 6 43 406 436
Total assets 164 152 036
Liabilities
Deposits from banks 7.2 1 330 696
Deposits from customers 7.1 94 816 788
Current tax liabilities 1 240 889
Deferred tax liabilities 8.1 8 293 603
Other liabilities 7.3 9 479 559
Total liabilities 115 161 535
Equity
Share capital and share premium -
Retained earnings 4 835 929
Other reserves 10 32 827 256
Total attributable to equity holders of the parent company 37 663 185
Non-controlling interest 11 327 316
Total equity 48 990 501
Total equity and liabilities 164 152 036
40
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2009 2009
Notes US$
Interest income 12 5 872 317
Interest expense 13 (1 466 193)
Net interest income 4 406 124
Fee and commission income 14.1 6 903 362
Fee and commission expense 14.2 (2 450 791)
Net fee and commission income 4 452 571
Net trading income 15 14 829 070
Net income from financial instruments carried at fair value 16 345 675
Other operating income 17 6 408 138
Total income 30 441 578
Operating expenses
Impairment loss on financial assets 3.5 (149 430)
Personnel expenses 18 (7 876 631)
Depreciation and amortisation 6 (2 142 656)
Other expenses 19 (14 099 140)
Total operating expenses (24 267 857)
Operating profit 6 173 721
Share of results of associate 4 (171 017)
Profit before income tax 6 002 704
Income tax expense 20 (849 804)
Profit for the period 5 152 900
Other comprehensive income
Gains on property revaluation 148 644
General provisions for doubtful debts 3.6 (238 998)
Other comprehensive income, net of income tax (90 354)
Total comprehensive income for the period 5 062 546
Profit attributable to:
Owners of the parent company 4 835 929
Non-controlling interest 316 971
Profit for the period 5 152 900
Total comprehensive income attributable to:
Owners of the parent company 4 753 601
Non-controlling interest 308 945
Total comprehensive income for the period 5 062 546
Earnings per share (US cents)
Basic 21.1 1.3
Diluted 21.2 1.3
41
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2009
Share Share Share option Treasury Retained Non distributable Revaluation Regulatory Non-controlling Total
capital premium reserve shares profit reserves reserve provisions interests equity
reserve
US$ US$ US$ US$ US$ US$ US$ US$ US$ US$
Balance at 1 January 2009 - - - - - 32,948,983 - - 2,455,911 35,404,894
Total comprehensive income for the period
Profit or loss - - - - 4,835,929 - - - 316,971 5,152,900
Other comprehensive income
Gains on property
revaluation, net of tax - - - - - - 142,334 - - 142,334
Group's share of associates' revaluation gain, net of tax - - - - - - 6,310 - - 6,310
General provisions for doubtful debts, net of tax - - - - - - - (230,972) (8,026) (238,998)
Total other comprehensive income - - - - - - 148,644 (230,972) (8,026) (90,354)
Total comprehensive income for the period - - - - 4,835,929 - 148,644 (230,972) 308,945 5,062,546
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Rights issue - - - - - - - - 413,120 413,120
Share based payment transactions - - 82,926 - - - - - - 82,926
Treasury shares purchased - - - (122,325) - - - - - (122,325)
Dividend paid - - - - - - - - - -
Total contributions by and distributions to owners - - 82,926 (122,325) - - - - 413,120 373,721
Changes in ownership interests in subsidiaries that do not
result in a loss of control
Acquisition of non-controlling interest - - - - - - - - 8,149,340 8,149,340
Total transactions with owners - - 82,926 (122,325) - - - - 8,562,460 8,523,061
Balance at 31 December 2009 - - 82,926 (122,325) 4,835,929 32,948,983 148,644 (230,972) 11,327,316 48,990,501
42
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2009 2009
Notes US$
Cash flows from operating activities
Profit before taxation 6 002 704
Adjustments for:
Depreciation and amortisation 6 2 142 656
Impairment on loans and advances 3.5 149 430
Profit on disposal of fixed assets (226 010)
Profit on disposal of investment properties (809 045)
Fair value adjustment on investment properties (12 520)
Share of results of associate 4 171 017
Equity settled share based payments 82 926
Impairment losses on fixed assets 111 297
Gain on acquisition of subsidiary 32 (4 826 234)
Net cash generated before changes in operating assets and liabilities 2 786 221
Change in trading assets 2 287 623
Change in loans and advances to customers (14 876 032)
Change in investment securities held for sale (1 062 534)
Change in other assets (7 957 641)
Change in deposits from banks (4 565 921)
Change in deposits from customers 91 933 424
Change in other provisions and liabilities 4 108 373
72 653 513
Income tax paid (73 563)
Net cash flow from operating activities 72 579 950
Cash flows from investing activities
Net cash on investment securities (682 186)
Purchase of property, plant and equipment (891 839)
Proceeds from sale of investment properties 809 045
Proceeds from sale of property, plant and equipment 1 863 048
Acquisition of subsidiary (6 298 866)
Net cash flow used in investing activities (5 200 798)
Net cash flows before financing activities 67 379 152
Cash flows from financing activities
Share issue and minority contribution 413 120
Treasury shares (122 325)
Net cash flows from financing activities 290 795
Cash and cash equivalents at the beginning of the year 13 556 228
Cash and cash equivalents at the end of the year 81 226 175
43
NOTES
Consolidated
2009
Note US$
1. CASH AND CASH EQUIVALENTS
Unrestricted balances with the RBZ 19 392 133
Balances with other banks and cash 61 834 042
81 226 175
2. INVESTMENTS
2.1 Trading assets
Money market investments 212 377
2.2 Investment securities
Equity investments 1 686 142
The Group’s quoted equity investments have been designated
at fair value through profit or loss upon initial recognition.
2.3 Investments held for sale
Equity investments 1 062 534
The Group's banking subsidiary realised equities of Steelnet Limited and General Beltings Limited that had been pledged
as security on non-performing loans. These investments have been classified as an investments held for sale as their
carrying amount is expected to be recovered principally through a sale transaction. The Central Bank has given the Bank
up to 12 September 2010 to dispose of these investments as banks are prohibited by the Banking Act (Chapter 24:20)
from holding equities. These investments have been designated at fair value through profit or loss upon initial recognition.
Fair value losses of US$35 330 have been recognized in the statement of comprehensive income under "Net income
from other financial instruments carried at fair value" in respect of these investments.
Total investments 2 961 053
2.4 Maturities (all investments)
Maturing within 1 year 2 961 053
Maturing after 1 year but within 5 years -
2 961 053
44
31 December 2009
2009
US$
3. ADVANCES AND OTHER ACCOUNTS
3.1 Advances maturities
Maturing within 1 year 18 937 132
Maturing after 1 year but within 5 years 1 744 578
Maturing after 5 years 1 400 264
Gross amount 22 081 974
Impairment allowance (note 3.6) (388 428)
Carrying amount 21 693 546
3.2 Other assets
Restricted balances with RBZ 34 304
Accounts receivables and prepayments 7 097 429
Inventory 4 786 435
Technical assets 1 546 589
Other 387 759
13 852 516
Inventory relates to the manufacturing and building society subsidiaries finished stock and work in progress.
Technical assets are made up of the reinsurer's share of outstanding losses which is the portion recoverable on
outstanding losses from retrocessionaires. Technical assets also include deferred acquisition costs.
3.3 Irrevocable commitments
There are no irrevocable commitments to extend credit, which can expose the Group to penalties or expense.
3.4 Sectoral analysis of utilizations
(net of impairment allowances)
%
Mining 27 835 0.1
Manufacturing 14 403 088 66.4
Mortgage 1 380 200 6.4
Transport 15 004 0.1
Distribution 2 023 516 9.3
Individuals 2 080 314 9.6
Agriculture 1 665 260 7.7
Other services 98 329 0.4
21 693 546 100.0
As at statement of financial position date, the Group has a 66.4% exposure to the manufacturing sector. The Group has
adequate policies and procedures in place to monitor concentration risk as described in note 34 on financial risk
management.
NOTES
45
NOTES
31 December 2009
3.5 Analysis of credit quality by sector
Neither past due Past Due Total
nor impaired 30-60 days 60-90 days 90-180 days over 180 days
Mining 27 835 - - - - 27 835
Manufacturing 14 013 917 206 002 - - 183 169 14 403 088
Mortgage 1 380 200 - - - - 1 380 200
Transport 15 004 - - - - 15 004
Distribution 1 516 733 210 742 244 911 30 018 21 112 2 023 516
Individuals 1 947 620 127 541 332 4 821 - 2 080 314
Agriculture 1 624 452 15 142 164 25 502 - 1 665 260
Other services 84 074 5 297 3 829 5 129 - 98 329
20 609 835 564 724 249 236 65 470 204 281 21 693 546
3.6 Allowances for impairment
Specific Collective Total
allowance allowance allowance
US$ US$ US$
Balance at 1 January 2009 - - -
Impairment allowance through statement of comprehensive income 149 430 - 149 430
Impairment loss through other comprehensive income - 238 998 238 998
Balance at 31 December 149 430 238 998 388 428
The specific allowance is arrived at after discounting registered bond values of security held. The collective allowance has largely
been determined using the risk profiles and regulatory guidence given the limitations encountered in estimating the Group’s
historical loss experience.
46
31 December 2009
2009
US$
3.7 Exposure to credit risk
(a) Impaired versus unimpaired
Grade C: impaired 65 470
Grade D: impaired 204 281
Grade E: impaired -
Gross amount 269 751
Allowance for impairment (93 206)
Carrying amount 176 545
Unimpaired
Grade A: 21 426 512
Grade B: 385 711
Gross amount 21 812 223
Allowance for impairment (295 222)
Carrying amount 21 517 001
Total carrying amount 21 693 546
(b) Past due versus current
Past due comprises
30-60 days 564 724
60-90 days 249 236
90-180 days 65 470
Over 180 days 204 281
Carrying amount 1 083 711
Neither past due nor impaired
Grade A: Low fair risk 20 473 360
Grade B: Watch list 136 475
Includes amounts with re-negotiated terms -
Carrying amount 20 609 835
Total carrying amount 21 693 546
NOTES
47
31 December 2009
2009
US$
3.8 Collateral held against loans and advances
The Group holds collateral against loans and advances in the form of mortgage interests over property, registered equitiesand guarantees. Estimates of the fair value are based on the value of collateral assessed at the time of borrowing, andgenerally are not updated except when a loan is individually assessed as impaired. Collateral generally is not held overloans and advances to banks and listed entities, except when securities are held as part of reverse repurchase.
An estimate of the fair value of collateral and other security enhancements held against loans and advances to customersand banks is shown below:
Against impaired loan:Property 138 000Equities -
Against past due but not impaired:Property 6 443 305Equities 754 479
Total 7 335 784
4. INVESTMENT IN ASSOCIATEBalance at 1 January 602 017Share of results before tax (171 017)Revaluation of property, net of deferred tax 6 310Balance at 31 December 437 310
The Group's 100% owned reinsurance subsidiary has a 23.06% interest in Eagle Insurance Company (Private) Limited.As at 31 December 2009 the Group recognised its share of the associate's loss of US$171 017.
The Group acquired a 29% interest in Steelnet Limited, a manufacturing concern, through its banking subsidiary when itrealized collateral pledged for a non-performing loan. This associate has not been equity accounted for due to management'sintention to dispose of the investment in the short term. The investment has therefore been accounted for in accordancewith IFRS 5: Non Current Assets Held for Sale
5. INVESTMENT PROPERTIESOpening carrying amount 562 480Additions - Fair value adjustments 12 520Disposals -
575 000
The fair value of the investment properties at 31 December 2009 has been arrived at on the basis of a valuation carriedout by an independent valuer on an open market value method. The valuation was arrived at by reference to marketevidence of transaction prices for similar properties. No liabilities are guaranteed by investment property. Net rentalsreceived from the investment property for the year amounted to $26 832.
NOTES
48
31 December 2009
6. PROPERTY, PLANT AND EQUIPMENTMovement on property, plant and equipment
Freehold Plant and Computer Computer Furniture Motor Total
premises machinery equipment software office epuip vehicles
Opening balance 14,033,040 - 643,758 1,800,000 1,428,518 2,918,802 20,824,118
Acquisition of subsidiary at cost 8,625,790 15,977,163 118,429 53,820 199,369 1,180,021 26,154,592
Revaluation 191,696 - - - - - 191,696
Additions 1,168 - 43,961 - 376,762 416,128 838,019
Impairment (52,643) - (2,012) - (56,642) - (111,297)
Disposals (13,162) - - - - (2,123,702) (2,136,864)
Closing Balance 22,785,889 15,977,163 804,136 1,853,820 1,948,007 2,391,249 45,760,264
ACCUMULATED DEPRECIATION
Opening Balance - - - - - - -
Acquisition of subsidiary 170,530 285,974 27,672 - 11,144 215,678 710,998
Current 411,631 142,995 214,744 360,897 213,968 798,421 2,142,656
Transfer to investment property - - - - - - -
Disposals (271) - - - - (499,555) (499,826)
Closing balance 581,890 428,969 242,416 360,897 225,112 514,544 2,353,828
Net book value 22,203,999 15,548,194 561,720 1,492,923 1,722,895 1,876,705 43,406,436
6.1. The Group's land and buildings were revalued on 31 December 2009 by independent valuers. Valuations were made on
the basis of open market values using investment income methods. The revaluation gain net of deferred income taxes was
credited to the revaluation reserves in the shareholders' equity. The revaluation loss on other land and buildings has been
recognised as an impairment loss in the statement of comprehensive income. Other assets were also tested for impairment
on the same date through comparison with open market values determined by independent valuers. The impairment loss
resulting has been recognised in the statement of comprehensive income.
The estimated useful lives of the various classes of property, plant and equipment are as follows:
Freehold buildings - 50 years
Computers - software - 5 years
Computers - hardware - 5 years
Motor vehicles - 5 years
Office equipment - 10 years
Furniture and fittings - 10 years
Plant and machinery - 5 - 13 years
NOTES
49
31 December 2009
2009
US$
7. DEPOSITS AND OTHER ACCOUNTS
7.1 Amounts due to customers by type
Retail customers
Term deposits 311 376
Current deposits 1 069 916
Corporate customers
Term deposits -
Current deposits 79 523 111
Other 13 912 385
94 816 788
7.2 Deposits from banks 1 330 696
7.3 Other liabilities
Trade and other payables 4 441 843
Technical liabilities 3 544 506
Other liabilities 1 493 210
9 479 559
Total deposits and other accounts 105 627 043
Technical liabilities are made up of gross outstanding claims and unearned premium reserve. Gross outstanding claims
includes incurred but not reported losses and is provided for at 7% of net premium written plus actual claims that have
not been finalised as at reporting date.
7.4 Maturity analysis of deposits & other accounts
Maturing within 1 year 105 627 043
Maturing after 1 year but within 5 years -
105 627 043
8. DEFERRED TAXATION
8.1 Recognized deferred tax liabilities
Provision for loan impairment losses (166 557)
Property, plant and equipment allowances 7 981 723
Unrealised gains on foreign exchange and equities 671 298
Provision for leave pay (57 576)
Deferred acquisition costs 50 794
Unearned premium reserve (247 150)
Prepayments 61 071
8 293 603
NOTES
50
31 December 2009
2009
US$
The deferred tax arising from property, plant and equipment allowances has been determined using income tax values that
the Group has ascertained with the aid of guidance issued by Zimbabwe Revenue Authority (ZIMRA). The Group is awaiting
ZIMRA's approval for these income tax values following its submissions.
8.2 Movement in deferred taxation
Balance at 1 January 1 004 233
Recognised in profit and loss 516 839
Recognised in equity 49 362
Acquisition of subsidiary 6 723 169
Balance at 31 December 8 293 603
9. SHARE CAPITAL
9.1 Authorised
Number of ordinary shares 800 000 000
9.2 Issued and fully paid
Number of ordinary shares 362 401 016
9.3 Share Capital Movement
No. of Share Share Total
shares capital premium
$’US $’US $’US
At 1 January 2009 360 645 278 - - -
Shares issued 1 755 738 - - -
At 31 December 2009 362 401 016 - - -
The Group has a nil share capital and share premium because its authorized and issued share capital has not been
redenominated in United States dollars.
NOTES
51
31 December 2009
2009
US$
10. OTHER RESERVES
Share option reserve 82 926
Revaluation reserve 148 644
Non-distributable reserve 32 948 983
Treasury shares (122 325)
Regulatory provision reserve (230 972)
32 827 256
11. RELATED PARTIES
The Group has related party relationships with its shareholders who own, directly or indirectly, 10% or more of its share
capital or those shareholders who control in any manner, the election of the majority of the Directors of the Group or have
the power to exercise controlling influence over the management or financial and operating policies of the Group. The
Group carried out banking and investments related transactions with various companies related to its shareholders, all
of which were undertaken at arm's length terms and in compliance with the relevant Banking Regulations.
The following is a list of related parties to the Group and transactions with them:
Key Management Personnel
Name Position
Livingstone T. Gwata Group Chief Executive Officer
John Mushayavanhu Deputy Group Chief Executive Officer
Trynos Kufazvinei Group Finance Director
Stanley Kudenga Executive Director
Webster Rusere Executive Director
Tichaona Mabeza Group Company Secretary
Israel Murefu Group Divisional Director Human Resources
Below are the companies related to Directors and key senior management and their loan balances as at 31 December 2009:
US$
Arena Investments P/L 119 180
Fleetwood Investments 4 757
Fonrel Investments P/L 10 000
J Med Supplies P/L 63 262
Lobels Bread P/L 376 939
574 138
Transactions with related parties are conducted on an arm’s length basis. The Group recognised income of US$583 062
from transactions with these parties, in respect of interest (US$211 399) and bank charges (US$371 362), during the year.
NOTES
52
NOTES
2009
US$
11.1 Balance with related parties
Loans to directors and companies related to directors
Balance at 1 January -
Advances during the year 3 760 839
Repayments made during the year (2 890 963)
Balance at 31 December 2009 869 876
Loans to Officers
Balance at 1 January -
Advances during the year 728 702
Repayments made during the year (74 288)
Balance at 31 December 2009 654 414
Loans to officers relate to advances made to other senior managers who are not directors.
Interest rates charged on balances outstanding from related parties are at approximately a 25% discount on market rates.
The loans given are not secured and no guarantees have been obtained.
The loans made to directors and officers of the Group have, along with other loans, been subjected to impairment procedures
with the impairment losses being recognized in profit or loss.
11.2 Compensation for key management personnel
Short-term employee benefits 320 580
Post-employment benefits 11 558
Share based payment transactions 30 351
362 489
11.3 Group Entities
Significant subsidiaries
Ownership interest
FBC Bank Limited 100%
FBC Building Society 60%
FBC Reinsurance Limited 100%
FBC Securities (Private) Limited 100%
Turnall Holdings Limited 59%
12. INTEREST INCOME
Cash and cash equivalents 1 601 641
Loans and advances to banks 54 583
Loans and advances to customers 4 201 336
Investment securities 14 757
5 872 317
13. INTEREST EXPENSE
Deposits from banks 135 826
Deposits from customers 4 973
Other time deposits 1 325 394
1 466 193
53
31 December 2009
2009
US$
14. NET FEE AND COMMISSION INCOME
14.1 Fee and commission income
Retail service fees 4 810 789
Credit related fees 915 556
Investment banking fees 773 725
Brokerage 376 147
Other 27 145
6 903 362
14.2 Fee and commission expense
Insurance commissions paid 2 399 832
Brokerage 42 930
Other 8 029
2 450 791
15. NET TRADING INCOME
Net earned insurance income 5 031 442
Turnover of subsidiary involved in manufacturing 8 585 294
Foreign exchange gains 1 212 334
14 829 070
The Group used monthly avarage rates in computing it foreign exchange gains in accordance with IAS21 (which permits
the use of avarage exchange rates which approximate the actual rates ruling at the dates of transactions) due to limitations
arising from the delay in the change of base currency, from Zimbabwe dollar to United State of America dollar, in its
accounting systems.
16. NET INCOME FROM OTHER FINANCIAL INSTRUMENTS
CARRIED AT FAIR VALUE
Investment securities at fair value through profit or loss
Equities 310 469
Money market investments 35 206
345 675
17. OTHER INCOME
Fair value adjustment to investment properties 12 520
Excess of fair value over cost of acquisition 4 826 234
Rent received 147 018
Profit on sale of property, plant and equipment 1 035 055
Other 387 311
6 408 138
18. PERSONNEL EXPENSES
Salaries and allowances 8 024 021
Equity settled transactions 82 926
Directors remuneration 545 684
8 652 631
NOTES
54
31 December 2009
2009
US$
19. OTHER EXPENSESSoftware licensing and other information technology costs 1 271 545Impairment loss on property, plant and equipment 111 297Administration expenses 6 361 213Business development 457 883Manufacturing subsidiary's trading expenses 4 576 672Operating lease payments 292 510Audit fees 252 020
13 323 140
19.1 Operating leases Non-cancellable operating lease rentals are payable as follows:Less than one year 22 418Between one and five years 378 175More than five years -
400 593
19.1 The Group leases some of its properties under operating leases. The leases typically run for a period of 1 year, with anoption to renew the lease after that date. Lease payments are reviewed in line with prevailing market conditions on anannual basis to align them to market rentals. The leases provide for additional rent payments that are based on changesin the local price index.
During the year ended 31 December 2009 an amount of $292 510 was recognized as an expense in profit or loss in respectof operating leases.
The Group, through its subsidiaries, leases out its investment property and part of its owner occupied property. Futureexpected minimum lease payments are as follows:
Less than one year 40 992Between one and five years 204 960More than five years -
245 952
During the year ended 31 December 2009, US$147 018 was recognized as rental income in the statement of comprehensiveincome.
NOTES
55
31 December 2009
2009
US$
20. TAXATIONAnalysis of tax chargeCharge for taxation based on Taxable income for the year 275 783
Aids levy (513) Bank levy 57 695 Deferred taxation 516 839 849 804
Tax rate reconciliation %Notional tax rate 30.0Bank levy 1.0Aids levy 0.9Permanent differences (13.1)
Changes in the rate of tax (4.6) Effective rate 14.2
21. EARNINGS PER SHARE21.1 Basic earnings per share
Profit attributable to equity holders of the Company 4 835 929
Average number of ordinary shares
Issued ordinary shares at Actual Weighted 1 January 2009 360 645 278 360 645 278
Scrip Dividend - -Share options exercised 1 755 738 585 246
Average number of ordinary shares at 31 December 362 401 016 361 230 524
Basic earnings per share (US cents) 1.3
21.2 Diluted earnings per shareDiluted earnings per share is calculated after adjusting the weighted average number of ordinary shares outstanding toassume conversion of all dilutive potential ordinary shares. The company has only share options as dilutive ordinaryshares. A calculation is done to determine the number of shares that could have been acquired at fair value (determinedas the average annual market share price of the Company’s shares based on the monetary value of the subscription rightsattached to outstanding share options). The number of shares calculated as above is compared with the number of sharesthat would have been issued assuming the exercise of the share options.
Profit attributable to equity holders of the Company 4 835 929
Weighted average number of ordinary shares
Weighted average number of ordinary sharesat 31 December 361 230 524Effect of options 1 467 156
Weighted average number of ordinary sharesat 31 December 362 697 680
Diluted earnings per share (US cents) 1.3
NOTES
56
31 December 2009
2009
US$
22. DIRECTORS' REMUNERATION
Fees 190 877
Other emoluments 354 807
545 684
The remunaretion for key management is disclosed in note 11.2.
23. CAPITAL COMMITMENTS
Capital expenditure authorised but not yet contracted for 4 214 100
24. CONTINGENT LIABILITIES
Guarantees & letters of credit 21 346 296
The Group's contingent liabilities relate to guarantees and letters of credit for the grain and oil facilities undertaken on
behalf of the Central Bank.
25. POST EMPLOYMENT BENEFITS
Self administered pension fund 339 513
NSSA 161 096
500 609
The Group operates a defined contribution pension scheme whose assets are held independently of the group's assets in
separate trustee administered funds. All permanent employees are members of this fund.
The NSSA Scheme was promulgated under the National Social Security Authority Act 1989. The company contributions
under the scheme are limited to specific contributions as legislated from time to time and are presently 3% of pensionable
salary to a maximum as set from time to time.
26. EMPLOYEE STATISTICS
Average number of employees for the period 1 185
NOTES
57
27 CONTRACTUAL MATURITIES
27.1 Total position as at 31 December 2009
1 month 3 months 6 months
Up to to to to Over
month 3 months 6 months 1 year 1 year Total
US$ US$ US$ US$ US$ US$
Assets
Cash and cash equivalents 81 226 175 - - - - 81 226 175
Trading assets - 212 377 - - - 212 377
Advances 5 946 089 9 098 158 2 352 612 1 151 845 3 144 842 21 693 546
Investment securities - - - 1 686 142 - 1 686 142
Investment securities held for sale - - - 1 062 534 - 1 062 534
Investment in associate - - - - 437 310 437 310
Investment properties - - - - 575 000 575 000
Property, plant and equipment - - - - 43 406 436 43 406 436
Receivables & other assets - - - 13 852 516 - 13 852 516
87 172 264 9 310 535 2 352 612 17 753 037 47 563 588 164 152 036
Liabilities and shareholders' equity
Deposits from banks 1 330 696 - - - - 1 330 696
Demand deposits 90 449 126 4 022 152 345 510 - - 94 816 788
Deferred tax liabilities - - - - 8 293 603 8 293 603
Other liabilities - - - 10 720 448 - 10 720 448
Shareholders' funds - - - - 48 990 501 48 990 501
Total 91 779 822 4 022 152 345 510 10 720 448 57 284 104 164 152 036
Net liquidity gap (4 607 558) 5 288 383 2 007 102 7 032 589 (9 720 516) -
Cumulative gap (4 607 558) 680 825 2 687 927 9 720 516 - -
The table shows the undiscounted cash flows on the Group's financial liabilities and unrecognized loan commitments on the basis
of their earliest possible contractual maturity. The Groups' expected cash flows vary significantly from this analysis. For example
demand deposits from customers are expected to maintain a stable or increasing balance.
28 INTEREST RATE RE-PRICING AND GAP ANALYSIS
28.1 Total position as at 31 December 2009
Due in 1 Due in Due in Due in Over Non
Total 1 month 1-3 months 3-6 months 6-12 months 12 months interest
US$ US$ US$ US$ US$
Assets
Cash and cash equivalents 50 977 109 - - - - 30 249 066 81 226 175
Trading assets - 212 377 - - - - 212 377
Advances 5 946 089 9 098 158 2 352 612 1 151 845 3 144 842 - 21 693 546
Investment securities - - - - - 1 686 142 1 686 142
Investment securities held for sale - - - - - 1 062 534 1 062 534
Investment in associate - - - - - 437 310 437 310
Investment properties - - - - - 575 000 575 000
Property, plant and equipment - - - - - 43 406 436 43 406 436
Receivables and other assets - - - - - 13 852 516 13 852 516
56 923 198 9 310 535 2 352 612 1 151 845 3 144 842 91 269 004 164 152 036
Liabilities and shareholders' equity
Liabilities 11 594 848 4 022 152 175 510 - - 99 369 025 115 161 535
Capital and reserves - - - - - 48 990 501 48 990 501
Total 11 594 848 4 022 152 175 510 - - 148 359 526 164 152 036
Interest rate
re-pricing gap 45 328 350 5 288 383 2 177 102 1 151 845 3 144 842 (57 090 522) -
Cumulative gap 45 328 350 50 616 733 52 793 835 53 945 680 57 090 522 - -
NOTES
58
29 Currency risk
29.1 Currency gap analysis as at 31 December 2009
ASSETS ZAR EUR BWP GBP Total US$ US$ US$ US$
Equivalent Equivalent Equivalent Equivalent
Correspondent Nostro Balances 1 802 542 435 991 94 960 529 722 2 863 215
RBZ/Statutory Reserves - - - - -
Clearing balances with local banks - - - - -
Investments 1 715 388 - - - 1 715 388
Loans 8 363 201 - - - 8 363 201
Cash 462 125 99 663 51 314 25 185 638 287
Other assets 503 - - - 503
Total assets 12 343 759 535 654 146 274 554 907 13 580 594
LIABILITIES
Foreign currency accounts 6 678 000 228 190 191 072 55 512 7 152 774
Fixed term deposits 41 897 6 952 - - 48 849
Other liabilities 402 089 71 16 250 418 410
Total liabilities 7 121 986 235 213 191 072 71 762 7 620 033
Net asset/ (liability) 5 221 773 300 441 (44 798) 483 145 5 960 561
Exchange rate to the US$ 7,397 8 1, 4370 6,6800 1,6078 -
30 FINANCIAL INSTRUMENTS
30.1 Accounting classification and fair values
The table below sets out the Group's classification of each class of financial assets and liabilities, and their fair values
(excluding accrued interest).
Held for Designated Held to Loans and Available for Other carrying
trading at fair value maturity receivables sale amortised cost amount
US$ US$ US$ US$ US$ US$ US$
Assets
Cash and cash equivalents 81 226 175 - - - - - 81 226 175
Trading assets 212 377 - - - - - 212 377
Loans and advances to customers - - - 21 693 546 - - 21 693 546
Investment securities - 1 686 142 - - - - 1 686 142
Investment securities held for sale - 1 062 534 - - - - 1 062 534
Other assets - - - 14 289 826 - - 14 289 826
81 438 552 2 748 676 - 35 983 372 - - 120 170 600
Liabilities and shareholders' equity
Deposits from banks - - - - - 1 330 696 1 330 696
Deposits from customers - - - - - 94 816 788 94 816 788
Other liabilities - - - - - 9 479 559 9 479 559
Total - - - - - 105 627 043 105 627 043
59
31 Segment reporting
Commercial Reinsurance Building Stockbroking Manufacturing Total
Banking Society
US$ US$ US$ US$ US$ US$
31 December 2009
External revenue
Net interest income 5 199 111 - 60 936 1 162 - 5 261 209
Underwriting income/ Technical result - 2 535 910 - - - 2 535 910
Net fee and commission income 4 779 875 - 969 439 343 705 - 6 093 019
Net trading income 1 212 334 - - - 8 585 294 9 797 628
Net income from other financial 1 679 935 79 607 - - - 1 759 542
instruments carried at fair value
Investment income - 377 623 - - - 377 623
Other operating income 477 540 35 018 947 580 55 500 - 1 515 638
Inter-segment revenue 142 269 - - - - 142 269
Total segment revenue 13 491 064 3 028 158 1 977 955 400 367 8 585 294 27 482 838
Segment profit before income tax 1 177 160 665 056 55 848 2 735 1 000 897 2 901 696
Segment assets 126 950 909 7 537 535 9 368 945 856 095 32 794 202 177 507 686
Segment liabilities 100 131 047 4 053 763 2 160 583 705 438 12 181 183 119 232 014
Impairment losses on financial assets 149 430 - - - - 149 430
Depreciation and amortisation 1 336 428 150 774 249 624 42 884 362 946 2 142 655
Capital expenditure 523 820 162 566 12 904 - - 699 290
Investment in associates - 437 310 - - - 437 310
Investments held for sale 1 062 534 - - - - 1 062 534
32 ACQUISITION OF SUBSIDIARY DURING THE FINANCIAL PERIOD
The Group's banking subsidiary also realised 59% of the equity interest in Turnall Holdings Limited, a manufacturing
concern, that was held as security for a non-performing loan. The effective date of acquisition of this subsidiary was 1
September 2009 hence profits since this acquisition date have been consolidated. 2009
US$
Identifiable net assets acquired as at acquisition date 19 876 440
Less:
Fair value of the consideration paid (6 900 866)
Proportionate value of non-controlling interest (8 149 340)
Gain on purchase of 59% interest 4 826 234
NOTES
33. SUBSEQUENT EVENTS
33.1 Discovery of fraud
In the month of January 2010 the banking subsidiary discovered that it had been fraudulently deprived of depositors
funds through fraudulent activities at its Mutare Branch. It was subsequently decided to realize the loss through
the statement of comprehensive income. The total extent of the fraud was US$ 1 517 822. To date, the banking
subsidiary has recovered US$100 000 through insurance covers and US$380 000 through recovered properties
which has also been recognised in the statement of comprehensive income.
33.2 Rights issue
The Group is in the process of undertaking a rights issue to raise capital for its mortgage and reinsurance subsidiaries
to allow them to write more business. US$8 million is expected to be raised from this exercise, with US$5 million
expected to be channeled to the Building Society and the remainder to FBC Reinsurance.
60
34 Risk management and Capital management
34.1 Risk Management
The current environment has increased the importance of risk management, and Basel 11 provisions require
financial institutions to put in place best risk management systems. Managing risk effectively in a diverse and
complex financial institution such as FBCH requires a comprehensive risk management governance structure that
promotes the following elements of a sound risk management framework:
s Sound board and senior management oversight.
s Adequate policies, procedures and limits.
s Adequate risk monitoring and management information systems (MIS).
s Adequate internal controls.
FBCH manages risk through a comprehensive framework of risk principles, organizational structure and risk
processes that are closely aligned with the activities of the four entities under the Group. The Group's Board of
Directors has the ultimate responsibility for ensuring that an adequate and effective system of internal controls
is established and maintained. In discharging its duties, the board has delegated to sub committees the authority
to formulate and review policies and procedures that enable the Group to identify, measure, monitor and control
all risks. The sub committees are supported by management committees and structures that ensure implementation
of effective risk management systems.
In addition to the management committees, the following three risk-related functions are directly involved in
Group-wide risk management:
s Group Risk Management function
s Group Internal Audit
s Group Compliance
The Group classifies risk into the following broad categories for risk management and control purposes:
s Reputational risk
s Strategic risk
s Credit risk
s Liquidity risk
s Market risk
s Operational risk
s Compliance risk
In addition to the above, there are also specific business risks that arise from the Group's Reinsurance Company's
core activities.
(a) Credit risk
Credit risk is the current or prospective risk to earnings and capital arising from a debtor's failure to meet the
terms of any contract with the Group or if a debtor otherwise fails to perform as agreed.
(i) Credit risk framework and governance
The Group's largest source of credit risk is loans, albeit that credit risk exists throughout the other activities
of the Group, on and off the balance sheet. These other activities include inter-bank transactions, mortgage
loans, foreign exchange transactions, and guarantees. Given the significant size of the loan portfolio on
the statement of financial position of the Group, credit risk remains one of the major risks.
To effectively manage credit risk, the Board and Management established an effective and sound credit
risk management framework which is supported by a strong risk culture and environment. Credit risk
NOTES
61
management is governed by each entity's credit policy guidelines and ultimately approved by the Board of Directors.
The Board of Directors is ultimately responsible for credit risk. Group Credit Management Division, is responsible
for the implementation of the credit policies, which cover compliance with prescribed sanctioning authority levels,
avoidance of a high concentration of credit risk and regular review of credit limits. The Group Risk Management
Division, Group Compliance and Group Audit also monitor independently the management of credit risk.
(ii) Credit policies, procedures and limits
The Group has sound and well-defined policies, procedures and limits which are reviewed and approved by the
Boards of Directors and strictly implemented by management. Credit risk limits include delegated approval and
write-off limits to advances managers, management and board credit committees, counterparty limits, individual
account limits, group limits and concentration limits.
(iii) Credit risk mitigation and hedging
As part of the Group's credit risk mitigation and hedging strategy, various types of collateral is taken by the banking
subsidiaries. These include mortgage bonds over residential, commercial and industrial properties, cession of book
debts and the underlying moveable assets financed. In addition, a guarantee is often required particularly in
support of a credit facility granted to counterparty. Generally, guarantor counterparties include parent companies
and shareholders. Creditworthiness for the guarantor is established in line with the credit policy.
(iv) Credit risk stress testing
The Group and the entities recognise the possible events or future changes that could have a negative impact on
the credit portfolios and affect the Group's ability to generate more business. To mitigate this risk, the Group has
put mechanisms in place to enhance its stress testing methodologies.
(v) Impairments
An allowance for loan impairment is established if there is objective evidence that the Group will not be able to
collect all amounts due according to the original contractual terms of loans. The amount of the provision is the
difference between the carrying amount and the recoverable amount, being the present value of expected cash
flows, including amounts recoverable from guarantees and collateral, discounted at the original effective interest
rate of loans.
(b) Liquidity risk
Liquidity Risk is the current or prospective risk to earnings and capital arising from the Group's inability to meet its
liabilities when they fall due without incurring unacceptable losses.
(i) Liquidity risk framework and governance
The Group does not treat Liquidity risk in isolation as it is often triggered by consequences of other financial risks
such as credit risk and market risk. The Group's liquidity risk management framework is therefore designed to
ensure that its subsidiaries have adequate liquidity to withstand any stressed conditions. To achieve this objective,
the Board of Directors through the entities' Board Asset Liability Committees is ultimately responsible for liquidity
risk management. The responsibility for managing the daily funding requirements is delegated to the Heads of
Treasury Divisions for banking entities and Finance Managers for non-banking entities with independent day to
day monitoring being provided by Group Risk Management.
(ii) Liquidity and funding management
The Group's management of liquidity and funding is decentralised and each entity is required to fully adopt the
liquidity policy approved by the Board with independent monitoring being provided by the risk management
function. The Group uses concentration risk limits to ensure that funding diversification is maintained across the
products, counterparties and sectors. Major sources of funding are in the form of deposits across a spectrum of
retail and wholesale clients for all the subsidiaries.
NOTES
62
(iii) Cash flow and maturity profile analysis
The Group uses the cash flow and maturity mismatch analysis on both contractual and behavioural basis to assess their ability
to meet immediate liquidity requirements and plan for their medium to long term liquidity profile.
(iv) Liquidity contingency plans
In line with the Group's liquidity policy, liquidity contingency plans are in place for the subsidiaries in order to ensure a
positive outcome in the event of a liquidity crisis. The plans clearly outline early warning indicators which are supported by
clear and decisive crisis response strategies. The crisis response strategies are created around the relevant crisis management
structures and address both specific and market crises.
(v) Liquidity stress testing
It is the Group's policy that each entity conducts stress tests on a regular basis to ensure that they have adequate liquidity to
withstand stressed conditions. In this regard, anticipated on- and off-statement of financial position cash flows are subjected
to a variety of specific and systemic stress scenarios during the period in an effort to evaluate the impact of unlikely events
on liquidity positions.
(c) Market Risk
Market risk is the risk of financial loss in on and off-statement of financial position trading positions arising from movements in
market prices. Market risk exists whenever the Group has taken trading, banking or investment positions.
(i) Market risk from trading positions
The Group uses a collection of risk measurement methodologies to assess market risk, including value-at-risk (VaR), stress
testing, loss triggers and traditional risk management measures.
(ii) Market risk from banking positions
Banking related market risk is contained within the Group's two major treasury operations at the Bank and the Building
Society. The interest rate risk profile is assessed regularly based on the fundamental trends in interest rates, economic
developments and technical analysis.
(iii) Market risk from investments
This is managed in accordance with their purpose and strategic benefit rather than on market considerations and periodic
reviews and reassessments are undertaken.
(iv) Foreign currency risk
Foreign exchange rate risk is the current or prospective risk to earnings and capital arising from adverse movements in
currency exchange rates. The potential for loss arises from the process of revaluing foreign currency positions on both on-
and off- statement of financial position items, in Zimbabwe dollar terms. This risk is largely concentrated at FBC Bank and
FBC Reinsurance.
(v) Framework and governance
The Board of Directors is ultimately accountable and approves the market risk appetite for all types of market risk. The Board
delegated the effective management of market risk to the entities' Assets Liabilities Committees (ALCO) for the banking
entities and Risk and Compliance Committees for non-banking entities. On a day-to-day basis, market risk exposures are
independently reviewed and measured by the Group Risk Management function, and appropriate management reports are
generated. Trading limits are set for individual business units to contain losses within a specified amount in the event of
adverse market movements.
(vi) Market risk measurement
The tools for measuring market risk that are applied within the Group range from the very fundamental and basic marking-
to-market, to the more sophisticated Value at Risk Models. Generally, measurement tools in use at any point in time are
NOTES
63
commensurate with the scale, complexity, and nature of trading activities and positions held by entity. The tools and
techniques used to measure and control market risk include the repricing gap, scenario analysis on net interest income
and economic value of equity, stop loss limits, duration analysis, stress testing and Value at Risk. In addition, the Group
also performs ratio analysis on the key ratios of each entity. Risk limits for all the measures are documented in each entity's
ALCO policy. Group Risk Management performs regular reviews of the existing models to ensure that they are still relevant
and behaving within expectations.
(d) Operational Risk
Operational risk is the risk of loss arising from the potential that inadequate information system, technology failures, breaches
in internal controls, fraud, unforeseen catastrophes, or other operational problems may result in unexpected losses. Operational
risk exists in all products and business activities.
To monitor and control the risk the Group has in place internal control systems which include; clear documentation of control
procedures, segregation of duties, authorization, close monitoring of risk limits, monitoring of assets use, reconciliation of
transactions and compliance. The Board has ultimate responsibility for ensuring effective management of operational risk. This
function is implemented through the Board Risk and Compliance Committee at Group level which meets on a quarterly basis to
review all other major risks including operational risks. This Committee serves as the oversight body in the application of the
Group's operational risk management framework, including business continuity management. Each entity has a Management and
Board Risk and Compliance Committee to ensure a robust operational risk management framework. Other Group management
committees which report to Group Executive Committee include the Group New Product Committee, Group IT Steering Committee
and Group Business Continuity Committee.
(i) The management and measurement of operational risk
The Group identifies and assesses operational risk inherent in all material products, activities, processes and systems. It
ensures that before new products, activities, processes and systems are introduced or undertaken, the operational risk
inherent in them is subjected to adequate assessment by the appropriate risk committees which include the Risk and
Compliance Committee and Group New Product Committee.
The Group conducts Operational Risk Assessments in line with the Group's risk strategy. These assessments cover causes
and events that have, or might result in losses, as well as monitor overall effectiveness of controls and whether prescribed
controls are being followed or need correction. Key Risk Indicators (KRIs) which are statistical data relating to a business
or operations unit are monitored on an ongoing basis. The Group also maintains a record of loss events that occur in the
Group in line with Basel II requirements. These are used to measure the Group's exposure to the respective losses. Risk
Limits are used to measure and monitor the Group's operational risk exposures. These include branch cash holding limits,
teller transaction limits, transfer limits and write off limits which are approved by management and the Board. In addition,
the Group also uses risk mitigation mechanisms such as insurance programmes to transfer risks. The Group maintains
adequate insurance to cover key operational and other risks.
(ii) Business continuity management
To ensure that essential functions of the Group are able to continue in the event of adverse circumstances, the Group
Business Continuity Plan is reviewed annually and approved by the Board. The Group Business Continuity Committee is
responsible for ensuring that all units and branches conduct tests each year in line with the Group policy. The Group
successfully conducted its business continuity tests during the fourth quarter of 2009 and all processes were well documented.
(iii) Operational Risk and Basel II Implementation
The Group continues to improve its risk management systems and processes in preparation for Basel II implementation.
All structures, processes and systems have been aligned to Basel II requirements. The Group also adopted in full all the
Risk Management Guidelines which were issued by the Reserve Bank as part of the Basel II implementation.
NOTES
64
(e) Compliance Risk
Compliance risk is the current and prospective risk to earnings or capital arising from violations of, or non-conformance
with laws, rules, regulations, prescribed practices, internal policies and procedures or ethical standards.
The Compliance function assesses the conformity of codes of conduct, instructions, procedures and organizations in relation
to the rules of integrity in financial services activities. These rules are those which arise from the institution's own integrity
policy as well as those which are directly provided by its legal status and other legal and regulatory provisions applicable
to the financial services sector.
Management is also accountable to the Board for designing, implementing and monitoring the process of compliance risk
management and integrating it with the day to day activities of the Group.
(f) Strategic Risk
Strategic risk is the current and prospective impact on earnings or capital arising from adverse business decisions, improper
implementation of decisions, or lack of responsiveness to industry changes. The Board of Directors retains the overall
responsibility for strategic risk management through the Board Finance and Strategy Committee.
(g) Reputation Risk
Reputational risk is the potential that negative publicity regarding the Group's business practices, whether true or not, will
cause a decline in the customer base, costly litigation, or revenue reductions. This risk may result from the Group's failure
to effectively manage any or all of the other risk types. Management translates the reputational risk management strategy
established by the Board of Directors into policies, processes and procedures that are implemented throughout the Group.
34.2 Capital Management
(a) Regulatory Capital
The RBZ sets and monitors capital requirements for the Group as a whole.
In implementing current capital requirements the RBZ requires the Group to maintain prescribed ratio of total capital to
total risk-weighted assets.
The Group's regulatory capital is analysed into three tiers;
s Tier 1 capital, which includes ordinary share capital, share premium, retained earnings, and minority interests after
deductions for goodwill and intangible assets, and other regulatory adjustments relating to items that are included
in equity but are treated differently for capital adequacy purposes.
s Tier 2 capital, which includes qualifying subordinated liabilities, collective impairment allowances and the element
of the fair value reserve relating to unrealized gains on equity instruments classified as available for sale.
s Tier 3 capital, which shows the allocation of Group's capital for market and operational risk.
Various limits are applied to the elements of the capital base. Qualifying tier 2 cannot exceed tier 1 capital; and qualifying
term subordinated loan capital may not exceed 50 percent of tier 1 capital.
Group operations are categorized as either trading book or Group book, and risk weighted assets are determined according
to specified requirements that seek to reflect the varying levels of risk attached to assets and off-balance sheet exposures.
The Group's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to
sustain future development of the business. The impact of the level of capital on shareholders' return is also recognized
and the Group recognizes the need to maintain a balance between the higher returns that might be possible with higher
gearing and the advantages and security afforded by a sound capital position.
NOTES
65
35. Reserve Bank of Zimbabwe Onsite Examination
The Group and its subsidiaries have their corporate governance and risk management processes independently audited by the
Reserve Bank of Zimbabwe at least every 18 months. The most recent inspection was carried out for the 12 months to 30 September
2008 and the results indicate that the Group’s risk management and corporate governance practices are sound as illustrated below.
Summary risk assessment system (RAS) ratings
RAS component Latest RAS rating Previous RAS Previous RAS
30 Sept 2008 rating rating
Overall inherent risk Moderate Not applicable Not applicable
Overall risk management systems Acceptable Not applicable Not applicable
Overall composite risk Moderate Not applicable Not applicable
Direction of overall
composite risk Stable Not applicable Not applicable
FBC Holdings Limited summary risk matrix
Type of risk Level of Adequacy of risk Overall Direction of overall
inherent risk management systems composite risk composite risk
Credit Moderate Acceptable Moderate Stable
Liquidity Moderate Acceptable Moderate Stable
Interest rate Low Acceptable Low Stable
Foreign exchange Moderate Acceptable Moderate Stable
Strategic Moderate Acceptable Moderate Stable
Operational risk High Acceptable High Increasing
Legal and compliance Moderate Acceptable Moderate Stable
Reputation Low Acceptable Low Stable
Overall Moderate Acceptable Moderate Stable
FBC Bank Limited
FBC Bank Limited CAMELS* ratings
Camels component Latest RBS ratings Previous RBS ratings Previous RBS
30 Sept 2008 31 March 2005 ratings
Capital adequacy 1 2 Not applicable
Asset quality 2 2 Not applicable
Management 2 2 Not applicable
Earnings 1 2 Not applicable
Liquidity 2 2 Not applicable
Sensitivity to market risk 2 Not applicable Not applicable
Composite rating 2 2 Not applicable
NOTES
66
31 December 2009
Reserve Bank of Zimbabwe onsite examinations (cont’d)
*CAMELS is an acronym for capital adequacy, asset quality, management, earnings, liquidity, and sensitivity to market risk.
CAMELS rating system uses a rating scale of 1-5, where ‘1’ is strong, ‘2’ is satisfactory, ‘3’ is fair, ‘4’ is poor and ‘5’ is critical.
**RBS stands for risk-based supervision.
FBC Bank Limited summary risk assessment system (RAS) ratings
RAS component Latest RAS rating Previous RAS rating Previous
30 Sept 2008 31 March 2005 RAS rating
Overall inherent risk Moderate Not applicable Not applicable
Overall risk management systems Acceptable Not applicable Not applicable
Overall composite risk Moderate Not applicable Not applicable
Direction of overall composite risk Stable Not applicable Not applicable
FBC Bank Limited summary risk matrix
Type of risk Level of Adequacy of risk Overall Direction of overal
inherent risk management systems composite risk l composite risk
Credit Moderate Acceptable Moderate Stable
Liquidity Moderate Acceptable Moderate Stable
Interest rate Moderate Acceptable Moderate Stable
Foreign exchange Low Acceptable Low Stable
Strategic Moderate Acceptable Moderate Stable
Operational risk High Acceptable High Increasing
Legal and compliance Moderate Acceptable Moderate Stable
Reputation Low Acceptable Low Stable
Overall Moderate Acceptable Moderate Stable
FBC Building Society
FBC Building Society CAMELS* ratings
Camels component Latest RBS ratings Previous RBS ratings Previous RBS
30 Sept 2008 31 March 2005 ratings
Capital adequacy 2 2 Not applicable
Asset quality 2 2 Not applicable
Management 2 2 Not applicable
Earnings 2 1 Not applicable
Liquidity 2 2 Not applicable
Sensitivity to market risk 2 Not applicable Not applicable
Composite rating 2 2 Not applicable
NOTES
67
31 December 2009
Reserve Bank of Zimbabwe onsite examinations (cont’d)
FBC Building Society summary risk assessment system (RAS) ratings
RAS component Latest RAS rating Previous RAS rating Previous
30 Sept 2007 31 March 2005 RAS rating
Overall inherent risk Moderate Not applicable Not applicable
Overall risk management systems Acceptable Not applicable Not applicable
Overall composite risk Moderate Not applicable Not applicable
Direction of overall composite risk Stable Not applicable Not applicable
FBC Building Society summary risk matrix
Type of risk Level of Adequacy of risk Overall Direction of overall
inherent risk management systems composite risk composite risk
Credit Moderate Acceptable Moderate Stable
Liquidity Moderate Acceptable Moderate Stable
Interest rate Moderate Acceptable Moderate Increasing
Foreign exchange Moderate Acceptable Moderate Stable
Strategic Low Acceptable Low Stable
Operational risk High Acceptable High Increasing
Legal and compliance Moderate Acceptable Moderate Stable
Reputation Moderate Acceptable Moderate Stable
Overall Moderate Acceptable Moderate Stable
NOTES
68
NOTES
Level of Inherent Risk Key
s Low - reflects a lower than average probability of an adverse impact on a banking institution's capital and earnings.
Losses in a functional area with low inherent risk would have little negative impact on the banking institution's overall
financial condition.
s Moderate - could reasonably be expected to result in a loss which could be absorbed by a banking institution in the
normal course of business.
s High - reflects a higher than average probability of potential loss. High inherent risk could reasonably be expected
to result in a significant and harmful loss to the banking institution.
Adequacy of Risk Management Systems Key
s Weak - risk management systems are inadequate or inappropriate given the size, complexity and risk profile of the
banking institution. Institution's risk management systems are lacking in important ways and therefore a cause of
more than normal supervisory attention. The internal control systems will be lacking in important aspects particularly
as indicated by continued control exceptions or by the failure to adhere to written policies and procedures.
s Acceptable - management of risk is largely effective but lacking to some modest degree. While the institution might
be having some minor risk management weaknesses, these have been recognized and are being addressed. Management
information systems are generally adequate
s Strong - management effectively identifies and controls all types of risk posed by the relevant functional areas or
per inherent risk. The board and senior management are active participants in managing risk and ensure appropriate
polices and limits are put in place. The policies comprehensively define the Group's risk tolerance, responsibilities
and accountabilities are effectively communicated.
Overall Composite Risk Key
s Low Risk - would be assigned to low inherent risk areas. Moderate risk areas may be assigned a low composite risk
where internal controls and risk management systems are strong and effectively mitigate much of the risk.
s Moderate Risk - risk management systems appropriately mitigates inherent risk. For a given low risk area,
significant weaknesses in the risk management systems may result in a moderate composite risk assessment. On the
other hand, a strong risk management system may reduce the risk so that any potential financial loss from the activity
would have only a moderate negative impact on the financial condition of the organisation.
s High Risk - risk management systems do not significantly mitigate the high inherent risk. Thus the activity could
potentially result in a financial loss that would have a significant impact on the Group's overall condition, even in
some cases where the systems are considered strong.
Direction of Overall Composite Risk Key
s Increasing- based on the current information, composite risk is expected to increase in the next twelve months.
s Decreasing - based on current information, composite risk is expected to decrease in the next twelve months.
s Stable- based on the current information, composite risk is expected to be stable in the next twelve months.
35.1 External credit rating
The banking and reinsurance subsidiaries have their credit ratings reviewed annually by an international credit rating
agency, Global Credit Rating. The investor grade ratings are shown in the table below:
Subsidiary 2008 2006 2005
FBC Bank A- BBB+ BBB+
FBC Reinsurance A- BBB- BBB-
FBC Building Society BBB BBB- BBB-
n/a - not applicable
36 Limitations of financial reporting during 2008
There were a number of macro and micro economic challenges in 2008 which resulted in limitations in financial reporting.
A number of uncertainties emanated from these economic challenges and these include:
s The Consumer Price Indices (CPIs) which were not published since July 2008, with estimates by economists wide
ranging. The use of foreign currency and multiple pricing, distorted the process of measuring inflation. Therefore,
the Group's results for 2008 were not adjusted to reflect the changes in the general level of prices due to the unavailability
of official CPIs. The requirement for Zimbabwean entities to restate financial figures to reflect their purchasing power
is based on IAS 29, which requires that the financial statements prepared in the currency of a hyperinflationary
economy be stated in terms of the measuring unit current at the balance sheet date and that corresponding figures
for the previous period be restated on the same basis.
s The measurement of transactions in local currency was dependent on the mode of settlement. As a result, there
were significant variations in the valuations of assets and liabilities. Accordingly, such valuations were inherently
unreliable.
s The determination of fair values as at 31 December 2008 in the annual financial statements was affected by the
prevailing economic environment and may therefore have been distorted. This resulted in significant variations in
fair values, depending on factors and assumptions used in the determination of the fair values.
The uncertainties were aggravated by:
s multiple exchange rates - there were various rates applicable which varied significantly (for instance the market
"cash exchange rate" was less than 1% of the market "cheque exchange rate" or the United Nations exchange rate).
If a transaction occurs at more than one rate and was recorded at its nominal value, this resulted in distortions in
financial reporting;
s multiple pricing - there were multiple prices for the same commodity/service, largely dependant on the modes of
settling transactions from cheque/transfer, cash, fuel coupons, foreign currency etc. The effect was similar to that of
the multiple exchange rates described above and resulted in distortions in financial reporting;
s "dollarisation" - the introduction of licensed operators in currencies other than the Zimbabwe dollar in the country
and also the "basing" of most other transactions in such currencies for most of the non- licensed operators, created
challenges for the Bank in determining its functional currency (as between the local currency and another currency).
s However on 29 January 2009 and 2 February 2009 the Fiscal and Monetary Authorities respectively, authorised
the use of multiple currencies for trading in Zimbabwe. This resulted in a change in functional currency for most
entities reporting in Zimbabwe. International Financial Reporting Standards require entities to convert their financial
statements into the new functional currency at the date of change over. Due to the limitations noted above, especially
the inability to measure inflation reliably and the existence of multiple exchange rates up to the date of change in
functional currency, the Directors have not sought to translate the Zimbabwe dollar denominated financial statements
and present them in the new functional currency in accordance with IAS 29 and IAS 21. Comparative information
has also not been included in these financial statements for the same reasons as noted above. It is the Directors view
that such information would be misleading given the limitations noted.
The Directors advise caution on the use of consolidated statements of comprehensive income, cash flows and changes in
equity. The Directors believe that the consolidated statement of financial position that has been presented is a fair reflection
of the assets and liabilities of the Group and therefore a fair reflection of the shareholders' equity.
NOTES
69
70
15 April 2010
The Directors
FBC Holdings Limited
6th Floor, FBC Centre
45 Nelson Mandela Avenue
Harare
Dear Sirs
REPORT OF THE INDEPENDENT REPORTING ACCOUNTANTS ON THE UNAUDITED PRO FORMA FINANCIAL
INFORMATION OF FBC HOLDINGS LIMITED AND SUBSIDIARIES (“FBCH” OR “THE GROUP”)
Introduction
The directors of FBC Holdings Limited and Subsidiaries ("FBCH" or "the Group") are proposing to raise an amount of US$7 990
942.40 by way of a renounceable Rights Offer to the registered holders of ordinary shares in FBCH, as at 23 April 2010, to subscribe
for approximately 228 312 640 (two hundred and twenty eight million, three hundred and twelve thousand, six hundred and forty)
ordinary shares of a nominal value of US$0.00001 each in the issued share capital of FBCH, at a subscription price of US$0.035
per ordinary share, on the basis of 63 (sixty three) new ordinary shares for every 100 (one hundred) ordinary shares already held
("the Rights Offer"). The amount is being raised for the purpose of recapitalization of FBC Building Society, a 60% owned subsidiary
of FBCH and FBC Reinsurance Limited, a 100% owned subsidiary of FBCH.
We report on the unaudited pro forma statement of financial position (referred to as "the unaudited pro forma financial information)
of FBCH set out in Part B (section 8.5) of the FBCH Circular to Shareholders ("Circular") dated 15 April 2010. The unaudited pro
forma financial information has been prepared for illustrative purposes only, to provide information on how the Rights Offer
would have impacted on the financial position of FBCH had it been undertaken on 31 December 2009. Because of its nature, the
unaudited pro forma financial information may not give a fair reflection of FBCH's financial position or the effect on income going
forward.
At your request, and for the purposes of the Circular, we present our report on the unaudited pro forma financial information set
out in Part B (section 8.5) of the Circular, in compliance with the Listing Requirements of the Zimbabwe Stock Exchange ("ZSE").
Responsibilities
The directors of FBCH are solely responsible for the preparation of the unaudited pro forma financial information to which this
independent accountants' report relates, and for the financial statements and financial information from which it has been prepared.
It is our responsibility to form an opinion on the basis used for the compilation of unaudited pro forma financial information and
to report our opinion to you. We do not accept any responsibilities for any reports previously given by us on any financial information
used in the compilation of the unaudited pro forma financial information beyond that owed to those to whom those reports were
addressed at the dates of issue.
PART G : REPORT ON THE UNAUDITED PRO FORMA FINANCIAL INFORMATION
KPMG Telephone +263 (4) 302600Mutual Gardens +263 (4) 303700100 The Chase (West), Emerald Hill Telefax +263 (4) 303699P O Box 6, HarareZimbabwe
KPMG, a Zimbabwe partnership and a member firm ofthe KPMG network of independent member firms affiliatedwith KPMG international, a Swiss co-opertive.
Basis of Opinion
Our work, which did not involve an independent examination of any of the underlying financial information, consisted primarily
of recalculating the amounts and adjustments to the unaudited pro forma financial information based on information obtained
and discussing the same unaudited pro forma financial information with the directors.
Because the above procedures do not constitute either an audit or a review made in accordance with International Standards on
Auditing ("ISA"), we do not express any assurance on the fair presentation of the unaudited pro forma financial information. Had
we performed additional procedures or had we performed an audit or review of the financial information in accordance with ISA,
other matters might have come to our attention that would have been reported to you.
The unaudited pro forma financial information, which has been included in Part B (section 8.5) of the Circular to shareholders,
was prepared using certain assumptions made by yourselves and the significant assumptions include:
s Redenomination of the nominal share capital from ZW$0.01 per share to US$0.00001 per share;
s Rights issue price of US$0.035 per share;
s Rights offer share ratio of 63 new shares for every 100 shares currently held resulting in an issue of 228 312 640 ordinary
shares;
s Number of shares in issue after the rights offer, 590 713 656 ordinary shares; and
s Total transaction expenses of US$490 942 will be settled in cash as explained in Part B.5 of the Circular. The rights offer
cash expenses are to be written off against the share premium account.
As the purpose of the unaudited pro forma financial information differs from the purpose of financial statements prepared for
members, the financial information presented is not intended to comply in full with presentation and disclosure requirements of
the Companies Act [Chapter 24:03] and International Financial Reporting Standards promulgated by the International Accounting
Standards Board.
Opinion
In our opinion, nothing has come to our attention that causes us to believe that, in all material respects:
s The unaudited pro forma financial information has not been compiled on the basis stated;
s That such basis is inconsistent with the accounting policies of FBCH; and
s The adjustments are not appropriate for the purposes of the unaudited pro forma financial information, as disclosed in the
terms of the Rights Offer and in terms of the ZSE Listing Requirements.
Yours faithfully;
KPMG
Chartered Accountants (Zimbabwe)
Harare
PART G : REPORT ON THE UNAUDITED PRO FORMA FINANCIAL INFORMATION
71
72
G.1. ANNEXURE (I) TABLE OF ENTITLEMENTS
The following table sets out the number of FBC Holdings ordinary shares to which FBC Holdings Shareholders are entitled
in terms of the Rights Offer.
No. of Shares Held Rights Issues Share Entitlement Amount Due
1 1 0.04
10 6 0.24
100 63 2.52
200 110 4.40
300 189 7.56
400 252 10.08
500 315 12.60
600 378 15.12
700 441 17.64
800 504 20.16
900 567 22.68
1,000 630 25.20
2,000 1,260 50.40
3,000 1,890 75.60
4,000 2,520 100.80
5,000 3,150 126.00
6,000 3,780 151.20
7,000 4,410 176.40
8,000 5,040 201.60
10,000 6,300 252.00
20,000 12,600 504.00
30,000 18,900 756.00
40,000 25,200 1,008.00
50,000 31,500 1,260.00
60,000 37,800 1,512.00
70,000 44,100 1,764.00
80,000 50,400 2,016.00
90,000 56,700 2,268.00
100,000 63,000 2,520.00
1,000,000 630,000 25,200.00
10,000,000 6,300,000 252,000.00
PART H: ANNEXURES
73
G.2. ANNEXURE (II) SHARE PRICE PERFORMANCE HISTORY
The following figure is an illustration of the share performance of the FBCH share since the introduction of the use of
multiple currencies:
FBCH SHARE PRICE ANALYSIS
-
0.501.001.502.002.503.003.504.004.50
19.2
.9
6.3.
9
23.3
.9
07.4
.9
24.4
.9
12.5
.9
28.5
.9
12.6
.9
29.6
.9
14.7
.9
29.7
.9
17.8
.9
01.0
9.09
16.0
9.09
01.1
0.09
16.1
0.09
02.1
1.09
17.1
1.09
02.1
2.09
17.1
2.09
06.0
1.10
FBCH
G.3. ANNEXURE (III) DETAILS OF THE UNDERWRITERS
Name Genesis Investment Bank Limited
Registered Office 2nd Floor Corner House
29 Samora Machel Avenue
Harare
Registration number 4393/95
Directors M. F. Dandato Chairman
F. Chibaya Chief Executive Officer
D. Kanokanga Non-Executive Director
J. Karidza Non-Executive Director
M. Mubvumbi Non-Executive Director
T. B. Muchabaiwa Non-Executive Director
T. Nyika Non-Executive Director
R. Webb Non-Executive Director
B. Mahere Executive Director
Company Secretary Garikai Ntuli
PART H: ANNEXURES
74
PART H: ANNEXURES
G.4. ANNEXURE (IV) NOTICE OF EXTRAORDINARY GENERAL MEETING
NOTICE OF EXTRAORDINARY GENERAL MEETING
In terms of the Company's Articles of Association, notice is hereby given that an EGM of FBC Holdings Shareholders will be held in theCharter House Auditorium, 70 Samora Machel Avenue, Harare, at 1000 hours on Monday 26 April 2010, to consider, and, if deemed fit,pass, with or without modification, the following ordinary and special resolutions:
1. AS A SPECIAL RESOLUTION - SHARE REDENOMINATIONTo approve the redenomination of the authorized and issued share capital of FBC Holdings Limited as follows:
"THAT:
The authorized share capital of the Company be redenominated from eight hundred million [800,000,000] ordinary shares ofZWD0.01 (one cent)* each to eight hundred million [800,000,000] ordinary shares of USD0.00001 (one thousandth of a UnitedStates cent) each and that the Directors be authorized to transfer from the Capital Reserves an equivalent of nominal value issuedShare Capital to fund the re-denomination and this amount will amount to USD3,642.01 (three thousand six hundred and fortytwo United States of America Dollars and one cent) and that the Articles of Association of the Company be amended accordingly."*Old Zimbabwe Dollar Currency as at 31 January 2009.
2. AS AN ORDINARY RESOLUTION - RIGHTS OFFER
"THAT:
The Directors of the Company are authorized to undertake a renounceable Rights Offer of approximately 228,312,640.00 (twohundred and twenty eight million three hundred and twelve thousand six hundred and forty) Ordinary Shares of a nominal valueof USD0.00001 each in the Company's authorized share capital to existing holders of the Company's ordinary shares, at a subscriptionprice of USD$0.035 (three and half United States cents) per share, in the ratio of sixty three (63) new ordinary shares for everyone hundred (100) ordinary shares held in FBC Holdings Limited at the close of business on Friday 23 April 2010."
3. AS AN ORDINARY RESOLUTION
"THAT:
The Directors be and are hereby authorised to take any and all steps necessary to give effect to the resolutions (1) and (2) above."
4. AS AN ORDINARY RESOLUTION
"THAT:
The balance of the authorised but unissued shares of the Company be placed under the control of Directors for an indefinite period,to be issued in compliance with the terms of the Company's Memorandum and Articles of Association, provided that no issue willbe made which would effectively transfer control of the Company without the prior approval of the Shareholders in a GeneralMeeting"
By order of the Board
Tichaona MabezaCompany Secretary1 March 2010Registered Office6th Floor FBC Centre45 Nelson Mandela AvenueHarareZimbabwe
NotesA member of the Company entitled to attend and vote, is entitled to appoint a proxy to attend, vote and speak in his/ her place at the meeting onhis/her behalf, and that a proxy need not also be a member of the Company. Forms of Proxy will be included in the Circular to Shareholders of FBCHoldings to be mailed on or about 14 April 2010.