Final Results

16 May 2016

Masawara plc ("Masawara", the "Company" or the "Group")

Final results for the year ended 31 December 2015

Masawara, an investment company focused on acquiring interests in companies based in Zimbabwe and the southern African region, is pleased to announce its audited results for the year ended 31 December 2015.

The Company's financial statements for the year ended 31 December 2015 may be viewed on, or downloaded from, the Company's website at www.masawara.com.

Contact details

Masawara plc

(Masawara Zimbabwe (Private) Limited, the Company's Investment Advisor in Zimbabwe)

Rutendo Maziva/Oliver Lutz

+263 4 751805

Cenkos Securities plc (Nominated adviser and broker)

Nicholas Wells/Ian Soanes/Max Hartley

 +44 20 7397 8900

CHAIRMAN'S STATEMENT

The year 2015 was in many ways a transformational year in our short history. We completed the acquisition of 100% of TA Holdings Limited ("TA Holdings"), the anchor investment in our portfolio, in April 2015. We then embarked on an extensive restructure of the TA Holdings Group, with the objective of rationalising and simplifying the structures, integrating TA Holdings within the Masawara Plc Group and making the overall structure more cost efficient. We also introduced a strong partner Sanlam Emerging Markets (Pty) Limited ("SEM"), which shares our operating ethos, into the Zimbabwe insurance cluster. Through this transaction that was completed in December 2015, SEM acquired an effective 40% shareholding in our Zimbabwe insurance companies (excluding the brokerage business).

Following the TA Holdings acquisition, the Investment Advisor made some significant management changes, with the former TA Holdings CEO, Gavin Sainsbury, assuming the position of Chief Operating Officer, and with Osbourne Majuru as Chief Financial Officer. Both have strong operational experience, which should further strengthen our capacity to manage our portfolio.

The operating environment in most of our markets continued to be difficult, particularly in Zimbabwe, which continued to stagnate and where the liquidity challenges worsened.

The TA Holdings acquisition, corporate restructuring and introduction of SEM into the Zimbabwe insurance cluster all had a positive impact on the portfolio. On completion, the restructuring is expected to result in cost savings and efficiencies, which should improve the bottom-line. The partnership with SEM, particularly the provision of technical services, has already started to pay off, and we expect to derive even greater benefits in the future and improve the market positions of all our insurance companies in Zimbabwe. In 2016, we strengthened our partnership with SEM, when it acquired 50% of Botswana Insurance Company, our short term insurance business in Botswana.

The Group incurred a loss after tax of $4.7 million for the year compared to a profit after tax of $16.1 million during the prior year. This was primarily as a result of a $12.5 million impairment of the Telerix Communications (Private) Limited ("Telerix") loan notes in 2015 (2014: $2.8 million) and a $2.0 million operating loss from Sable Chemical Industries ("Sable") from 25 June 2015 when the Group took control of the company and therefore started consolidating it as a subsidiary. In the prior period, Sable was accounted for as an associate and had no impact on the Group's results, as the investment in Sable had been fully impaired. The impairment of the Telerix loan notes was prudent in light of uncertainties of when the business will be in a position to fully repay the loans. The future of this business looks positive on the back of the acquisition by Dandemutande, Telerix's operating company, of the iWay Africa Zimbabwe (Private) Limited and Africa Online (Private) Limited customers and selected assets and liabilities in July 2015, as well as the commencement of a management contract awarded to Gondwana International Networks (Pty) Limited, a Pan-African IT specialist based in South Africa, which now co-owns Dandemutande following the transaction. The non-recurring income in the prior year comprised of a $6.2 million gain on disposal of our investment in Masawara Energy (Mauritius) Limited and a $10.0 million gain on the acquisition of TA Holdings.

Sable went through fundamental changes during October 2015, following the cessation of bulk power supplies to its Kwekwe plant, which it was using for the production of ammonia through electrolysis. Its performance was also affected by the drought experienced throughout Southern Africa. Sable has now adopted a new operating model based on full importation of ammonia. We believe that with the right level of financing, this new model is a better and more sustainable one.

2016 will be a year of further consolidation that will include:

· Continued emphasis on restructuring and optimisation of the investment portfolio to unlock value and create a platform for future growth;

· A focus on current investments and ensuring the companies are better positioned to grow market share, especially in Zimbabwe where the market size is expected to stagnate or contract;

· Stronger focus on cash generation; and

· Supporting and providing strategic guidance to management of underlying investments.

It has been an exciting challenge to serve as Chairman of Masawara from the time of its listing on AIM in August 2010. It has given me the opportunity to participate in the efforts of the Company to act as a bellwether for international investment in the economy of Zimbabwe and the southern African Region. Masawara has now launched on a new phase of activity and one that I believe will carry it forward on a basis designed to make it even more successful. In standing down as Chairman at the next AGM in June, I am handing over to Christopher Getley with whom I have been collaborating to ensure a smooth transition. I hope to be able to maintain my happy relationship with Masawara. I remain available to contribute in whatever manner possible, particularly in any capital raising activities.

David Suratgar

16 May 2016

DIRECTORS' REPORT

The Directors present the audited financial statements of the Group for the year ended 31 December 2015.

Principal activities

Masawara Plc is an investment company focused on acquiring interests in companies based in Zimbabwe and the Southern African region. The portfolio comprises of:

· a 100% interest in TA Holdings Limited ("TA Holdings"), a diversified investment company that holds stakes in insurance, agro-chemical and hospitality businesses across sub-Saharan Africa;

· a significant interest in Joina City, a premium, multi-purpose property, located in Harare's Central Business District, providing rental property for retail, entertainment and office space;

· a non-controlling interest in Telerix Communications (Private) Limited ("Telerix") and iWayAfrica Zimbabwe (Private) Limited ("iWayAfrica"), Zimbabwean broadband internet service providers.

Investment strategy

Masawara Plc principally invests in businesses and assets located in Zimbabwe. To the extent that value opportunities exist and attractive returns can be achieved, investments will also be considered elsewhere on the African continent.

In the identification of investment opportunities, emphasis is placed by Masawara Plc on identifying value propositions, with a view to finding, unlocking and extracting embedded real value. The Investment Advisor, Masawara Zimbabwe (Private) Limited (a subsidiary of the company), advises the Board on opportunities, acquisitions, joint ventures and disposals, exit strategies and manages the Group's portfolio of investments in Zimbabwe on a day-to-day basis, with a view to achieving the Group's investment objective and strategy.

Business preference

The investment criteria adopted are:

· ability to influence the business at a board level, with the Group's executives adding structuring and financing expertise to the management of the business, as well as significant industry relationships and access to finance;

· ability to work alongside a strong management team to maximize returns through revenue growth, accretive acquisitions, and the optimization of cost control;

· investing in businesses with a clear growth potential;

· focusing on the creation of intrinsic value through the restructuring of the investment or a merger with complementary businesses; and

· emphasis on investment in cash generative businesses.

The Group will continuously assess its portfolio of investments in the light of further opportunities and the mix of investments.

Business review

Principal risks and uncertainties

The Group's business activities together with the factors likely to affect its future development, performance and position are set out below. Note 47 to the financial statements includes the Group's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments; its exposures to credit risk and liquidity risk; and other risks.

The principal risks and uncertainties affecting the business relate to the political and economic environment of Zimbabwe, where its investments are predominantly held. There is a further risk that investments made by the Group will not result in the originally envisaged cash generation or capital appreciation. This risk is managed by the careful evaluation of all proposed investments, with detailed due diligence work being undertaken, before any investments are made and ongoing monitoring of existing investments.

There is a risk that the illiquidity of the Zimbabwean equity and capital markets may affect the valuation of the Group's investment in investment property in the short to medium term. Significant judgments, estimates and assumptions made when valuing the investment property are detailed in Note 6.1 and Note 29.

The success of the new ammonia importation model of Sable Chemical Industries Limited ("Sable") is reliant on the availability of third party debt, being to finance the working capital requirements and additional rail tank cars.

Going concern

Management prepared cash flow forecasts indicating there is adequate operating cash for the period to 30 June 2017. In assessing the ability of the Group to continue as a going concern, management carried out sensitivity analysis on the cash flow assumptions to reflect a range of other reasonably possible outcomes and concluded that Masawara will be able to continue as a going concern. The Directors believe that the Group will have sufficient resources to continue to trade as a going concern for a period of at least 12 months from the date of approval of these financial statements and accordingly, the financial statements have been prepared on the going concern basis. As at the date of publishing these consolidated financial statements, Masawara Plc complied with all the loan covenants.

Results for the year

Overview

The following were the significant events for the year ended 31 December 2015:

· This was the first full year of TA Holdings being consolidated into our results.

· On 8 April 2015, Masawara Plc increased its ownership in TA Holdings from 75.74% to 100% after Masawara Holdings Mauritius Limited, a subsidiary of Masawara Plc, purchased the shares from the remaining shareholders.

· In July 2015 the merger of the operations of Dandemutande Investments (Private) Limited ("Dandemutande"), (a wholly owned subsidiary of Telerix Communications (Private) Limited), iWay Africa (an associate of the Group) and Africa Online was concluded. The merger transaction resulted in Group reducing its effective shareholding in Dandemutande from 50% to 25.3%.

· The Group gained control of Sable Chemical Industries Limited on 25 June 2015 and consolidated its results effective from that date (Note 8).

· On 3 December 2015, the Group concluded the sale of a 40% interest in its Zimbabwean insurance businesses (with the exception of Minerva Risk Advisors (Private) Limited (Note 9).

· Telerix loan notes, amounting to $12.5 million were fully impaired following a reassessment of their recoverability (Note 31.2.1).

The Group incurred a loss after tax of $4.6 million for the year compared to a profit after tax of $16.1 million during the prior year. The composition of the Group's statement of comprehensive income for the year ended 31 December 2015 is significantly different from the comparative results primarily due to the following:

· In the current year TA Holdings was consolidated as a subsidiary for the full year. In the prior year, it was an associate for 11 months and the Group equity accounted for its 41.04% share of the results. From 1 December 2014, TA Holdings became a subsidiary after the Group purchased additional shares from the minority shareholders, resulting in consolidation of the TA Holdings results.

· The prior year results include a bargain purchase gain of $10.0 million from the TA Holdings acquisition and a profit of $6.2 million from the disposal of Masawara Energy (Mauritius) Limited.

· The current year results include the performance of Sable Chemical Industries Limited ("Sable") from 25 June 2015 when the Group took control of the company and therefore started consolidating it as a subsidiary. In the prior period, Sable was accounted for as an associate and had no impact on the Group's profit or loss, as the investment in Sable had been fully impaired.

· There was a $12.5 million impairment of the Telerix loan notes in 2015 (2014: $2.8 million).

Due to the changes described above, the Directors have prepared a Proforma Consolidated Income Statement for the year ended 31 December 2015, assuming the TA acquisition was concluded on 1 January 2014 i.e. that TA Holdings was a subsidiary for the full comparative period. This is the Directors' view that this provides a better basis for the comparison of the results.

Consolidated unaudited proforma income statement for the year ended 31 December 2015

Notes

a. These are the line items affected by the inclusion of Sable's results in 2015. Sable was consolidated from 24 June 2015 and had no impact on the prior year's results. Included in other operating income, administrative expenses and finance costs are $7.0 million, $19.8 million and $862,000 respectively, related to Sable.

b. The gain on bargain purchase was as a result of the Group taking control of Sable on 24 June 2015 (Note 8).

c. The gain on bargain purchase was as a result of the Group taking control of TA Holdings on 1 January 2014. The effective date has been changed from 1 December 2014 for the purposes of this Proforma, in order to have TA Holdings' reported as a subsidiary for the full 2014 year.

d. Realised gains in prior year included profit on disposal of Masawara Energy (Mauritius) Limited amounting to $6.2 million (Note 17.1)

e. The unusual and significant non-recurring items in 2015 and 2014 have been excluded to arrive at the adjusted profit before tax. The primary drivers for the 18% ($1.8 million) decline in profit compared to the prior year are:

· a 3% ($1.3 million) increase in operating and administrative expenses (excluding Sable);

· a $1.4 million increase in realised and unrealised losses and a $0.8 million decrease in investment income primarily as a result of the poor performance of the Zimbabwe Stock Exchange; and

· a $0.6 million increase in finance costs due to new loans advanced to the Group for the acquisition of TA Holdings.

Group's performance by segment

Masawara Plc, classifies the Group's business units into different clusters i.e. insurance, hotels, agrochemicals, property (Joina City) and technology for the purpose of monitoring the operating results of business units and resource allocation to business units. The following shows the Group's performance by segment.

Insurance

All the insurance companies registered growth in gross written premium compared to the prior year, and all companies achieved underwriting profits for the year.

For the companies operating in Botswana and Uganda, the results in their functional currencies of Botswana Pula (BWP) and Ugandan Shillings (UGX) were as follows:

The key performance ratios of the insurance businesses as at year end were as follows:

Hotels

The Zimbabwe hotels experienced increased levels of competition and incurred costs for the refurbishment of one of the Harare properties, which resulted in lower profit being recorded for the current year. The refurbishment of the Cresta Lodge Harare was completed during the year, improving occupancy levels at that hotel. The outside Zimbabwe hotels recorded an increase in profitability compared to the prior year in local currency, which was however not reflected when the results were translated to United States Dollars, due to the devaluation of the local currency during the year. Construction of a new hotel in Maun, Botswana that began during 2015 is progressing well.

The key performance indicators of the hotel businesses as at year end were as follows:

Agro chemicals

The agro chemicals segment is comprised of Sable Chemical Industries Limited ("Sable") and Zimbabwe Fertiliser Company Limited ("ZFC"). The Group has a 22.5% interest in ZFC and accounts for it as an associate. The Group has a 50.6% interest in Sable, which until 24 June 2015 was accounted for as an associate. On 25 June 2015, TA Holdings obtained control of Sable following the liquidation of various intermediary companies. This resulted in TA Holdings having a direct shareholding of 50.6%, instead of the previous position where 41% was held directly and 9.6% was held through intermediaries that were not controlled by TA Holdings. Consequently, Sable was consolidated effective 30 June 2015 and assets and liabilities were taken on. In the prior year, although Sable incurred a loss, no share of the loss was recognized in the Group income statement because the investment in Sable was written down to $nil in 2013 in accordance with International Financial Reporting Standard, (refer to Note 3.1 for further details).

Due to the prevailing electricity shortage in Zimbabwe, on 12 October 2015 the electricity utility company curtailed the electricity supply to Sable. This resulted in the decommissioning of the electrolysis plant, and Sable moving to a new business model relying on the importation of ammonia in order to manufacture ammonium nitrate fertiliser. Sable's performance was further impacted by the drought experienced in Zimbabwe. This led to a significant decline in sales compared to the same period in the prior year and resulted in Sable incurring a loss of $4 million (Group's share of loss $2 million).

Joina City

The key performance indicators of Joina City as at year end were as follows:

Despite the tough market conditions characterised by liquidity constraints, lower disposal incomes, lower occupancies and an increase in defaulting tenants, Joina City maintained the same level of payments to the shareholders as prior year. This was despite the lower occupancies in 2015 and was achieved through improved debtors' collections. The decrease in occupancy was primarily as a result of the termination of the anchor tenant's lease during the last quarter of the year. In January 2016, a new anchor tenant was identified and commenced trading in March 2016. The office section occupancies continue to be a challenge, as some companies choose move out of the city centre, and management is not expecting the trend to change. Alternative uses for some of the vacant office space are being sought.

Technology

In July 2015 regulatory approvals were obtained for the merger of the operations of Dandemutande, (a wholly owned subsidiary of Telerix Communications (Private) Limited ("Telerix")), iWay Africa (an associate of the Group) and Africa Online, refer to Note 30.2 for further details). The merger resulted in an increased revenue base and a broader product and service offering. Following some restructuring and re-negotiation of key supply contracts, significant cost savings were realised during the last quarter of the year, and gross margins increased from 31% to 40% during the year. The business started generating profit at an EBITDA level during the last quarter of the year. However, due to the level of finance costs, was still incurring a loss after tax.

The Group did not recognize its share of losses of Telerix for the year, after the Group's investment in Telerix was reduced to $nil during the year ended 31 December 2012.

During the year ended 31 December 2013, the Group provided a limited guarantee of $1.5 million to Telerix, for a $2.5 million loan obtained by Telerix's wholly owned subsidiary, Dandemutande Investments (Private) Limited ("Dandemutande") from Central African Building Society ("CABS").

The amount owed to CABS as at 31 December 2013 was $2.0 million and this resulted in the Group recognising a liability amounting to $1.19 million and an expense of the same amount, which was disclosed as share of loss of associate in the statement of comprehensive income during the year ended 31 December 2013. As at 31 December 2015, the loan payable to CABS by Dandemutande had reduced to $635,000. Consequently, the Group reduced the liability relating to the guarantee by $295,000 (2014: $534,000) and this adjustment was disclosed as unwinding of financial guarantee on the consolidated income statement.

Despite the significant improvement in the performance of Dandemutande during the year, the Directors decided it was prudent to impair the loan notes in full ($12.5 million) as a result of the uncertainty in the timing of the loan repayments (Note 30.2.1). The impairment loss recognised in the prior year on the loan notes amounted to $2.9 million.

Cash flow for the year

The Group recorded an overall increase in cash and cash equivalents of $9.3 million from the previous year.

Net cash inflow from financing activities included proceeds from the sale of the Zimbabwe Insurance businesses of $10.9 million, proceeds from borrowings of $18.7 million, cash outflow of $2 million for repayment of borrowings and outflow of $158,000 for dividends paid to non-controlling interests of the Group.

Net cash flows used in investing activities was mainly attributable to the following investing activities:

· Net cash outflow of $7.7 million for the purchase of financial instruments.

· Cash outflow of $8.3 million for the acquisition of TA Holdings Limited.

· $3.8 million cash inflow that represents net cash acquired on obtaining control of Sable Chemicals Industries Limited.

· Cash outflow of $2.6 million purchase of property, plant and equipment.

· Cash outflow of $1.2 million relating to the payment of deferred consideration to Minet Group for purchase of Masawara's interest in Minerva Holdings (Private) Limited; and

· Cash outflow of $1.2 million for loans granted to Telerix.

Financial position

Following the acquisition of Sable, current assets increased from $74.3 million as at 31 December 2014 to $136.2 million as at 31 December 2015 whilst the increase in non-current assets was offset by the impairment of the Telerix loan notes, resulting in a net decrease of $2.9 million to end the year at $152.0 million. The Group had cash and cash equivalents of $25.9 million as at 31 December 2015 (31 December 2014: $18.3 million). Current liabilities increased from $83.0 million as at 31 December 2014 to $130.2 million as at 31 December 2015 primarily due to the acquisition of Sable Chemicals Industries Limited. Non-current liabilities increased by $15.1 million primarily due to loan notes amounting to $11.0 million that were issued by the Group for the acquisition of TA Holdings.

The net asset value per share attributable to equity holders of the parent as at 31 December 2015 was $0.61 (31 December 2014: $0.69).

Outlook

It is anticipated that the economic conditions in Zimbabwe will further deteriorate during the year, and the liquidity in the market becoming even more constrained. The Zimbabwe Stock Exchange is expected to end the year with a loss in value, as it did in 2015. The Group's management will focus on finding opportunities to grow in the tough environment, employ various initiatives to increase their market share to ensure the companies remain sustainable and profitable. 

The insurance businesses have registered growth during the first quarter of 2016 and this trend is expected to continue, resulting in another profitable year for this segment. Minerva Risk Advisors will be focusing on growing its health care broking book.

Price wars within the hospitality industry in Zimbabwe are expected to continue. Occupancies within the Cresta Zimbabwe hotels are expected to increase in future following the refurbishment of the Cresta Lodge rooms in 2015, as well as the restaurant refurbishment which is due to be completed during the second quarter of 2016. 

At Joina City, attention will continue to be placed on retaining quality tenants, finding suitable tenants for the vacant office space and on debtors' collections, in order to increase occupancy levels and the cash available for distribution to the Joina City Co-owners. An agreement has been signed with a cinema operator and renovations of the vacant space are due to commence during the second quarter with opening set for the third quarter of 2016. It is anticipated that the retail section will be fully tenanted by the third quarter resulting in an increase in turnover. We do not expect the office occupancies to increase significantly during 2016, as there is a trend in the market of businesses moving out of the city centre to industrial and suburban areas. Joina City is exploring various initiatives to improve debtors performance, including providing incentives for tenants who pay their rentals on time. 

Sable's new business model, which is less reliant on electricity, is a more sustainable one than the electrolysis model previously used. Sable is in the process of securing third party financing for working capital and the refurbishment of rail tank cars. Whilst we are fairly confident that the new model will succeed, it is dependent on raising this finance.

The restructuring of the business will take some time to complete, therefore in the short term Sable is not expected to contribute positively to the Group's results. The Directors will continue to pursue strategic initiatives, which are aimed at procuring that Sable does not impact negatively on the Group's performance in the medium to long term.

The broadband internet market conditions are expected to become more competitive, with further downward pressure on the selling prices for the retail and commercial segments. Telerix's revenues are not forecast to grow significantly from organic growth due to the downward pressure on pricing, so there will be increased focus on cost control in order to protect margins. There are other initiatives being pursued to increase the Telerix customer base by acquiring customers from third parties or through a merger, which will strengthen Telerix's position in the market.

Auditors

PricewaterhouseCoopers LLP has expressed its willingness to continue in office and a resolution re-appointing PricewaterhouseCoopers LLP as auditor of the Company and authorising the Directors to determine their remuneration will be proposed at the forthcoming Annual General Meeting.

By Order of the Board

Masawara Plc

Mrs Maureen Erasmus

16 May 2016

STATEMENT OF CORPORATE GOVERNANCE

The Board has largely complied with the guidelines of the Corporate Governance Guidelines for Smaller Quoted Companies, as issued by The Quoted Companies Alliance. We are currently in the process of formulating a Corporate Social Responsibility (CSR) policy.

Values

The Board is always guided by the following core values:

· integrity;

· transparency;

· promoting the best interests of the shareholders, employees and other stakeholders of the Company; and

· compliance with the requirements of the legal and regulatory environment in which the Company operates.

Governance Structures

Board of Directors

Directorate

David Suratgar (Chairman)

Francis Daniels

Yvonne Deeney

Maureen Erasmus

Iqbal Rajahbalee (Resigned 18 December 2015)

Shingai Mutasa

Julian Vezey (Resigned 18 January 2016)

Stephen Folland

Christopher Getley (Appointed 18 December 2015)

The Board is the primary governance organ. One of its key functions is to develop, review and monitor the overall strategy and policies of the Group. It, therefore, considers and approves, among other things, all major investment decisions, the key risks to which the business is exposed, and measures to eliminate or minimize the impact of such risks, capital expenditure and the appointment of certain key executives.

The Board currently comprises eight non-executive Directors, five of whom are independent. Day to day management is devolved to the Investment Advisor who is charged with consulting the Board on all significant financial and operational matters. The independence of non-executive Directors is assessed and confirmed annually.

The Investment Advisor

The Investment Advisor, Masawara Zimbabwe (Private) Limited, a subsidiary of the company, advises the Board on investment opportunities, acquisitions and sales, exit strategies and manages the Group's portfolio of investments in Zimbabwe on a day-to-day basis, with a view to achieving the Group's investment objective and strategy.

Management Engagement Committee

Ms Yvonne Deeney, an independent director, chairs the Management Engagement Committee. The other Committee members are Mr David Suratgar and Mr Stephen Folland. The Committee monitors, reviews and evaluates the performance of the Investment Advisor. The Committee also determines and agrees with the Board the framework for the remuneration of the employees of the Investment Advisor (including pension rights and compensation payments).

Audit Committee

The Audit Committee comprises of three non-executive Directors, two of whom are independent. The Committee members are Mr David Suratgar, Mr Francis Daniels and Mrs Maureen Erasmus. Mrs Maureen Erasmus (an independent director) chairs the Committee. The Committee, amongst other duties, monitors the integrity of the financial statements of the company, and any formal announcements relating to the company's financial performance, reviews significant financial reporting judgements contained in them and reviews the company's internal control and risk management systems. The Committee meets with the external auditors at least twice a year.

Co-ownership Committee

Dubury Investments (Private) Limited (a sub-subsidiary of Masawara Zimbabwe (Private) Limited) and Cherryfield Investments (Private) Limited (a consortium of pension funds and an insurance company) are Co-owners (joint venturers) in the Joina City building, which is governed by a Co-ownership Agreement. The Co-owners of Joina City formed a Co-ownership Committee, which comprises all their shareholders. The Co-ownership Committee was delegated all the powers to make resolutions for and on behalf of the Co-owners.

Mr Shingai Mutasa sits on the Co-ownership Committee as the chairman. The Group relies on the Joina City Co-ownership Committee to deal with all matters of their investment. The powers of the Committee include the power to decide and pass resolutions on all matters which the Co-owners would themselves have power to jointly decide in respect of Joina City. The Co-ownership Committee's primary functions include:

· to consider, review, and where necessary, approve capital expenditure; and

· to review and monitor property management of Joina City.

The Committee meets quarterly and consists of six members, five of whom are representatives of the Co-owners, and the chairman of the Committee, Mr Shingai Mutasa.

Governance Processes

The Board of Directors meets at least four times a year or as often as the circumstances may determine. In addition to the Board members, professional advisors on corporate transactions and senior employees of the Investment Advisor are requested to attend as required. The Group's shareholders meet at least once every year, at the Annual General Meeting. The external auditors of the Group has unlimited access to the Board.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The directors are responsible for preparing the financial statements in accordance with applicable laws and International Financial Reporting Standards ("IFRS") as adopted by the European Union.

Companies (Jersey) Law 1991 requires the directors to prepare financial statements for each financial year, which give a true and fair view of the state of affairs of the Group and the profit and loss for that year.

In preparing those financial statements the directors should:

· select suitable accounting policies and then apply them consistently;

· make judgments and estimates that are reasonable and prudent;

· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue the business; and

· state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements.

The directors confirm they have complied with all the above requirements in preparing the financial statements. The directors are responsible for keeping proper accounting records, which disclose with reasonable accuracy at any time the financial position of the Group and to enable them to ensure that the financial statements comply with the Companies (Jersey) Law 1991. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

 So far as the Directors are aware, there is no relevant audit information of which the Group's auditors are unaware, and each Director has taken all the steps that he or she ought to have taken as a director in order to make himself or herself aware of any relevant audit information and to establish that the Group's auditors are aware of that information.

INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF MASAWARA PLC

Report on the financial statements

Our opinion

In our opinion, Masawara Plc's group financial statements (the "financial statements"):

· give a true and fair view of the state of the group's affairs as at 31 December 2015 and of its loss and cash flows for the year then ended;

· have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union; and

· have been prepared in accordance with the requirements of the Companies (Jersey) Law 1991.

What we have audited

The financial statements, included within the Annual report, comprise:

· the Consolidated statement of financial position as at 31 December 2015;

· the Consolidated income statement and consolidated statement of other comprehensive income for the year then ended;

· the Consolidated statement of cash flows for the year then ended;

· the Consolidated statement of changes in equity; and

· the notes to the financial statements, which include a summary of the significant accounting policies and other explanatory information.

The financial reporting framework that has been applied in their preparation comprises applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

In applying the financial reporting framework, the directors have made a number of subjective judgments, for example in respect of significant accounting estimates. In making such estimates, they have made assumptions and considered future events.

Opinion on other matter

In our opinion the information given in the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

Other matters on which we are required to report by exception

Under the Companies (Jersey) Law 1991, we are required to report to you if, in our opinion we have not received all the information and explanations we require for our audit. We have no exceptions to report arising from this responsibility. 

Responsibilities for the financial statements and the audit

Our responsibilities and those of the directors

As explained more fully in the Directors' Responsibilities Statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view.

Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK & Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and only for the Company's members as a body in accordance with Article 113A of the Companies (Jersey) Law 1991 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What an audit of financial statements involves

We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (ISAs (UK & Ireland)). An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:

· whether the accounting policies are appropriate to the Group's circumstances and have been consistently applied and adequately disclosed;

· the reasonableness of significant accounting estimates made by the directors; and

· the overall presentation of the financial statements.

In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Alison Baker

For and on behalf of PricewaterhouseCoopers LLP

Chartered Accountants

London

16 May 2016

(a) The maintenance and integrity of the Masawara Plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

(b) Legislation in Jersey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

All components of other comprehensive income disclosed in the statement of comprehensive income did not have any tax implications

Consolidated statement of financial position as at 31 December 2015

MASAWARA PLC

Consolidated statement of changes in equity for the year ended 31 December 2015

* Loans granted to related parties is predominantly made up of loan notes amounting to $1,136,000 (2014: $3,303,000) that were granted to Telerix Communications (Private) Limited during the year ended 31 December 2015, refer to Note 31.2.1.

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015

1. Corporate information

Masawara Plc ("the Company") is an investment company incorporated and domiciled in Jersey, Channel Islands, whose shares are publicly traded on the London Stock Exchange's AIM. The company is managed in Jersey and its registered office is located at Queensway House, Hilgrove Street in St Helier, Jersey.

The investment portfolio of the Company includes Joina City (a multi-purpose property situated in Harare that earns rental income), TA Holdings Limited (a diversified investment company that holds investments in insurance, agro-chemical and hospitality businesses), iWayAfrica Zimbabwe (Private) Limited (a broadband internet service company) and Telerix Communications (Private) Limited (a company that has a license that allows it to construct, operate and maintain a public data internet access and Voice Over IP network in Zimbabwe).

The Group financial statements consolidate those of the Company, its subsidiaries and the Group's interest in associates (together referred to as "the Group"). The financial statements of the Group for the year ended 31 December 2015 were authorized for issue in accordance with a resolution of the Directors on 16 May 2016.

2. Basis of preparation

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee as adopted by the European Union (EU), and in compliance with the requirements of the Companies (Jersey) Law 1991.

The consolidated financial statements have been prepared on a historical cost basis, except for property, available-for-sale financial assets, and financial assets that have been measured at fair value. The consolidated financial statements are presented in United States Dollars and all values are rounded to the nearest thousand dollar ($ '000), except when otherwise indicated.

Going concern

Management prepared cash flow forecasts indicating there is adequate operating cash for the period to 30 June 2017. In assessing the ability of the Group to continue as a going concern, management carried out sensitivity analysis on the cash flow assumptions to reflect a range of other reasonably possible outcomes and concluded that Masawara will be able to continue as a going concern. The Directors reviewed the cash flow forecasts prepared by management when assessing the ability of the Group to continue operating as a going concern. The Directors believe that the Group will have sufficient resources to continue to trade as a going concern for a period of at least 12 months from the date of approval of these financial statements and accordingly, the financial statements have been prepared on the going concern basis.

As at the date of publishing these consolidated financial statements, Masawara Plc complied with the all loan covenants.

3 Significant accounting policies

The principal accounting policies applied in the preparation of these consolidated financial statements are set out as follows. These policies have been consistently applied to all the years presented, unless otherwise stated.

3.1 Consolidation

3.1.1 Subsidiaries

Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquire and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest's proportionate share of the recognised amounts of acquiree's identifiable net assets.

Acquisition-related costs are expensed as incurred.

If the business combination is achieved in stages, the acquisition date carrying value of the acquirer's previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognised in profit or loss.

Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not re-measured, and its subsequent settlement is accounted for within equity.

Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated. Where necessary, amounts reported by subsidiaries have been adjusted to conform with the Group's accounting policies.

3.1.2 Changes in ownership interests in subsidiaries without change of control

Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions - that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

3.1.3 Disposal of subsidiaries

When the Group ceases to have control any retained interest in the entity is remeasured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.

3.1.4 Associates

Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting. Under the equity method, the investment is initially recognised at cost, and the carrying amount is increased or decreased to recognise the investor's share of the profit or loss of the investee after the date of acquisition. The Group's investment in associates includes goodwill identified on acquisition. If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income is reclassified to profit or loss where appropriate.

The Group's share of post-acquisition profit or loss is recognised in the income statement, and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income with a corresponding adjustment to the carrying amount of the investment. When the Group's share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.

The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount adjacent to 'share of profit/(loss) of associates in the income statement. Gains and losses resulting from upstream and downstream transactions between the group and its associate are recognised in the group's financial statements only to the extent of unrelated investor's interests in the associates. Unrealised losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.

Dilution gains and losses arising in investments in associates are recognised in the income statement.

3.1.5 Joint arrangements

The Group applies IFRS 11 to all joint arrangements. Under IFRS 11 investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations of each investor. Joint ventures are accounted for using the equity method. Under the equity method of accounting, interests in joint ventures are initially recognised at cost and adjusted thereafter to recognise the Group's share of the post-acquisition profits or losses and movements in other comprehensive income.

When the Group's share of losses in a joint venture equals or exceeds its interests in the joint ventures (which includes any long-term interests that, in substance, form part of the group's net investment in the joint ventures), the group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the joint ventures.

Unrealised gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group's interest in the joint ventures. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of the joint ventures have been changed where necessary to ensure consistency with the policies adopted by the Group.

3.2 Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Investment Advisor's executive committee that makes strategic decisions.

3.3 Foreign currency translation

3.3.1 Functional and presentation currency

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the "functional currency"). The consolidated financial statements are presented in United States of America dollars, which is the functional and presentation currency of the parent.

3.3.2 Transactions and balances

Foreign currency transactions are translated into the parent's functional currency at exchange rates prevailing at the date of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year-end exchange rates are recognised in the income statement (except when recognised in other comprehensive income as qualifying cash flow hedges and qualifying net investment hedges).

Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the income statement within 'other operating income'. All other foreign exchange gains and losses are presented in the income statement within 'other operating revenue' or 'other operating expenses'.

Changes in the fair value of monetary securities denominated in foreign currency classified as available for sale are analysed between translation differences resulting from changes in the amortised cost of the security, and other changes in the carrying amount of the security. Translation differences related to changes in amortised cost are recognised in the income statement; other changes in carrying amount are recognised in 'other comprehensive income'.

Translation differences on financial assets and liabilities held at fair value through profit or loss are reported as part of the fair value gain or loss. Translation differences on non-monetary financial assets such as equities classified as available-for-sale financial assets are included in 'other comprehensive income'

3.3.3 Group companies

The results and financial position of all the Group entities (none of which have the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

Assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position;

· Income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case, income and expenses are translated at the dates of the transactions); and

· All resulting exchange differences are recognised in 'Other comprehensive income'.

On consolidation, exchange differences arising from the translation of the net investment in foreign entities, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders' equity.

On a partial disposal that does not result in the Group losing control over a subsidiary that includes a foreign operation, the proportionate share of cumulative amount of exchange differences are re-attributed to non-controlling interests in that foreign operation and are not recognised in the income statement. In any other partial disposals, the proportionate share of the cumulative amount of the exchange differences is reclassified to the consolidated income statement.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as the foreign entity's assets and liabilities and are translated at the closing rate.

3.4 Property, plant and equipment

Property, plant and equipment, including owner-occupied property, is initially stated at cost. Costs include all expenditure that is directly attributable to the acquisition of an asset and bringing it to a working condition for its intended use, including import duties and non-refundable purchases taxes, but excluding trade discounts and rebates. Maintenance and repairs expenditure, which neither adds to the value of property and equipment nor significantly prolongs its expected useful life, is recognised directly in the income statement.

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

For subsequent measurement the Group uses the revaluation model i.e. fair value at the date of revaluation less subsequent accumulated depreciation and subsequent accumulated impairment losses in the valuation of freehold land and buildings. All other classes of property, plant and equipment are measured using the cost model. Valuations of freehold land and buildings are performed annually by external independent appraisers to ensure that the fair value of a revalued asset does not differ materially from its carrying amount.

Any revaluation surplus is recognised in other comprehensive income and accumulated in the asset revaluation reserve in equity, except to the extent that it reverses a revaluation decrease on the same asset previously recognised in the income statement, in which case the increase is recognised in the income statement. A revaluation deficit is recognised in the income statement, except to the extent that it offsets an existing surplus on the same asset recognised in the revaluation reserve.

Additionally, accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. Upon disposal, any revaluation reserve relating to the particular asset being sold is transferred to retained earnings.

Land is not depreciated. Depreciation is provided for on a straight-line basis over the useful lives of the following classes of assets:

· Buildings: over 40 - 50 years

· Machinery and vehicles: 3 - 10 years

· Furniture, fittings and other: 3 - 10 years

The assets' residual values, and useful lives and method of depreciation are reviewed and adjusted if appropriate at each financial year end and adjusted prospectively, if appropriate. Impairment reviews are performed where there are indicators that the carrying value may not be recoverable. Impairment losses are recognised in the income statement as an expense.

An item of property and equipment is derecognised upon disposal or where no further future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement in the year the asset is derecognised.

3.5 Investment properties

Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the reporting date. Gains or losses arising from changes in the fair values of investment properties are included in the statement of comprehensive income in the period in which they arise. Fair values are evaluated annually by an accredited external, independent valuer, applying a valuation model recommended by the International Valuation Standards Committee.

Investment properties are derecognised where either they have been disposed of, or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal.

Any gains or losses on the retirement or disposal of an investment property are recognised in the statement of comprehensive income in the year of retirement or disposal. Gains or losses on the disposal of investment property are determined as the difference between net disposal proceeds and the carrying value of the asset in the previous full period financial statements.

Transfers are made to investment property only when there is a change in use evidenced by the end of owner-occupation or commencement of development with a view to sell. For a transfer from investment property to owner occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use.

If owner occupied property becomes an investment property, the Group accounts for such property in accordance with the policy stated under property, plant and equipment up to the date of the change in use.

3.6 Revaluation of property, plant and equipment and fair value of investment properties

In assessing the carrying amounts of property, plant and equipment and investment properties, management considers the condition of the assets and their life span on an item by item basis and by placing fair market values that are obtainable from the sale of assets in a similar condition. Valuations are performed with sufficient regularity to ensure that the fair value of a revalued asset does not differ materially from its carrying amount.

Increases in the carrying amount arising on revaluation of land and buildings are credited to other comprehensive income and shown as other reserves in shareholders' equity. Decreases that offset previous increases of the same asset are charged in other comprehensive income and debited against revaluation surplus directly in equity; all other decreases are charged to the income statement. When revalued assets are sold, the amounts included in revaluation surplus are transferred to retained earnings.

Gains or losses arising from changes in the fair values of investment properties are included in the income statement in the year in which they arise.

3.7 Intangible assets

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is reflected in the income statement in the year in which the expenditure is incurred.

The useful lives of intangible assets are assessed to be either finite or indefinite.

Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the income statement in operating expenses.

Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash generating unit level. Such intangibles are not amortised. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is made on a prospective basis.

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the income statement when the asset is derecognised.

Subsequent to initial recognition, the intangible asset is carried at cost less accumulated amortisation and accumulated impairment losses.

An impairment review is performed whenever there is an indication of impairment. When the recoverable amount is less than the carrying value, an impairment loss is recognised in the income statement.

Amortisation is provided for on a straight-line basis over the useful lives of the following classes of assets:

· Brands: 5 - 15years

· Customer list: 10 years

· Computer software: 5 years

3.7.1 Goodwill

Goodwill arises on the acquisition of subsidiaries, associates and joint arrangements; it represents the excess of the consideration transferred over Group's interest in net fair value of the net identifiable assets, liabilities and contingent liabilities of the acquiree and the fair value of the non-controlling interest in the acquiree.

If the total of consideration transferred, non-controlling interest recognised and previously held interest measured at fair value is less than the fair value of the net assets of the subsidiary acquired, in the case of a bargain purchase, the difference is recognised directly in the income statement.

3.7.2 Computer software

Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group are recognised as intangible assets when the following criteria are met:

· It is technically feasible to complete the software product so that it will be available for use;

· Management intends to complete the software product and use or sell it;

· There is an ability to use or sell the software product;

· It can be demonstrated how the software product will generate probable future economic benefits;

· Adequate technical, financial and other resources to complete the development and to use or sell the software product are available; and

· The expenditure attributable to the software product during its development can be reliably measured.

Directly attributable costs that are capitalised as part of the software product include the software development employee costs and an appropriate portion of directly attributable overheads.

Computer software costs recognised as assets are amortised over their useful lives, which does not exceed five years.

3.7.3 Deferred acquisition costs ("DAC")

Those direct and indirect costs incurred during the financial period arising from the writing or renewing of short-term insurance contracts, are deferred to the extent that these costs are recoverable out of unearned premiums. All other acquisition costs are recognised as an expense when incurred.

Subsequent to initial recognition, DAC for short-term insurance contracts are amortised over the terms of the insurance policies as premiums are earned. The reinsurers' share of deferred acquisition costs is amortised in the same manner as the underlying asset amortisation is recorded in the income statement.

Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period and are treated as a change in an accounting estimate.

An impairment review is performed at each reporting date or more frequently when an indication of impairment arises. When the recoverable amount is less than the carrying value, an impairment loss is recognised in the income statement. DAC are also considered in the liability adequacy test for each reporting period. DAC are derecognised when the related contracts are either settled or disposed of.

3.7.4 Reinsurance commissions

Commissions receivable on outwards reinsurance contracts are deferred and amortised on a straight line basis over the term of the reinsurance contract.

3.7.5 Brands

The cost of brands acquired in a business combination is their fair value at the date of acquisition. Brands are recognised as an intangible asset where the brand has a long-term value. Acquired brands are only recognised where title is clear or the brand could be sold separately from the rest of the business and the earnings attributable to it are separately identifiable.

An impairment review is performed at each reporting date or more frequently when an indication of impairment arises. When the recoverable amount is less than the carrying value, an impairment loss is recognised in the income statement.

3.8 Impairment of non-financial assets

The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset's recoverable amount. An asset's recoverable amount is the higher of an asset's or cash-generating unit's fair value less costs to dispose and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets.

Impairment losses of continuing operations are recognised in the statement of comprehensive income in those expense categories consistent with the function of the impaired asset.

For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group makes an estimate of recoverable amount. A previous impairment loss is reversed only if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the statement of comprehensive income unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase.

3.9 Non-current assets held for sale and discontinued operations

The Group classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. Non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs to dispose. The criteria for held for sale classification is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after tax from discontinued operations in the income statement. Property, plant and equipment and intangible assets are not depreciated or amortised once classified as held for sale.

3.10 Financial assets

The Group classifies its financial assets into the following categories: at fair value through profit or loss, loans and receivables, held to maturity and available for sale. The classification is determined by management at initial recognition and depends on the purpose for which the investments were acquired or originated.

3.10.1 Initial recognition

Financial assets are recognised initially at fair value plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in the income statement.

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognised on the trade date, i.e., the date that the Group commits to purchase or sell the asset.

3.10.2 Classification and measurement

3.10.2.1 Financial assets at fair value through profit or loss

This category has two sub-categories: financial assets held for trading and those designated at fair value through profit or loss at inception.

A financial asset is classified into the 'financial assets at fair value through profit or loss' category at inception if acquired principally for the purpose of selling in the short term, if it forms part of a portfolio of financial assets in which there is evidence of short-term profit-taking, or if so designated by management.

This category includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by IAS 39. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments. For investments designated as at fair value through profit or loss, either of the two following criteria must be met:

· the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or liabilities or recognising gains or losses on a different basis

· the assets and liabilities are part of a group of financial assets, financial liabilities, or both, which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management or investment strategy.

These investments are initially recorded at fair value. Subsequent to initial recognition, they are remeasured at fair value. Changes in fair value are recorded in 'net fair value gains and losses', determined based on the change in quoted market prices in active markets for identical financial assets.

Interest is accrued and presented in 'Investment income' or 'Finance cost', respectively, using the effective interest rate ("EIR"). Dividend income is recorded in 'Investment income' when the right to the payment has been established.

The Group evaluates its financial assets at fair value through profit and loss (held for trading) whether the intent to sell them in the near term is still appropriate. When the Group is unable to trade these financial assets due to inactive markets and management's intent to sell them in the foreseeable future significantly changes, the Group may elect to reclassify these financial assets in rare circumstances. The reclassification to loans and receivables, available-for-sale or held to maturity depends on the nature of the asset. This evaluation does not affect any financial assets designated at fair value through profit or loss using the fair value option at designation.

3.10.2.2 Loans and receivables (including insurance receivables)

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market other than those that the Group intends to sell in the short term or that it has designated as at fair value through profit or loss or available for sale. Receivables arising from insurance contracts are classified in this category and are reviewed for impairment as part of the impairment review of loans and receivables.

After initial measurement, loans and receivables are measured at amortised cost, using the EIR, less allowance for impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fee or costs that are an integral part of the EIR. The EIR amortisation is included in 'finance income' in the income statement. Gains and losses are recognised in the income statement when the investments are derecognised or impaired, as well as through the amortisation process.

3.10.2.3 Held-to-maturity financial assets

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group's management has the positive intention and ability to hold to maturity, other than:

· those that the Group upon initial recognition designates as at fair value through profit or loss;

· those that the Group designates as available for sale; and

· those that meet the definition of loans and receivables.

After initial measurement, held to maturity financial assets are measured at amortised cost, using the EIR, less impairment. The EIR amortisation is included in 'investment income' in the consolidated income statement. Gains and losses are recognised in the income statement when the investments are derecognised or impaired, as well as through the amortisation process.

3.10.2.4 Available-for-sale financial assets

Available-for-sale financial assets are financial assets that are either designated in this category because they are intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices; or that are not classified as loans and receivables, held to maturity investments or financial assets at fair value through profit or loss.

After initial measurement, available-for-sale financial assets are subsequently measured at fair value, with unrealised gains or losses recognised in other comprehensive income in the available-for-sale reserve (equity). The unrealised gains or losses are determined based on the change in inputs other than quoted prices that are observable for the financial assets either directly or indirectly.

Where the insurer holds more than one investment in the same security, they are deemed to be disposed of on a first-in first-out basis. Interest earned whilst holding available-for-sale investments is reported as interest income using the EIR.

Dividends earned whilst holding available-for-sale investments are recognised in the income statement as 'Investment income' when the right of the payment has been established.

When the asset is derecognised the cumulative gain or loss is recognised in other operating income, or determined to be impaired, or the cumulative loss is recognised in the income statement in finance costs and removed from the available-for-sale reserve.

The Group evaluates its available-for-sale financial assets to determine whether the ability and intention to sell them in the near term would still be appropriate. In the case where the Group is unable to trade these financial assets due to inactive markets and management's intention significantly changes to do so in the foreseeable future, the Group may elect to reclassify these financial assets in rare circumstances.

Reclassification to loans and receivables is permitted when the financial asset meets the definition of loans and receivables and management has the intention and ability to hold these assets for the foreseeable future or until maturity. The reclassification to held-to-maturity is permitted only when the entity has the ability and intention to hold the financial asset until maturity.

For a financial asset reclassified out of the available-for-sale category, any previous gain or loss on that asset that has been recognised in equity is amortised to profit or loss over the remaining life of the investment using the EIR. Any difference between the new amortised cost and the expected cash flows is also amortised over the remaining life of the asset using the EIR. If the asset is subsequently determined to be impaired then the amount recorded in equity is reclassified to the consolidated income statement.

3.10.3 De-recognition of financial assets

A financial asset (or, when applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when:

· the rights to receive cash flows from the asset have expired, or;

· the Group retains the right to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a 'pass-through' arrangement; and either:

· the Group has transferred substantially all the risks and rewards of the asset, or;

· the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its right to receive cash flows from an asset or has entered into a pass through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group's continuing involvement in the asset.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

3.10.4 Impairment of financial assets

The Group assesses at each reporting date whether there is any objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred 'loss event') and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.

Objective evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

3.10.4.1 Financial assets carried at amortised cost

For financial assets carried at amortised cost, the Group first assesses individually whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss on assets carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the carrying amount of the asset and the present value of estimated future cash flows (excluding future expected credit losses that have not been incurred) discounted at the financial asset's original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate.

The carrying amount of the asset is reduced directly and the amount of the loss is recognised in the net realized and unrealized gains line item on the consolidated income statement. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of investment income in the consolidated income statement. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Group.

If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to the 'other operating revenue' in the income statement.

Future cash flows on a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently. The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

3.10.4.2 Available-for-sale financial investments

For available-for-sale financial investments, the Group assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired.

In the case of equity investments classified as available-for-sale, objective evidence would include a 'significant or prolonged' decline in the fair value of the investment below its cost. 'Significant' is to be evaluated against the original cost of the investment and 'prolonged' against the period in which the fair value has been below its original cost.

Where there is evidence of impairment, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the income statement - is removed from other comprehensive income and recognised in the income statement. Impairment losses on equity investments are not reversed through the income statement; increases in their fair value after impairment are recognised directly in other comprehensive income.

In the case of debt instruments classified as available-for-sale, impairment is assessed based on the same criteria as financial assets carried at amortised cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortised cost and the current fair value, less any impairment loss on that investment previously recognised in the consolidated income statement.

Future interest income continues to be accrued based on the reduced carrying amount of the asset and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of investment income. If, in a subsequent year, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in the consolidated income statement, the impairment loss is reversed through the consolidated income statement.

3.10.5 Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously. Income and expense will not be offset in the consolidated income statement unless required or permitted by any accounting standard or interpretation, as specifically disclosed in the accounting policies of the Group.

3.10.6 Fair value of financial instruments

The fair value of financial instruments that are actively traded in organised financial markets is determined by reference to quoted market bid prices for assets and offer prices for liabilities, at the close of business on the reporting date, without any deduction for transaction costs.

For units in unit trusts and shares in open ended investment companies, fair value is determined by reference to published bid values in an active market.

For all other financial instruments not traded in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include the discounted cash flow method, comparison to similar instruments for which market observable prices exist, options pricing models, credit models and other relevant valuation models.

Certain financial instruments are recorded at fair value using valuation techniques because current market transactions or observable market data are not available. Their fair value is determined using a valuation model that has been tested against prices or inputs to actual market transactions and using the Group's best estimate of the most appropriate model assumptions. Models are adjusted to reflect the spread for bid and ask prices to reflect costs to close out positions, counterparty credit and liquidity spread and limitations in the models. Also, profit or loss calculated when such financial instruments are first recorded ('Day 1' profit or loss) is deferred and recognised only when the inputs become observable or on derecognition of the instrument.

For discounted cash flow techniques, estimated future cash flows are based on management's best estimates and the discount rate used is a market-related rate for a similar instrument. The use of different pricing models and assumptions could produce materially different estimates of fair values.

The fair value of floating rate and overnight deposits with credit institutions is their carrying value. The carrying value is the cost of the deposit and accrued interest. The fair value of fixed interest bearing deposits is estimated using discounted cash flow techniques. Expected cash flows are discounted at current market rates for similar instruments at the reporting date.

If the fair value cannot be measured reliably, these financial instruments are measured at cost, being the fair value of the consideration paid for the acquisition of the investment or the amount received on issuing the financial liability. All transaction costs directly attributable to the acquisition are also included in the cost of the investment.

3.11 Financial liabilities

The Group classifies its financial liabilities into the following categories: at fair value through profit or loss and financial liabilities at amortised cost. The classification is determined by management at initial recognition and depends on the purpose for which the liabilities were acquired or originated.

A financial instrument is classified as debt if it has a contractual obligation to:

· deliver cash or another financial asset to another entity, or;

· exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the Group.

If the Group does not have an unconditional right to avoid delivering cash or another financial asset to settle its contractual obligation, the obligation meets the definition of a financial liability.

3.11.1 Initial recognition

All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings, less directly attributable transaction costs.

The Group's financial liabilities include investment contracts, trade and other payables, borrowings and insurance payables.

3.11.2 Classification and subsequent measurement

The subsequent measurement of financial liabilities depends on their classification, as follows:

3.11.2.1 Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss includes financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.

Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by IAS 39. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.

Gains or losses on designated or held for trading liabilities are recognised in fair value gains and losses in the consolidated income statement.

3.11.2.2 Financial liabilities at amortised cost

After initial recognition, insurance payables, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the effective interest rate method (EIR) amortisation process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fee or costs that are an integral part of the EIR. The EIR amortisation is included in finance cost in the consolidated income statement.

Fees paid on the establishment of loan facilities are recognised as transaction cost of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it relates.

Preference shares, which are mandatorily redeemable on a specific date, are classified as liabilities. The dividends on these preference shares are recognised in the consolidated income statement as finance costs.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least twelve months after the reporting date.

3.11.3 Derecognition of financial liabilities

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the income statement.

3.12 Insurance contracts and investment contracts

3.12.1 Classification

Insurance and investment contracts are classified into four categories, depending on the duration of or type of insurance risks or investment benefits and whether or not the terms and conditions are fixed, namely, short-term insurance contracts, long- term insurance contracts, investment contracts with discretionary participation features (DPF) and investment contracts without DPF.

A discretionary participation feature is a contractual right to receive additional benefits, as a supplement to the guaranteed benefits of the insurance or investment contract. The amount and timing of these benefits are contractually at the discretion of the issuer. The benefits are contractually dependent on the performance of a specified pool of contracts or investment returns on a specified pool of assets or the profit or loss of the company.

The Group issues contracts that transfer insurance risk or financial risk or both. Insurance contracts are when the Group (the insurer) has accepted significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder. As a general guideline, the Group determines whether it has significant insurance risk, by comparing benefits paid with benefits payable if the insured event did not occur.

Investment contracts are those contracts that transfer financial risk and no significant insurance risk. Financial risk is the risk of a possible future change in one or more of a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of price or rates, credit rating or credit index or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract.

Once a contract has been classified as an insurance contract, it remains an insurance contract for the remainder of its lifetime, even if the insurance risk reduces significantly during this period, unless all rights and obligations are extinguished or expire. Investment contracts can, however, be reclassified as insurance contracts after inception if the terms are amended to include significant insurance risk.

3.12.2 Short-term insurance contracts

The insurance products offered by the Group include motor, household, commercial and business interruption insurance.

For all these contracts, premiums are recognised as revenue (earned premiums) proportionally over the period of coverage. The portion of premium received on in-force contracts that relates to unexpired risks at the statement of financial position date is reported as the unearned premium liability. Premiums are shown before deduction of commission and are gross of any taxes or duties levied on premiums.

Claims and loss adjustment expenses are charged to income as incurred based on the estimated liability for compensation owed to contract holders or third parties' damages by the contract holders. They include direct and indirect claims settlement costs and arise from events that have occurred up to the end of the reporting period even if they have not yet been reported to the Group.

The Group does not discount its liabilities for unpaid claims other than for disability claims. Liabilities for unpaid claims are estimated using the input of assessments for individual cases reported to the Group and statistical analyses for the claims incurred but not reported, and to estimate the expected ultimate cost of more complex claims that may be affected by external factors (such as court decisions).

3.12.3 Long-term insurance contracts with fixed and guaranteed terms

These contracts insure events associated with human life (for example, death or survival) over a long duration. Premiums are recognised as revenue when they become payable by the contract holder. Premiums are shown before deduction of commission.

Benefits are recorded as an expense when they are incurred.

Life insurance liabilities are recognised when contracts are entered into and premiums are charged. These liabilities are measured by using the net premium method. The liability is determined as the sum of the discounted value of the expected future benefits, claims handling and policy administration expenses, policyholder options and guarantees and investment income from assets backing such liabilities, which are directly related to the contract, less the discounted value of the expected theoretical premiums that would be required to meet the future cash outflows based on the valuation assumptions used (valuation premiums). The liability is based on current assumptions that may include a margin for risk and adverse deviation. A separate reserve for longevity may be established and included in the measurement of the liability.

Furthermore, the liability for life insurance contracts comprises the provision for unearned premiums and premium deficiency, as well as for claims outstanding, which includes an estimate of the incurred claims that have not yet been reported to the Group. Adjustments to the liabilities at each reporting date are recorded in the income statement. Profits originated from margins of adverse deviations on run-off contracts are recognised in the income statement over the life of the contract, whereas losses are fully recognised in the consolidated income statement during the first year of run-off.

Where insurance contracts have a single premium or a limited number of premium payments due over a significantly shorter period than the period during which benefits are provided, the excess of the premiums payable over the valuation premiums is deferred and recognised as income in line with the decrease of unexpired insurance risk of the contracts in force or, for annuities in force, in line with the decrease of the amount of future benefits expected to be paid.

The liabilities are recalculated at each end of the reporting period using the assumptions established at inception of the contracts.

The liability is derecognised when the contract expires, is discharged or is cancelled. At each reporting date, an assessment is made of whether the recognised life insurance liabilities are adequate, net of related PVIF (Present value of in-force business) by using an existing liability adequacy test. The liability value is adjusted to the extent that it is insufficient to meet future benefits and expenses (refer to note 3.12.6 for liability adequacy tests).

In performing the adequacy test, current best estimates of future contractual cash flows, including related cash flows such as claims handling and policy administration expenses, policyholder options and guarantees, as well as investment income from assets backing such liabilities, are used. A number of valuation methods are applied, including discounted cash flows, option pricing models and stochastic modelling.

3.12.4 Investment contracts with DPF

The liability for these contracts is established in the same way as for the long-term insurance contracts with fixed and guaranteed terms (see above). Revenue is also recognised in the same way. Where the resulting liability is lower than the sum of the amortised cost of the guaranteed element of the contract and the intrinsic value of the surrender option embedded in the contract, it is adjusted and any shortfall is recognised immediately in the income statement.

The group does not recognise the guaranteed element of the investment contract separately from the discretionary participation feature (DPF) and therefore classifies an entire investment contract as a liability.

3.12.5 Investment contracts without DPF

The Group issues investment contracts without fixed terms (unit-linked) and investment contracts with fixed and guaranteed terms (fixed interest rate).

Investment contracts without fixed terms are financial liabilities whose fair value is dependent on the fair value of underlying financial assets, derivatives and/or investment property (these contracts are also known as unit-linked investment contracts) and are designated at inception as at fair value through profit or loss. The Group designates these investment contracts to be measured at fair value through profit or loss because it eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as 'an accounting mismatch') that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases.

The best evidence of the fair value of these financial liabilities at initial recognition is the transaction price (that is, the fair value received) unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable markets. When such evidence exists, the Group recognises profit on day 1. The Group has not recognised any profit on initial measurement of these investment contracts because the difference is attributed to the pre-payment liability recognised for the future investment management services that the Group will render to each contract holder.

The Group's main valuation techniques incorporate all factors that market participants would consider and make maximum use of observable market data. The fair value of financial liabilities for investment contracts without fixed terms is determined using the current unit values in which the contractual benefits are denominated. These unit values reflect the fair values of the financial assets contained within the Group's unitised investment funds linked to the financial liability. The fair value of the financial liabilities is obtained by multiplying the number of units attributed to each contract holder at the end of the reporting period by the unit value for the same date.

For investment contracts with fixed and guaranteed terms, the amortised cost basis is used. In this case, the liability is initially measured at its fair value less transaction costs that are incremental and directly attributable to the acquisition or issue of the contract. Subsequent measurement of investment contracts at amortised cost uses the effective interest method.

The Group re-estimates at each reporting date the expected future cash flows and recalculates the carrying amount of the financial liability by calculating the present value of estimated future cash flows using the financial liability's original effective interest rate. Any adjustment is immediately recognised as income or expense in the consolidated income statement.

3.12.6 Liability adequacy test

At the end of the reporting period, liability adequacy tests are performed to ensure the adequacy of the contract liabilities net of related DAC assets. In performing these tests, current best estimates of future contractual cash flows and claims handling and administration expenses, as well as investment income from the assets backing such liabilities, are used. Any deficiency is immediately charged to profit or loss initially by writing off DAC and by subsequently establishing a provision for losses arising from liability adequacy tests (the unexpired risk provision).

As set out in Note 3.12.3 long-term insurance contracts with fixed terms are measured based on assumptions set out at the inception of the contract. When the liability adequacy test requires the adoption of new best estimate assumptions, such assumptions (without margins for adverse deviation) are used for the subsequent measurement of these liabilities.

3.12.7 Reinsurance contracts held

Contracts entered into by the Group with reinsurers under which the Group is compensated for losses on one or more contracts issued by the Group and that meet the classification requirements for insurance contracts in Note 3.12.1 are classified as reinsurance contracts held. Contracts that do not meet these classification requirements are classified as financial assets. Reinsurance assets represent balances due from reinsurance companies. Amounts recoverable from reinsurers are estimated in a manner consistent with the outstanding claims provision or settled claims associated with the reinsurer's policies and are in accordance with the related reinsurance contract.

Reinsurance assets are reviewed for impairment at each reporting date, or more frequently, when an indication of impairment arises during the reporting year. Impairment occurs when there is objective evidence as a result of an event that occurred after initial recognition of the reinsurance asset that the Group may not receive all outstanding amounts due under the terms of the contract and the event has a reliably measurable impact on the amounts that the Group will receive from the reinsurer. The impairment loss is recorded in the consolidated income statement.

Gains or losses on buying reinsurance are recognised in the consolidated income statement immediately at the date of purchase and are not amortised.

Ceded reinsurance arrangements do not relieve the Group from its obligations to policyholders.

The Group also assumes reinsurance risk in the normal course of business for life insurance and non-life insurance contracts where applicable. Premiums and claims on assumed reinsurance are recognised as revenue or expenses in the same manner as they would be if the reinsurance were considered direct business, taking into account the product classification of the reinsured business.

Reinsurance liabilities represent balances due to reinsurance companies. Amounts payable are estimated in a manner consistent with the related reinsurance contract.

Premiums and claims are presented on a gross basis for both ceded and assumed reinsurance.

Reinsurance assets or liabilities are derecognised when the contractual rights are extinguished or expire or when the contract is transferred to another party.

Reinsurance contracts that do not transfer significant insurance risk are accounted for directly through the statement of financial position. These are deposit assets or financial liabilities that are recognised based on the consideration paid or received less any explicit identified premiums or fees to be retained by the reinsured.

Investment income on these contracts is accounted for using the effective interest rate method when accrued.

3.12.8 Receivables and payables related to insurance contracts

Receivables and payables are recognised when due. These include amounts due to and from agents, brokers and insurance contract holders. If there is objective evidence that the insurance receivable is impaired, the Group reduces the carrying amount of the insurance receivable accordingly and recognises that impairment loss in the consolidated income statement. The Group gathers the objective evidence that an insurance receivable is impaired using the same process adopted for loans and receivables. The impairment loss is calculated under the same method used for these financial assets.

3.12.9 Salvage and subrogation reimbursements

Some insurance contracts permit the Group to sell (usually damaged) property acquired in settling a claim (for example, salvage). The Group may also have the right to pursue third parties for payment of some or all costs (for example, subrogation). Estimates of salvage recoveries are included as an allowance in the measurement of the insurance liability for claims, and salvage property is recognised in other assets when the liability is settled. The allowance is the amount that can reasonably be recovered from the disposal of the property. Subrogation reimbursements are also considered as an allowance in the measurement of the insurance liability for claims and are recognised in other assets when the liability is settled. The allowance is the assessment of the amount that can be recovered from the action against the liable third party.

3.12.10 Non-life insurance (general insurance) contract liabilities

Non-life insurance contract liabilities include the outstanding claims provision, the provision for unearned premium and the provision for premium deficiency incurred but not reported (IBNR). The outstanding claims provision is based on the estimated ultimate cost of all claims incurred but not settled at the reporting date, whether reported or not, together with related claims handling costs and reduction for the expected value of salvage and other recoveries. Delays can be experienced in the notification and settlement of certain types of claims, therefore the ultimate cost of these cannot be known with certainty at the reporting date. The liability is calculated at the reporting date using a range of standard actuarial claim projection techniques, based on empirical data and current assumptions that may include a margin for adverse deviation. The liability is not discounted for the time value of money. No provision for equalisation or catastrophe reserves is recognised. The liabilities are derecognised when the obligation to pay a claim expires, is discharged or is cancelled.

The provision for unearned premiums represents that portion of premiums received or receivable that relates to risks that have not yet expired at the reporting date. The provision is recognised when contracts are entered into and premiums are charged, and is brought to account as premium income over the term of the contract in accordance with the pattern of insurance service provided under the contract.

At each reporting date the Group reviews its unexpired risk and a liability adequacy test is performed to determine whether there is any overall excess of expected claims and deferred acquisition costs over unearned premiums. This calculation uses current estimates of future contractual cash flows after taking account of the investment return expected to arise on assets relating to the relevant nonlife insurance technical provisions. If these estimates show that the carrying amount of the unearned premiums (less related deferred acquisition costs) is inadequate, the deficiency is recognised in the income statement by setting up a provision for premium deficiency.

3.12.11 Shadow accounting

The Group applies shadow accounting in order to ensure that unrealised gains or losses on policyholder insurance assets affect the measurement of policyholder insurance liabilities in the same way that realised gains or losses do (i.e. elimination of the accounting mismatch). Changes to policyholder liabilities arising from revaluation gains or losses on owner-occupied properties held are reclassified from equity to profit or loss in-order to match the corresponding gross increase or decrease in policyholder insurance liabilities. Note that the gross change in policyholder insurance liabilities is recorded in profit or loss.

3.13 Financial guarantee contracts

Financial guarantee contracts issued by the Group are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. Financial guarantee contracts are recognised initially as a liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee.

Subsequently, the liability is measured at the higher of the best estimate of the expenditure required to settle the present obligation at the reporting date and the amount recognised less cumulative amortisation.

3.14 Inventories

Inventories which consist of foodstuffs, beverages and consumable stores are stated at the lower of cost and net realisable value. Cost is determined using the first-in, first-out ("FIFO") method. The cost of finished goods and work in progress comprises direct raw materials, direct labour, other directs costs and related production overheads (based on normal operating capacity). It excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs to completion and applicable variable selling expenses necessary to make the sale.

3.15 Trade receivables

Trade receivables are amounts due from customers for food, beverages and rooms sold in the ordinary course of business and other unsettled amounts not classified as insurance receivables. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets, if not they are presented as non-current assets. Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method, less provision for impairment.

3.16 Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less in the statement of financial position.

3.17 Equity movements

3.17.1 Ordinary share capital

The Group has issued ordinary shares that are classified as equity.

3.17.2 Share premium

The difference between the issue price and the par value of ordinary share capital, is allocated to share premium. The transaction costs incurred for the share issue are accounted for as a deduction from share premium, net of any related income tax benefit, to the extent they are incremental costs directly attributable to the share issue that otherwise would have been avoided.

3.17.3 Treasury shares

Own equity instruments that are reacquired (treasury shares) are recognised at cost and deducted from equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Group's own equity instruments. Any difference between the carrying amount and the consideration, if reissued, is recognized directly in equity. Voting rights related to treasury shares are nullified for the Group and no dividends are allocated to them. Share options exercised during the reporting period are satisfied with treasury shares.

3.17.4 Non-distributable reserves

Non-distributable reserves opening balance of $695,000 represent the equity of the Masawara Zimbabwe (Private) Limited sub-group that arose on the change of the functional currency to United States Dollars effective from 1 January 2009.

Current year movement of $1.065 million in the non distributable account represent to transfer of funds to statutory reserves by Lion Assurance Company of Uganda and Botswana Insurance Company (outside Zimbabwe insurance companies) as per Ugandan Insurance Act and the Insurance Industry Act of Botswana. The transfer is 5% and 15% of net profits after tax each year, respectively.

3.17.5 Revaluation reserve

The revaluation reserve records revaluation gains and losses (to the extent that revaluation losses are not more than revaluation gains) on the Group's property that is carried at fair value and Group's share of the associate's revaluation reserve. The Group accounts for all impairments and revaluation surpluses in this reserve.

3.17.6 Group restructuring reserve

The group restructuring reserve arose on consolidation, under the pooling of interests method.

3.17.7 Other capital reserve

Other capital reserve is the reserve that the Group uses to record share based payment expenses, fair value gains or losses on available for sale investments, exchange rate movements on translation of foreign operations, share of movements in other reserves of the Group's associates and the Group's share of other comprehensive income of associates, with the exception of the Group's share of revaluation reserves of associates which is recorded under the revaluation reserve.

3.17.8 Distributions

Under Jersey Law, distributions can be made against any equity account with the exception of the share capital account or any capital redemption account.

3.18 Trade payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers and service providers. Trade payables are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities. Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

3.19 Borrowing costs

General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

3.20 Taxation

3.20.1 Current tax

Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date in the countries where the Group operates and generates taxable income.

Current income tax relating to items recognised directly in other comprehensive income or equity is recognised in other comprehensive income or equity and not in the income statement.

3.20.2 Deferred tax

Deferred income tax is provided using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognised for all taxable temporary differences, except:

· Where the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

· In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred income tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised except:

· Where the deferred income tax assets relating to the deductible temporary difference arise from the initial recognition of an asset or liability in a transaction that is not a business combination and, at time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

· In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred income tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

Deferred income tax relating to items recognised directly in other comprehensive income or equity is recognised in other comprehensive income or equity and not in the income statement. Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.

3.20.3 Value Added Tax (VAT)

Revenue and expenses are recognised net of the amount of VAT except:

· When the VAT incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case, the VAT is recognised as part of the cost of acquisition of the assets or as part of the expense item as applicable; and

· For receivables and payables that are stated with the amount of VAT included.

The net amount of VAT recoverable from, or payable, to the taxation authorities is included as part of receivables or payables in the statement of financial position.

3.21 Leasing

The determination of whether an arrangement is a lease, or contains a lease, is based on the substance of the arrangement at the inception date.

3.21.1 Group as a lessee

Leases that transfer to the Group substantially all of the risks and benefits incidental to ownership of the leased item, are classified as finance leases and capitalised at the commencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments.

Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in finance cost in the income statement.

Leased assets are depreciated over the useful life of the asset. However, if there is no reasonable certainty that the

Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.

Leases that do not transfer to the Group substantially all the risks and benefits incidental to ownership of the leased items are operating leases. Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term. Contingent rentals are recognised as an expense in the period in which they are incurred.

3.21.2 Group as a lessor

Leases in which the Group does not transfer substantially all of the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same bases as rental income. Contingent rents are recognised as revenue in the period in which they are earned.

3.22 Employee benefits

3.22.1 Pension obligations

The Group has a defined contribution plan. 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 period and prior periods.

The Group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as an employee benefit expense when they are due. Pre-paid contributions are recognised as an asset to the extent that a cash refund or reduction in the future payment is available.

3.22.2 Termination benefits

Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to a termination when the entity has a detailed formal plan to terminate the employment of current employees without possibility of withdrawal. In the case of an offer made to encourage voluntary redundancy, the termination benefits are measured based on the number of employees expected to accept the offer. Benefits falling due more than 12 months after the end of the reporting period are discounted to their present value.

3.23 Share-based payment transactions

Employees (including senior executives) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments.

In situations where equity instruments are issued and some or all of the goods or services received by the entity as consideration cannot be specifically identified, the unidentified goods or services received (or to be received) are measured as the difference between the fair value of the share-based payment transaction and the fair value of any identifiable goods or services received at the grant date. This is then capitalised or expensed as appropriate.

The cost of equity-settled transactions is recognised, together with a corresponding increase in other capital reserves in equity, over the period in which the performance and/or service conditions are fulfilled.

The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group's best estimate of the number of equity instruments that will ultimately vest. The income statement expense or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period and is recognised in staff costs.

No expense is recognised for awards that do not ultimately vest except for awards where the vesting is conditional upon a market condition where they are treated as vesting irrespective of whether the market condition is met. Where the terms of an equity-settled transaction award are modified, the minimum expense recognised is the expense as if the terms had not been modified, if the original terms of the award are met.

An additional expense is recognised for any modification that increases the total fair value of the share-based payment transaction, or is otherwise beneficial to the employee as measured at the date of modification.

Where an equity-settled award is cancelled, it is treated as if it vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. This includes any award where non-vesting conditions within the control of either the entity or the employee are not met. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph. All cancellations of equity-settled transaction awards are treated equally.

The dilutive effect of outstanding options, if there are any, is reflected as additional share dilution in the computation of diluted earnings per share (Note 26).

3.24 Provisions

3.24.1 General

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the statement of comprehensive income net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a borrowing cost.

3.24.2 Onerous contracts

A provision is recognised for onerous contracts in which the unavoidable costs of meeting the obligations under the contract exceed the expected economic benefits expected to be received under it. The unavoidable costs reflect the least net cost of exiting the contract, which is the lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfill it.

3.25 Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty for sale of goods and services in the ordinary course of the Group's activities.

The Group recognises revenue when the amount of revenue can be reliably measured; it is probable that future economic benefits will flow to the Group and when specific criteria have been met for each of the Group's revenue streams described below. The Group assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. The Group has concluded that it is acting as a principal in all of its revenue arrangements.

3.25.1 Gross premiums

Gross recurring premiums are recognised as revenue when payable by the policyholder. For single premium business, revenue is recognised on the date on which the policy is effective. Gross general insurance written premiums comprise the total premiums receivable for the whole period of cover provided by contracts entered into during the accounting period and are recognised on the date on which the policy commences. Premiums include any adjustments arising in the accounting period for premiums receivable in respect of business written in prior accounting periods. Premiums collected by intermediaries, but not yet received, are assessed based on estimates from underwriting or past experience and are included in premiums written.

Unearned premiums are those proportions of premiums written in a year that relate to periods of risk after the reporting date. Unearned premiums are calculated on a daily pro rata basis. The proportion attributable to subsequent periods is deferred as a provision for unearned premiums.

3.25.2 Reinsurance premiums

Gross reinsurance premiums on life are recognised as an expense when payable or on the date on which the policy is effective. Gross general reinsurance premiums written comprise the total premiums payable for the whole cover provided by contracts entered into the period and are recognised on the date on which the policy incepts. Premiums include any adjustments arising in the accounting period in respect of reinsurance contracts incepting in prior accounting periods.

Unearned reinsurance premiums are those proportions of premiums written in a year that relate to periods of risk after the reporting date. Unearned reinsurance premiums are deferred over the term of the underlying direct insurance policies for risks-attaching contracts and over the term of the reinsurance contract for losses occurring contracts.

3.25.3 Fees and commission income

The Group earns fees and commission income from its provision of insurance, asset management and hoteling services. These fees are recognised as revenue over the period in which the related services are performed or rendered. If the fees are for services provided in future periods then they are deferred and recognised over those future periods.

3.25.4 Sale of goods

The Group operates hotels and earns revenue through the sale of food and beverages. Revenue from the sale of goods is recognised when all the following conditions are satisfied:

· the Group has transferred to the buyer the significant risks and rewards of ownership of the goods;

· the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;

· the amount of revenue can be measured reliably; it is probable that the economic benefits associated with the transaction will flow to the entity; and

· the costs incurred or to be incurred in respect of the transaction can be measured reliably.

3.25.5 Investment income

Interest income earned from the Group's interest bearing financial assets is recognised within investment income. Interest income is recognised in the consolidated income statement as it accrues and is calculated by using the effective interest rate method. Fees and commissions that are an integral part of the effective yield of the financial asset or liability are recognised as an adjustment to the effective interest rate of the instrument. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income.

Investment income also includes dividend income earned from the Group's equity investments. Dividend income is recognised when the right to receive payment is established. For listed securities, this is the date the security is listed as ex dividend.

3.25.6 Rendering of services

The Group earns revenue from the provision of accommodation at its hotels. Revenue arising from the rendering of services is recognised by reference to the stage of completion of the transaction at the statement of financial position date (the percentage-of-completion method), provided that all of the following criteria are met:

· the amount of revenue can be measured reliably;

· it is probable that the economic benefits will flow to the seller;

· the stage of completion at the statement of financial position date can be measured reliably; and

· the costs incurred, or to be incurred, in respect of the transaction can be measured reliably.

When the above criteria are not met, revenue arising from the rendering of services is recognised only to the extent of the expenses recognised that are recoverable (a "cost-recovery approach").

3.25.7 Rental income

Rental income receivable under operating leases is recognised on a straight-line basis over the term of the lease, except for contingent rental income which is recognised when it arises.

Incentives for lessees to enter into lease agreements are spread evenly over the lease term, even if the payments are not made on such a basis. The lease term is the non-cancellable period of the lease together with any further term for which the tenant has the option to continue the lease, where, at the inception of the lease, the directors are reasonably certain that the tenant will exercise that option.

Premiums received to terminate leases are recognised in the consolidated income statement when they arise.

3.25.8 Service charges and expenses recoverable from tenants

Income arising from expenses recharged to tenants is recognised in the period in which the expense can be contractually recovered. Service charges and other such receipts are included gross of the related costs in revenue, as the Directors consider that the Group acts as principal in this respect.

3.25.9 Net realised gains and losses

Net realised gains and losses recorded in the consolidated income statement on investments include gains and losses on financial assets and investment properties. Gains and losses also include the ineffective portion of hedge transactions. Gains and losses on the sale of investments are calculated as the difference between net sales proceeds and the original or amortised cost and are recorded on occurrence of the sale transaction.

3.26 Benefits, claims and expenses recognition

3.26.1 Gross benefits and claims

Gross benefits and claims for life insurance contracts include the cost of all claims arising during the year including internal and external claims handling costs that are directly related to the processing and settlement of claims, as well as changes in the gross valuation of insurance contract liabilities. Death claims and surrenders are recorded on the basis of notifications received. Maturities and annuity payments are recorded when due.

General insurance claims include all claims occurring during the year, whether reported or not, related internal and external claims handling costs that are directly related to the processing and settlement of claims, a reduction for the value of salvage and other recoveries, and any adjustments to claims outstanding from previous years.

3.26.2 Reinsurance claims

Reinsurance claims are recognised when the related gross insurance claim is recognised according to the terms of the relevant contract.

3.26.3 Outstanding claims

Provision is made for the estimated cost of claims net of anticipated recoveries under reinsurance arrangements notified but not settled at period end using the best information available at the time. Provision is also made for the cost of claims Incurred But Not Reported ("IBNR") until after the statement of financial position date and for the estimated administrative expenses that will be incurred after the statement of financial position date in settling claims outstanding at that date.

Outstanding claims do not include any provision for possible future claims where claims arise under contracts not in existence at statement of financial position date.

3.27 Events after the reporting date

The financial statements are adjusted to reflect events that occurred between the reporting date and the date when the financial statements are authorised for issue, provided they give evidence of conditions that existed at the reporting date. Events that are indicative of conditions that arose after the reporting date are disclosed, but do not result in an adjustment of the financial statements themselves.

3.28 Profit allocation in the Life Assurance subsidiary company

The Board of Zimnat Life Assurance Company Limited (Life Assurance Company), the Group's life assurance subsidiary, in consultation with an independent actuary, have set the profit participation rules between shareholders and policyholders in that company. In terms of these rules shareholder assets and life assurance noncurrent assets (policyholder assets) in the Life Assurance Company are managed separately, and net investment returns from such assets are credited to shareholder funds and policyholder funds respectively.

Shareholder funds are also credited with administration, investment and service charges for managing policyholder funds at rates set out in the Profit Participation Rules. These rates are reviewed annually by the Life Assurance Company Board, in consultation with the independent actuary.

At statement of financial position date, an independent valuation of policy holder liabilities is carried out. The value of policy holder liabilities is then deducted from the total value of policy holder assets. Any actuarial surplus (i.e. excess of assets over liabilities) is split between policy holders and shareholders as per recommendations from the independent actuary. The surplus allocated to shareholders is debited from the life assurance fund and credited to the shareholders' funds. If there is a deficit (policyholder liabilities in excess of policyholder assets) the total amount is debited against the shareholders' funds.

4. Changes in accounting policies and disclosures

New and amended standards and interpretations

The accounting policies adopted in the preparation of the financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2014, except for the following new and amended IFRS effective as of 1 January 2015:

· Annual Improvements to IFRSs - 2010-2012 Cycle and 2011 - 2013 Cycle

· Defined Benefit Plans: Employee Contributions - Amendments to IAS 19 The adoption of the improvements made in the 2012-2012 Cycle has required additional disclosures in our segment note.

Other than that, the adoption of these amendments did not have any impact on the current period or any prior period and is not likely to affect future periods.

The Group also elected to adopt the following two amendments early:

· Annual Improvements to IFRSs 2012-2014 Cycle, and

· Disclosure Initiative: Amendments to IAS 1. As these amendments merely clarify the existing requirements, they do not affect the group's accounting policies or any of the disclosures.

5. Standards issued but not yet effective

Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2015 reporting periods and have not been early adopted by the Group. The Group's assessment of the impact of these new standards and interpretations is set out below.

6. Significant accounting judgments, estimates and assumptions

The preparation of financial statements in conformity with IFRS requires the use of certain accounting estimates. It also requires management to exercise its judgment in the process of applying the Group's accounting policies. Changes in assumptions may have a significant impact on the financial statements in the period the assumptions are changed. Management believes that the underlying assumptions are appropriate and that the Group's financial statements therefore fairly present the financial position and results.

The 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 if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The areas involving a higher degree of judgments or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in the relevant notes to the financial statements.

The following are the estimates, assumptions and critical judgments that management has made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in the financial statements.

6.1 Estimates and assumptions

6.1.1 Valuations of properties

The Group's property comprise of freehold land and buildings that are classified under the property, plant and equipment category and investment properties. The Group has three distinct investment properties categories i.e. commercial buildings, that offer retail and office space, residential buildings and industrial buildings. The distinct property categories were valued by independent professional valuers (Dawn Property Consultancy and Bard Real Estate) differently as highlighted below.

6.1.1.1 Property classified under the property, plant and equipment category

The freehold land and buildings valuations were based on market values which are defined as the estimated amount for which, a property would be exchanged between knowledgeable, willing parties in an arms length transaction. In determining the open market value estimates, comparable market evidence was considered.

6.1.1.2 Commercial buildings

The determination of the fair value of investment properties requires the use of estimates such as future cash flows from assets (such as lettings, tenants' profiles and future revenue streams) and discount rates applicable to those assets. These estimates are based on local market conditions existing at the reporting date.

The continuing volatility in the global financial system is reflected in the turbulence in commercial real estate markets across the world. The lack of liquidity in the Zimbabwean market also means that, if it was intended to dispose of the investment properties, may be difficult to achieve a successful sale of the investment properties in the short term. Therefore, in arriving at their estimates of market values as at 31 December 2014 and 31 December 2015, the valuers have used their market knowledge and professional judgment and have not only relied solely on historic transactional comparables.

In arriving at the market value of the property, the valuer used the Implicit Investment Approach based on capitalization of income. This method is based on the principle that rents and capital values are inter-related. Hence given the estimate of income produced by a property, its value can be estimated.

This approach requires careful estimation of future benefits and the application of investor yield or return requirements. The rental estimates were based on comparable rentals, inferred from retail and office spaces within the locality of the property in the Harare central business district and surrounding areas. The estimated future rental income streams were discounted in order to determine the fair value of the investment properties, refer to Note 29 for more details on inputs used in the valuation.

6.1.1.3 Industrial and residential buildings

The Industrial and residential buildings valuations were based on market values which are defined as the estimated amount for which, a property would be exchanged between knowledgeable, willing parties in an arms length transaction. In determining the open market value estimates, comparable market evidence was considered. This comprised of transactions where offers had been made but the transaction had not been finalized. Professional judgement was used to adjust the market evidence.

6.1.2 Financial instruments at amortised cost

The value of financial assets and financial liabilities held at amortised cost are based on the expected cash flows under consideration of a market interest rate. The judgments include considerations of inputs such as expected cash flows, amortisation period, market interest rate applied and also whether or not the financial assets are recoverable.

6.1.3 Impairment assessment of investments in associates and joint ventures

The Group determines at each reporting date, whether there is any objective evidence that the investment in the associates and joint venture is impaired. This requires an estimation of recoverable amount of the investment in associate or joint venture by reference to the value in use. A value in use calculation requires the Group to make an estimate of the expected future cash flows from the associate or joint venture and also to choose a suitable discount rate in order to calculate the present values of those cash flows.

6.1.4 Recoverability of loans granted to investee companies

The Group assesses the recoverability of loans granted to investee companies at each reporting date and where appropriate an impairment loss is recognized against loans that are deemed to be irrecoverable or those that will be recoverable over extended periods i.e. periods that are longer than the periods as per the original agreements.

The Group reviews the investee company's financial performance and also reviews the capital as well as interest payment pattern by the investee company in order to come up with estimations of how much of the loans granted will be recoverable and also over what time frame. The Group fully impaired its $12.5 million loan note investment in Telerix Communications (Private) Limited. The Group assessed Telerix Communications (Private) Limited's cash flow forecasts, financial and operating position it concluded that Telerix Communications (Private) Limited will not be able to make capital and interest repayments in accordance with loan note contract (Note 30.1.2).

6.1.5 Valuation of insurance contract liabilities

6.1.5.1 Non-life insurance (which comprises general insurance) contract liabilities

For non-life insurance contracts, estimates have to be made both for the expected ultimate cost of claims reported at the reporting date and for the expected ultimate cost of claims incurred but not yet reported at the reporting date ("IBNR").

Insurance risks are unpredictable and the Group recognises that it is not always possible to forecast with absolute precision, future claims payable under existing insurance contracts. The ultimate cost of outstanding claims is estimated by using a range of standard actuarial claims projection techniques. Overtime, the group has developed a methodology that is aimed at establishing insurance provisions that have an above-average likelihood of being adequate to settle its insurance obligations.

The main assumption underlying these techniques is that a company's past claims development experience can be used to project future claims development and hence ultimate claims costs. As such, these methods extrapolate the development of paid and incurred losses, average costs per claim and claim numbers based on the observed development of earlier years and expected loss ratios.

Historical claims development is mainly analysed by accident years, but can also be further analysed by geographical area, as well as by significant business lines and claim types. Large claims are usually separately addressed, either by being reserved at the face value of loss adjuster estimates or separately projected in order to reflect their future development. In most cases, no explicit assumptions are made regarding future rates of claims inflation or loss ratios. Instead, the assumptions used are those implicit in the historical claims development data on which the projections are based.

Additional qualitative judgement is used to assess the extent to which past trends may not apply in future, (for example to reflect one-off occurrences, changes in external or market factors such as public attitudes to claiming, economic conditions, levels of claims inflation, judicial decisions and legislation, as well as internal factors such as portfolio mix, policy features and claims handling procedures) in order to arrive at the estimated ultimate cost of claims that present the likely outcome from the range of possible outcomes, taking account of all the uncertainties involved.

Similar judgements, estimates and assumptions are employed in the assessment of adequacy of provisions for unearned premium. Judgement is also required in determining whether the pattern of insurance service provided by a contract requires amortisation of unearned premium on a basis other than time apportionment.

6.1.5.2 Life insurance contract liabilities

The liability for life insurance contracts is either based on current assumptions or on assumptions established at inception of the contract, reflecting the best estimate at the time increased with a margin for risk and adverse deviation. All contracts are subject to a liability adequacy test, which reflect management's best current estimate of future cash flows.

Certain acquisition costs related to the sale of new policies are recorded as deferred acquisition costs ("DAC") and are amortised to the consolidated income statement over time. If the assumptions relating to future profitability of these policies are not realised, the amortisation of these costs could be accelerated and this may also require additional impairment write-offs to the consolidated income statement.

The main assumptions used relate to mortality, morbidity, longevity, investment returns, expenses, lapse and surrender rates and discount rates. The Group bases mortality and morbidity on standard industry mortality tables which reflect historical experiences, adjusted when appropriate to reflect the Group's unique risk exposure, product characteristics, target markets and own claims severity and frequency experiences. For those contracts that insure risk related to longevity, prudent allowance is made for expected future mortality improvements as well as wide ranging changes to life style, could result in significant changes to the expected future mortality exposure.

Estimates are also made as to future investment income arising from the assets backing life insurance contracts. These estimates are based on current market returns as well as expectations about future economic and financial developments.

Assumptions on future expense are based on current expense levels, adjusted for expected expense inflation if appropriate.

Lapse and surrender rates are based on the Group's historical experience of lapses and surrenders.

Discount rates are based on current industry risk rates, adjusted for the Group's own risk exposure.

The assumptions used for the actuarial valuation of the insurance contracts disclosed in this note are as follows:

Economic rates - The economic rates were set as follows:

Mortality - The tables used for mortality were:

· 80% of the A24/29 table of Assured Lives experience in the UK in the years 1924 to 1929.

· HIV/AIDS - as the HIV/AIDS pandemic develops in Zimbabwe, the assumption concerning deaths from the pandemic is of increasing importance. As such, a standard AIDS loading was allowed on the mortality rates. However the HIV/AIDS transmission rate has been decreasing due to the increased awareness, use of protection methods and the use of Anti-retroviral drugs, ARVs. This means that the mortality may reach a stable state system.

· A(55), a table of annuitant experience in the UK thought to be appropriate for annuities purchased in 1955. For female policyholders, spouses were assumed to be 3 years older, whilst for male policyholders, spouses were assumed to be 3 years younger.

Expenses - The allowance for expenses in the valuation should be sufficient to ensure that expenses can be covered not only in the next year but also in all future years. The following were the assumptions used to project the present value of future expenses and these were based on expense analysis figures for the year 2015.

· For new Cashpal policies, the base year (2015) expense per policy was set at $18 per annum.

· For Whole Life policies, the base year (2015) expense per policy was set at $31 per annum.

· For Pension Plan policies, the base year (2015) expense per policy was set at $36 per annum.

· For Individual Life Funeral policies, the base year (2014) expense per member was set at $23 per annum for all of the future years.

· For Individual Life Funeral policies, the base year (2015) expense per member was set at $13 per annum for all of the future years.

· For new Individual Life Funeral policies, expense per main member was set at $51 per annum for all of the future years.

· For Whole Life policies without-profits where there is a will-writing benefit to be exercised after one year. A take up rate of 10% was assumed. The will-writing expense was set as $185 per policy.

Expense per policy assumption needs to be reviewed continuously in line with expense inflation. Commission was allowed for as per pricing basis.

Unit growth rate - This was assumed to be 10% p.a. after the valuation date.

Bonuses - Bonuses were awarded to Investment Contracts with DPF, Conventional Annuities, Individual Life Old Conventional Fund and Whole Life as at 31 December 2015 as follows:

· 0% bonus, was awarded to Investment Contracts with DPF (Deposit Administration Contracts) and Individual Life Old Conventional Policies as at 31 December 2015.

· 2% Bonus, split as 100% vested and 0% non-vested was awarded to Individual Life Whole Life with profits product as at 31 December 2015.

· 2% Bonus, split as 100% vested and 0% non-vested was awarded to New Convectional Annuity Product as at 31 December 2015.

Transfer to shareholders 

· 10% of the cost of bonus on Whole Life with profits was transferred to the Shareholder Fund.

· 25% of the cost of bonus on New Conventional Annuity Product was transferred to the Shareholder Fund

Planned margins - The intention of the compulsory margins (to be added to the best estimate assumptions) is to introduce a degree of prudence to allow for possible adverse deviations in experience during the expected future lifetime of the business. These compulsory margins will at the same time serve to an extent to defer profits and thus reduce the risk that profits are recognised prematurely. The margins added to the best estimate assumptions were as follows:

Lapse Rates - We have set expected future lapse rates and these are given below:

The expected funeral lapse rates have been based on the lapse experience investigation done as at 30 September 2015.

6.2 Judgments

6.2.1 Assessment of control over investees

The Group follows the guidance of IFRS 10 Consolidated Financial Statements to determine when control exists over an investee. This determination requires significant judgement. In making this judgement, the Group evaluates, whether it has power over the investee, exposure or rights to variable returns from its involvement with the investee and the ability to use its power over the investee to affect the amount of the Group's returns.

Telerix Communications (Private) Limited

Masawara owns 50% of Telerix Communications (Private) Limited "Telerix" issued share capital. Telerix's relevant activities are controlled by the Telerix board, which Masawara has the right to appoint two out of four directors. A consortium of other Telerix shareholders has the right to appoint the other two board members. Masawara and the consortium of the other shareholders collectively control Telerix as they must act together to direct the relevant activities. No investor can direct the activities without the co-operation of the others i.e. neither Masawara nor the consortium of the other Telerix shareholders individually controls the Telerix. Consequently, the Group accounts for its investment in Telerix as a joint venture.

Sable Chemical Industries Limited

On 25 June 2015, the Group, through its wholly owned subsidiary, TA Holdings Limited, obtained control of Sable Chemical Industries Limited "Sable Chemicals". This was after the intermediary companies within the fertilizer industry shareholding structure were liquidated resulting in TA Holdings having a direct shareholding of 50.6%, instead of indirectly holding 50.6%. Masawara's indirect shareholding was through different companies, none of which Masawara had control over.

Under the new shareholding structure, the Group has the ability to appoint the majority of the Board members using its direct shareholding of 50.6%. The Group is therefore in a position to direct the relevant activities of Sable Chemicals Industries Limited. The Group is exposed to variable returns from Sable Chemicals as the profitability of Sable affects the Group (through profit after tax). In addition, the Group is in a position to affect the returns from Sable Chemicals through determining its financial and operating policies. Consequently, Sables Chemicals has been consolidated effective 30 June 2015. More details on the acquisition have been included in Note 8.

Cresta Marakanelo Limited

The Group holds 35% of the equity shares of Cresta Marakanelo Limited (Marakanelo). The Group entered into a management agreement with Marakanelo that stipulates that the Managing Director and the Finance Director of Marakanelo are appointed by the Group. The Group has assessed that it has no control over the relevant activities of Marakanelo due to the following:

· The Group has two (2) representatives on the Marakanelo board which comprises eight (8) members. The Group therefore does not control the Board but has significant influence.

· The management agreement indicates that the Group is accountable to the Marakanelo Board.

· The agreement has a limited term and expires on 31 December 2019.

Due to the fact that the Group has the ability to exert significant influence on Marakanelo, it accounts for its investment in Marakanelo as an associate.

7 Increase in shareholding in TA Holdings Limited

Effective 8 April 2015, Masawara Plc increased its ownership in TA Holdings Limited "TA Holdings" from 75.74% to 100% when the High Court of Zimbabwe sanctioned a mandatory offer made by Masawara Plc to acquire shares from the remaining TA Holdings shareholders. The acquisition took place when Masawara Plc, through its wholly owned subsidiary Masawara Holdings (Mauritius) Limited "MHML" purchased 41,403,383 TA Holdings' shares representing 24.26% of TA Holdings' issued share capital for $10.3 million.

Notwithstanding the fact that the effective date of change in ownership interests was 8 April 2015, 1 April 2015 has been adopted as the date of change in ownership interest for accounting purposes. The exclusion of transactions that took place between 1 April 2015 and 8 April 2015 does not have a material impact on the consolidated financial statements.

This transaction was accounted for as an equity transaction with owners and the carrying amounts of Masawara Plc interest and non-controlling interest were adjusted to reflect the changes in their relative interest. The computation below shows how the loss on the change in degree of control in TA Holdings Limited was calculated. The loss was recognized directly in retained earnings and attributed to Masawara Plc.

8 Business combination 

On 25 June 2015, Masawara Plc, through its wholly owned subsidiary, TA Holdings Limited, obtained control of Sable Chemical Industries Limited "Sable Chemicals". This was after the intermediary companies within the fertilizer industry shareholding structure were liquidated resulting in TA Holdings having a direct shareholding of 50.6%, instead of indirectly holding 50.6%. Masawara's indirect shareholding was through different companies, none of which Masawara had control over. Under the new shareholding structure, Masawara Plc has the ability to appoint the majority of the Board members using its direct shareholding of 50.6%. Effective 25 June 2015, Masawara Plc was in a position to direct the relevant activities of Sable Chemicals Industries Limited and is exposed to variable returns from Sable Chemicals. In addition, Masawara Plc is in a position to affect the returns from Sable Chemicals through determining its financial and operating policies. Consequently, Sable Chemicals has been consolidated effective 30 June 2015.

Notwithstanding the fact that the effective acquisition date of Sable Chemical Industries Limited was 25 June 2015, 30 June 2015 as been adopted as the acquisition date for accounting purposes. The exclusion of transactions that took place between 25 June 2015 and 30 June 2015 does not have a material effect on the consolidated financial statements.

The acquisition for no consideration resulted in a gain on bargain purchase amounting to $5.2 million and this has been recognized in the consolidated income statement. The transaction resulted in a gain on bargain purchase because the provisional value of the net assets acquired was higher than the fair value of the previously held investment and minority interest value. As highlighted above, through having control of Sable Chemicals, Masawara Plc is able to determine operational polices which will improve returns thus justifying a gain on bargain purchase.

If the business combination had taken place on 1 January 2015, the Group's total income would have been $138 million and the Group's loss after tax would have been $6.2 million.

The following table summarises the acquisition for no consideration, the value of assets acquired, liabilities assumed and the non-controlling interest at the acquisition date.

Footnotes

a. The business combination was achieved without any transfer of consideration as direct control was obtained through the liquidation of the intermediary companies within the fertilizer industry shareholding structure.

b. In the 2013 financial year, the investment in Sable Chemicals was impaired to $nil. As at the date of acquisition the previously recognized impairment losses had not been reversed because none of the conditions necessary for impairment reversal were present e.g. Sable Chemicals is still incurring losses. Consequently, the fair value in Sable Chemicals was maintained at $nil.

c. The fair value of non-controlling interest is the non-controlling interest's portion of the fair value of net assets on acquisition date.

d. Property was revalued as at 31 December 2014 by Dawn Property Consultancy (Private) Limited, professional valuers with recognized and relevant professional qualifications and with recent experience in the location and category of the property being valued. As at the acquisition date, there were no significant events that occurred that warrant changes to the value therefore the carrying amount of property approximates fair value.