Corporate information Report of the directors
Statement of directors’ responsibilities Report of the consulting actuary Independent auditors’ report Financial statements:
Statement of profit or loss and other comprehensive income Statement of financial position
Statement of changes in equity Statement of cash flows
Notes to the financial statements Supplementary information: Revenue account 4 19 20 21 22 - 23 24 25-26 27 28 29 - 88 Appendix I
ANNUAL REPORT AND FINANCIAL STATEMENTS
CONTENTS
CORPORATE INFORMATION
FOR THE YEAR ENDED 31 DECEMBER 2014
DIRECTORS H G Hunyu - Chairman
J Otieno - Managing Director (Appointed 19 January 2015) David Ronoh - Resigned 6 November 2014
N C Kuria - Retired 28 February 2015 Tom Gitogo - Appointed 1 March 2015 Rev. P N Kagane
G O Owuor M O Wambia V Leseya
COMPANY SECRETARY Mary Wanga
Certified Public Secretary (Kenya) P O Box 59485 - 00100
Nairobi
REGISTERED OFFICE CIC Plaza
Upper Hill, Mara Road P O Box 59485 - 00200 Nairobi
SENIOR MANAGEMENT J.Otieno - Managing Director M Wanga - Company Secretary
M Kabiru - Group Assistant General Manager- Finance & Investment J Kionga - Assistant General Manager – Life & pension Business P Oyugi - Group Human Resources Manager
M Luvai - Group Chief Internal Auditor S Robi - Risk and Compliance Manager M Njeru - Group Resident Actuary T Kanja - Finance Manager S Ochieng - Claims Manager
E Gallo - Senior Relationship Manager
AUDITORS Ernst & Young
Certified Public Accountants (Kenya) Kenya-Re, Upper Hill
3 Ragata Close, Upperhill P O Box 44286-00100 Nairobi
PRINCIPAL BANKERS The Co-operative Bank of Kenya Limited P O Box 67881 - 00100
Nairobi
CONSULTING ACTUARIES The Actuarial Services Company Limited Victoria Towers
Upper Hill
P O Box 10472 - 00100 Nairobi
ANNUAL GENERAL MEETING NOTICE
NOTICE IS HEREBY GIVEN OF THE 4
THANNUAL GENERAL MEETING OF CIC LIFE ASSURANCE
LIMITED TO BE HELD ON WEDNESDAY THE 20
THDAY OF MAY, 2015 AT 11.00 AM AT CIC PLAZA
II ON THE ELEVENTH FLOOR BOARDROOM TO TRANSACT THE FOLLOWING BUSINESS:
ORDINARY BUSINESS:
1. To table the proxies and note the presence of a quorum. 2. To read the notice convening the Meeting.
3. To confirm the Minutes of the 3rd Annual General Meeting. 4. To receive the Chairman’s Report.
5. To receive, consider and if thought fit, adopt the Audited Financial Statements for the year ended 31st December 2014 together with the Directors and Auditors Report thereon.
6. To declare a dividend. 7. To confirm/elect Directors.
8. To authorize the Board to fix the remuneration of the Directors.
9. To appoint Ernst & Young as auditors of the Company in accordance with Section 159(2) of the Companies Act and to authorize the Directors to fix their remuneration for the ensuing year.
10. To transact any other business, which may be properly transacted at an Annual General Meeting for which due notification has been received by the Secretary forty eight (48) hours prior.
BY ORDER OF THE BOARD
MARY WANGA
COMPANY SECRETARY 11.5.2015
NOTE:
In accordance with section 136(2) of the Companies Act (Cap486, Laws of Kenya) every member entitled to attend and vote at this meeting is entitled to appoint a proxy to attend and vote on his behalf. The instrument appointing the proxy must be delivered to the Secretary not less than forty eight (48) hours before the meeting.
The Annual Report and Financial statements of the Company are available on our website www.cic.co.ke
PROFILES OF CIC LIFE ASSURANCE LIMITED DIRECTORS
HARRISON GITHAE HUNYU,
Chairman, CIC Life Assurance Ltd
MICHAEL ONDINYA WAMBIA,
Director
GORDON ONDIEK OWUOR,
Director
Mr. Harrison Githae Hunyu, aged 68, is the Director representing Central Region based societies and is currently the Chairman of Mutheka FCS Limited. He served previously as a director of Coffee Exports Limited. He is a member of the Institute of Directors-Kenya. He has worked as a Parliamentary Reporter (Hansard), District Officer, District Commissioner and Under Secretary in various Central Government Ministries retiring as a Deputy Secretary in 2001. He is a graduate of Nairobi University, Bachelor of Arts (Hons.) and holds an Advanced Certificate in Public Administration and Parliamentary Training. He has attended local and international courses in administration. The Director has also undergone a specialized Life Business Management Training conducted by LIMRA (Life Insurance and Market Research Association).
Mr. Michael Ondinya Wambia, aged 46, joined the Board in 2008. He is the Director representing Western Region based societies and is the Chairman of Busia Teso Teachers SACCO. He is a teacher by profession. The Director also holds a diploma in Education Management from KEMI (Kenya Educational Management Institute) Mr.Wambia is also a Member of the Institute of Directors-Kenya. The Director has also undergone a specialized Life Business Management Training conducted by LIMRA (Life Insurance and Market Research Association).
Mr. Gordon Ondiek Owuor, aged 58, joined the Board in 2006. He is the Director representing Nyanza Region based societies. Mr. Owuor is the Chairman of Jumuika (formerly Chemelil) SACCO, a member of the Nyanza Provincial Co-operative Development Team and a Member of Institute of Directors-Kenya. He previously worked with the East African Fresh Water Fisheries Research Organization and currently works at Chemelil Sugar Company. He holds an executive Diploma in Financial Management. The Director has undergone a specialized Life Business Management Training conducted by LIMRA (Life Insurance and Market Research Association).
REV. PETERSON NJUE KAGANE,
Director
VERONICAH SOILA LESEYA
Director
TOM GITOGO,
Director
Rev. Peterson Njue Kagane, aged 56, joined the Board in 2007. He holds a Bachelor of Divinity and a Diploma in Theology. He is the Director representing Eastern Province based societies and the Vice-Chairman of CIC Insurance Group Ltd. Rev. Kagane was the Vicar General and the Provost of St. Paul’s Cathedral of ACK Diocese, Embu. He is also the Chairman of St. Agnes Girls Secondary School and the Scouts Centre Embu. He is a member of the Institute of Directors-Kenya. The Director has also undergone a specialized Life Business Management Training conducted by LIMRA (Life Insurance and Market Research Association).
Ms. Veronicah Leseya, aged 41, joined CIC Board in 2012 as an Independent Director. She currently heads the Admission and Benefits Administration Department at Local Authorities Provident Fund (LAPFUND). She has over 16 years working experience in pension, group life and medical servicing. She holds a Bachelor of Arts from Nairobi University and a Diploma in Insurance (AIIK), and is pursuing an Executive Masters in Business Administration from Jomo Kenyatta University of Agriculture and Technology (JKUAT). She is a member of the Institute of Directors-Kenya, Insurance Institute of Kenya and the Kenya Institute of Management. Ms. Leseya has oversight over minority interest. The Director has also undergone a specialized Life Business Management Training conducted by LIMRA (Life Insurance and Market Research Association).
Mr. Tom Gitogo, aged 46 years, is the Group Chief Executive Officer of CIC Insurance Group Limited. Tom has an MBA in Strategic Management and holds a BSc in Civil Engineering from the University of Nairobi. He is a member of the Institute of Chartered Accountants in England and Wales (ICAEW) as well as ICPAK and ICPSK. He has served as the Deputy Chairman of Association of Kenya Insurers (AKI) and the Chairman of its Life Insurance Council. Tom also sits in the Life Insurance Committee of the African Insurance Organization (AIO) and is also a Member of Institute of Directors-Kenya. Before joining CIC, Tom was the CEO of Pan Africa Insurance Holdings and in 2012 won the coveted CEO of the Year Award in the prestigious COYA awards.
JERIM OMONDI OTIENO
Managing Director
CIC Life Assurance Limited
MARY NOEL A. WANGA
Company Secretary
Mr. Jerim Otieno, aged 45 years, is the Managing Director of CIC Life Assurance Ltd. Jerim holds a Bachelor of Commerce (B.Com) Insurance Option, from the University of Nairobi .In addition, Mr. Otieno has done the Advanced Management Program (AMP), 2009 from IESE Business School, Barcelona - Spain & Strathmore Business School Nairobi. He is keen on Life Assurance and is a frequent participant in the LIMRA leadership trainings. Professionally, he is a Member of the Society of Fellows – The Chartered Insurance Institute of UK, Associate Member of the Insurance Institute of Kenya, Board Member of the Association of Kenya Insurers (AIIK) and also a Member of the Life Insurance Council of the Association of Kenya Insurers and member of the institute of Directors-Kenya. Mr. Otieno has over 16 years’ experience in the Insurance Industry and joined CIC from UAP Insurance where he was the Managing Director.
Ms. Wanga aged 46 is an Advocate of the High Court of Kenya with over 17 years’ experiences both as a practicing and corporate lawyer. She joined CIC in 2008 as a Company Secretary/Chief Legal Advisor. Currently she is the Company Secretary of the three Subsidiary Companies owned by CIC Insurance Group Limited (CIC General, CIC Life Assurance and CIC Asset Management). She holds a Bachelor of Law Degree and Bachelor of Social Legislation and is a Certified Public Secretary CPS (K). She holds a Post Graduate Diploma in Kenya Laws and Diploma in Insurance (AIIK). She is also a Member of the Institute of Directors-Kenya, ICPSK, LSK, ACIArb, and Insurance Institute of Kenya. Prior to joining CIC, she worked at the Kenya Industrial Estates at senior level. She is also a member of the Parents Teachers Association (PTA) Moi Girls’ High School-Eldoret. She is currently pursuing Master of Law in Public Finance at Nairobi University.
CIC LIFE SENIOR MANAGEMENT
JERIM OMONDI OTIENO
Managing Director
JACK KIONGA
Assistant General Manager Life
Mr. Jerim Otieno joined CIC Insurance Group in January 2015 as the Managing Director for CIC Life Assurance Company Limited. Jerim currently sits in the Board of Association of Kenya Insurers (AKI) and has over 16 years work experience within the Insurance industry. He holds a Bachelor of Commerce degree (Insurance Option) from the University of Nairobi, is a Chartered Insurer and a member, Society of Fellows of the Chartered Insurance Institute. He also holds a Diploma in Life & Disability Underwriting from the Assurance Medical Society of London and a Certificate in Pensions Administration from the World Bank Institute. He is a graduate of the Advanced Management Programme from IESE and Strathmore Business School.
Mr. Jack Kionga joined CIC Insurance Group in 2007 as the Operations and Training Manager for CIC Life Assurance Company Limited. Currently he is the Assistant General Manager CIC Life Assurance and has over 26years work experience within the Insurance industry. He holds a Bachelor of Administration Degree and is currently undertaking his MBA and awaiting to graduate from the Advanced Management Programme from IESE and Strathmore Business School.
MARY WANGA
Company Secretary
Ms. Wanga aged 46 is an Advocate of the High Court of Kenya with over 17 years’ experiences both as a practicing and corporate lawyer. She joined CIC in 2008 as a Company Secretary/Chief Legal Advisor. Currently she is the Company Secretary of the three Subsidiary Companies owned by CIC Insurance Group Limited (CIC General, CIC Life Assurance and CIC Asset Management). She holds a Bachelor of Law Degree and Bachelor of Social Legislation and is a Certified Public Secretary CPS (K). She holds a Post Graduate Diploma in Kenya Laws and Diploma in Insurance (AIIK). She is also a Member of the Institute of Directors-Kenya, ICPSK, LSK, ACIArb, and Insurance Institute of Kenya. Prior to joining CIC, she worked at the Kenya Industrial Estates at senior level. She is also a member of the Parents Teachers Association (PTA) Moi Girls’ High School-Eldoret. She is currently pursuing Master of Law in Public Finance at Nairobi University.
CALVINCE ONDURU
Operations Manager
Mr. Calvince Onduru joined CIC Insurance Group in 2008 as a Management Trainee. He is currently the Operations Manager CIC Life Assurance Company Limited and has been with the organization for the last 6 years. He holds a BSc – Actuarial, a Diploma in IMIS and is currently undertaking his MFA.
ELIZABETH NJUGUNA
HR Manager
Mrs. Elizabeth Njuguna is the Human Resource Manager representing the Life Assurance Subsidiary. She holds a Bachelor of Administration Degree majoring in Human Resource Management, MBA (specializing in HRM) from Moi University and a Post Graduate Diploma in Human Resource Management from the Institute of Human Resource Management (K). She has over 10 years of work experience in various sectors including Manufacturing and Information Technology. She is a Full Member of the Institute of Human Resource Management (IHRM) and joined CIC in July, 2012.
TYRUS KANJA
Finance Manager CIC Life
Mr. Tyrus Kanja joined CIC Insurance Group in 2005 as an Accountant and is currently the Finance Manager for CIC Life Assurance Company Limited. He has over 12 years work experience within the Insurance industry and holds a BSc – International Business Administration and a CPA (K). He is a member of Institute of Certified Public Accountants of Kenya (ICPAK).
Mrs. Eve Thiongo joined CIC Insurance Group in 2000 as a Management Trainee. She is currently a Business Development Manager. She holds a Bachelor of Commerce Degree and a Diploma in Microfinance. She has over 14 years’ experience in the insurance industry.
STEPHEN MUCHIRE
National Sales Manager
Mr. Stephen Muchire joined CIC Insurance Group as a Sales Manager in 2010 and is currently the National Sales Manager CIC Life Assurance. He has over 17 years sales experience in the Insurance Industry and holds a BEd Degree in Economics and an MBA from Kenyatta University.
MESHACK MIYOGO
Business Development Manager
Mr. Miyogo joined CIC Insurance Group in 2010 as a Business Development Manager. Previously he was with NIC Bank as an Area Sales Manager. He holds a Bachelor of Education Degree and an MBA. He has over 8 years work experience in Banking and Insurance industries.
STEVE OCHIENG
Claims Manager
Mr. Steve Ochieng joined CIC Insurance Group in 1985 as a Field respresentative and is currently the Claim Manager CIC Life Assurance Company Limited. Mr. Ochieng holds a Diploma in Cooperative Management and has over 32 years work experience with the Insurance Industry.
Mr. Ephraim Lumbasio joined CIC Insurance Group in 2000 as the Area Manager - Sacco Business and is currently a Senior Relationship Manager. He has over 30 years sales experience in the Co-operative sector and holds a diploma in Social Development from St. Xavier University, Canada.
CHAIRMAN’S STATEMENT
2014 BUSINESS PERFORMANCE
On behalf of the Board of Directors of CIC Life Assurance Company, I am pleased to present to you the Annual Report and Financial Statements of the Company for the year ended 31st December 2014. 2014 was a year of mixed results and good progress was made in delivering on CIC Life’s strategic initiatives. Even though we solidified our market leadership in group life business, our presence in ordinary life, pensions and annuities segment still remain mute.
The year 2014 also saw couple of acquisitions
in the insurance industry, signaling a trend
of consolidation and emergence of big
players. This is a positive development for
the industry and the market.
HIGHLIGHTS
Let me reflect on the key factors that shaped our 2014 performance and share an overview of the strategic direction the company will pursue into the future.
ECONOMIC AND BUSINESS ENVIRONMENT
In 2014, Kenya’s GDP growth is estimated at 5.7% which is significant improvement as compared to 2013. This growth was mainly supported by investments in infrastructure development and stable macro - economic environment. Inflation was generally on the decline, especially in the second half of the year with December recording the lowest inflation rate at 6.02% vis-à-vis the highest recorded rate in the year which was in July at 7.67%. Lending rates also declined from 17.03% in January to 15.94% in December. The Shillings, however, depreciated steadily against the dollar throughout the second half of the year, with the shillings closing the year at Kshs. 90.60 against the dollar. GDP growth creates a suitable environment for demand of our products as purchasing of long term insurance products is a discretionary spend. As a life company we are exposed to interest rate environment because we sell long term products whose present value depend on interest rates. As interest rates change, the value of our liabilities and assets also change. A stable interest rate regime is therefore important sensitivity for our business.
The year 2014 also saw couple of acquisitions in the insurance industry, signaling a trend of consolidation and emergence of big players. This is a positive development for the industry and the market.
On the regulatory and taxation side, it is anticipated that IRA is on the verge of shifting from compliance based regulations to risk based capital in the very near future. The issue of deferred tax on actuarial surpluses that came in the course of the year has also impacted negatively on profitability of life business. This impact is, however, a one off for prior period and will affect profitability in future through the movement in actuarial surpluses.
OVERALL PERFORMANCE
The 2014 business performance was a mixed year for the company. While we registered impressive growth in our group life book, the contribution of ordinary life, pensions and annuities remain low. Gross earned premiums increased by 37% to Kshs. 4.102 billion from Kshs. 3.003 billion achieved in 2013. Total assets went up by 26% to Kshs. 6.706 billion from Kshs. 5.326 billion the previous year, reflecting strong investment return increases to policyholders’ policies as well. Profits for the year declined by 33% to Kshs. 303.807 million down from Kshs. 450.093 million mainly due to the deferred tax provision on actuarial surpluses.
“
CHAIRMAN’S STATEMENT (Continued)
GOING FORWARD
In conclusion and looking ahead, we are very optimistic that the business will continue to grow, despite the challenging operating environment. We have put in place a robust strategy and team to drive this future growth.
We will continue to solidify our leadership in group life but also increase our market share of ordinary life, pensions and annuity business to the longer component of our liabilities.
We will also continue to review our product offering as well distribution platforms that we are using to deliver our solutions to the market. Technology continues to play a greater role in our business as we live in a more digitally dynamic time. It.is evident that technology driven distribution as well as service will dominate the way we conduct our business.
ACKNOWLEDGEMENT
I would like to thank our esteemed clients for their continued support and patronization of our products and services. I would also like to thank our partners, brokers, agents and the regulator. I must also thank my fellow directors for their dedication and insights, our staff and financial advisors for their hard work and commitment to the company.
HARRISON G HUNYU
CHAIRMAN
MANAGING DIRECTOR’S STATEMENT
2014 BUSINESS PERFORMANCE
The Financial Year 2014 was a good year for life insurance industry in Kenya, in many aspects. The industry growth rate of life business was 27.4%, compared to 16.9% recorded in general insurance business, with the total policyholder benefits paid by all life companies amounting to Kshs. 17.02 billion during the same period. This was consistent with the growth experienced by the industry.
Changes introduced On the regulatory front
are going to significantly alter the dynamics
of the life insurance business in Kenya. They
will also further reinforce the proposition
of life insurance as a means of ensuring
protection and providing financial security to
individuals and families.
So much is happening in terms of building various distribution networks, raising the awareness of personal financial solutions amongst ordinary people and channeling the savings of many thousands of hard working Kenyans into more productive bond, equity and property investments. In spite of all these developments, the penetration of life business remains at 1% of GDP thus presenting huge growth opportunities as well as challenges. This is more so as the Kenyan economy continues to expand with a growing middle class. This coupled with changing demographic trends puts the future of life business in good stead.
On the regulatory front, a number of changes were introduced which we believe are going to significantly alter the dynamics of the life insurance business in Kenya. These changes will also further reinforce the proposition of life insurance as a means of ensuring protection and providing financial security to individuals and families.
We are pleased with the overall business performance in 2014 which saw us achieve a number of strategic plans. Our focus on serving the co-operative movement by offering them products and services that meet their ever changing needs remain paramount and will continue into the future.
BUSINESS PERFORMANCE
During the year under review, CIC Life recorded a 37% growth in gross premiums of Kshs. 4.1 billion up from Kshs. 3 billion. The biggest contributor of this growth came from group life business which grew by 36% from
Kshs. 2.6 billion in 2013 to Kshs. 3.5 billion in 2014. Our profitability, however, declined by 33% from Kshs. 450 million to Kshs. 303.8 million. This was mainly due to adverse claims experienced in our group life portfolio and provisioning for the deferred tax charge on the statutory fund following guidelines issued in the course of the year by the Institute of Certified Public Accountants of Kenya (ICPAK). Going forward, the deferred tax charge is unlikely to have a major impact on our profitability as we will only be accounting for any movement in the subsequent years
Operating costs grew by 20% but were within plan. Focus on tightly controlling operating costs and driving efficiency will continue through investments in technology and improved productivity.
Our total assets grew by 26% to Kshs. 6.7 billion while our net assets improved to Kshs. 2.5 billion. In the year, our actual solvency margin improved from Kshs. 1.684 billion to Kshs. 1.782 billion, underscoring the strength of our balance sheet to continue writing more business.
On the life fund, our liabilities was at Kshs. 3.2 billion in comparison to the life fund which grew to Kshs. 4.3 billion, resulting in a surplus of Kshs. 1.1 billion.
MARKET LEADERSHIP
CIC Life continued to shape the credit life offering to the co-operative movement and group life covers to some major
“
MANAGING DIRECTOR’S STATEMENT (Continued)
BUSINESS TRANSFORMATION
As part of the CIC group-wide initiative, the company is currently undergoing transformation around key aspects of our business so as to enable us serve our customers better and leverage on the synergies that being part of a group offers. We are positive that these changes will not only position us to offer our customers a better offering and experience but also enable us to grow the business significantly.
THE FUTURE
While we will continue to partner with the co-operative movement to offer credit life solutions to fellow co-operators, more focus will equally be placed in growing our ordinary life business as well as pensions business so that we can provide our customers and market with relevant choice and variety. Our customers (both present and future) will equally be at the core of our product innovation and engagement.
APPRECIATION
These commendable results would not have been possible without the support of the board, hard work and dedication of management and staff and significantly, the continued patronization of our products and services by our esteemed customers. Last but not least, it is equally befitting to acknowledge the important role our financial advisors and intermediaries continue to play in our growth and success. To all the stakeholders we say thank you.
JERIM OTIENO
MANAGING DIRECTOR
CORPORATE GOVERNANCE
CIC Life Assurance Limited is a subsidiary of CIC Insurance Group Limited. The company is committed to the standard of world class corporate governance practice as set by the Insurance Regulatory Authority and by itself in accordance with international best practice. The Board of Directors is responsible for the long-term strategic direction for profitable growth of the Company whilst being accountable to the shareholders for legal compliance and maintenance of highest corporate governance standards and business ethics. The Board formulates policies and strategies that enhance transparency and accountability aimed at conforming to set guidelines on Corporate Governance practices provided by the Insurance Regulatory Authority. The Company operates under wide Regulatory, Legal, Control and Supervisory Framework. The Directors attach great importance to the need to conduct business and operations of the company with integrity and in accordance with generally accepted corporate practice and endorse the internationally developed principles of good governance. Directors strive to keep up to date with latest developments in corporate governance best practice by attending capacity building trainings and seminar. The Chairman of the Board and the two Committee chairpersons attended Regional Strategic Leadership Seminar in Rwanda to sharpen their financial and governance skills. Further the Board Members attended a Board Retreat Meeting to strategize on the company’s growth, profitability and revenue. A Board evaluation for the company as a collective the entity, the Chairman and the Managing Director was conducted in September 2014 to assess the performance against the set targets.
Importantly, the Board attended LIMRA training focusing on development of the existing life sales agency network into a formidable and profitable salesforce by end 2018, besides sharpening the Directors’ understanding life business.
Board of Directors
The current board consists of seven directors out of whom four are non-executive directors including the Chairman, two being executive directors and one is an independent director. The Board composition draws a good mix of skills, experience and competencies in various fields to enable them discharge their respective duties and responsibilities effectively. The non-executive directors are appointed by the shareholders on a three-year term and are bound by the Company’s code of conduct. This enables the Board to have a clear approach to succession plan at board level.
The Directors maintain effective control over strategic, financial, operational, policy and compliance issues. Accurate, appropriate and timely information is provided to the Board to enable it to fulfill this role. The chairperson is responsible for leadership of the Board and ensuring its effectiveness on all aspects of its role and setting it’s agenda while the Managing Director is responsible to the Board for running the business in accordance with instructions given by the Board and implementing Board’s corporate decisions.
The Company maintains a policy of open communication between the Board and management ensuring the Board is fully informed about all major matters concerning the company and the industry. The Board and management interact on a regular basis allowing the directors to contribute their knowledge particularly relating to the company’s target market into the company’s activities.
Board Meetings
The Board meets regularly and at least four times a year to, amongst other things, agree on the company’s objectives and strategies to realize the objectives, review performance against agreed targets, consider and approve the annual and interim financial statements. The Board in achieving its mandate is guided by the Board Manual which sets out all matters reserved to it whilst preserving those that pertain to Management, thus achieving autonomy between the Board and Executive.
Board Committees
The Board has created two committees namely, Audit and Risk and Finance and Investment, which meet regularly under clearly defined and materially delegated terms of reference set out by the Board. The Committees operate under clearly defined mandates which spell out their responsibilities, scope of authority and procedures for reporting to the Board. The Committees have access to company information and are authorized to get independent professional advice of matters within their scope.
CORPORATE GOVERNANCE (Continued)
Audit and Risk Committee
The Committee’s main purpose is to assist the board in discharging its duties regarding the safeguarding of assets, the operation of adequate systems, control processes, and the preparation of accurate financial statements and reporting in compliance with all applicable legal requirements and accounting standards.The scope of this committee includes risk management, as well as compliance with the regulatory requirements. The Committee is guided in its functions by a comprehensive Audit Committee Charter and Internal Audit Department Charter. These are designed to provide a comprehensive framework for the audit function within the company.
Finance and Investment Committee
The Committee’s purpose is the assist the board in fulfilling its overall responsibilities with respect to the financial, investment and the strategic planning affairs of the company.
The duties of the committee include receiving and considering the Company’s annual budget, reviewing the purchasing and tender regulations, disposal of major items and considering recommendations on capital expenditure. It also reviews proposals involving capital developments, financing and investment proposals.
Attendance at the Meetings
Table 1 below is a summary of the attendance record of the directors at the Main Board and the Committee meetings. A record of attendance is kept with the Company Secretary. The record of attendance at meetings is also noted in the minutes of the meetings.
Table 1
Notes:
(a) Number of meetings convened during year when the director was a member (b) Number of Meetings attended by the Director during the year
(c) - Not a Member
(d) All the directors attended the Company’s Annual General Meeting held on 17th June 2014.
Directors Board Meeting Audit and Risk
Committee Meeting
Finance and Investment Committee Meeting
(a) (b) (a) (b) (a) (b)
Harrison Githae (Chairman) 4 4 3 3 3 3
Gordon Owuor 4 4
-
-
3 3Michael Wambia 4 4 3 3
-
-Rev. Peterson Kagane 4 4
-
-
-
-Internal Controls
The Board has collective responsibility for the Company’s system of internal controls and for reviewing its effectiveness. The company has defined procedures and financial controls to ensure the reporting of complete and accurate accounting information. These cover systems of obtaining authority for major transactions and ensuring compliance with laws and regulations that have significant financial implications.
The system of internal controls in place has defined operational procedures and financial controls to ensure that assets are safeguarded and that the company remains structured to ensure appropriate segregation of duties. In reviewing the effectiveness of the systems of internal controls and risk management, the Board takes into account the results of all the work carried out to audit and review the activities of the Company. A comprehensive management accounting system is in place providing financial and operational performance measurement indicators.
Business Ethics
The company is committed to adherence to the highest standards of integrity, behavior and ethics in dealing with all its stakeholders. A formal code of ethics has been implemented to guide management, employees and stakeholders on acceptable behavior in conducting business.
Communication with Shareholders
The company is committed to ensuring that shareholders are provided with full and timely information about its performance. This is usually done through distribution of the company’s annual reports and release of notices in the press of the annual results.
Share-holding
The authorized share capital of the CIC Life is currently Kenya Shillings One Billion (Kshs 1,000,000,000/=) The issued share capital of the Company is currently KShs. 800,000,000 divided into 40,000,000 shares of Kshs. 20/= each. The shareholders of the Company are as follows:
SHAREHOLDER SHARES
CIC Insurance Group Limited 39,999,999
Tom M Gitogo 1
The directors have pleasure in presenting their report together with the audited financial statements for the year ended 31 December 2014, which disclose the state of affairs of the company.
1. PRINCIPAL ACTIVITIES
The principal activity of the company is the transaction of life insurance business. The company also invests in securities, properties, mortgages and loans.
2. GROUP RESULTS
2014
Kshs’ 000
2014
Kshs’ 000
Profit before taxation 303,807 450,093
Taxation charge (63,987) (113,623)
Profit after taxation 239,820 336,470
3. DIVIDENDS
The directors recommend the payment of a first and final dividend of KShs. 70 million (2013 – KShs 70 million).
4. DIRECTORS
The current directors are as shown on page 1.
5. AUDITORS
Ernst & Young have expressed their willingness to continue in office in accordance with Section 159(2) of the Kenyan Companies Act (Cap 486) and subject to approval by the Commissioner of Insurance under Section 56(4) of the Kenyan Insurance Act.
BY ORDER OF THE BOARD
Secretary
6 March 2015 Nairobi.
REPORT OF THE DIRECTORS
The Kenyan Companies Act 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 company as at the end of the financial year and of the operating results of the company for that year. It also requires the directors to ensure that the company keep proper accounting records which disclose, with reasonable accuracy, the financial position of the Company The directors accept responsibility for the annual financial statements, which have been prepared using appropriate accounting policies supported by reasonable and prudent judgments and estimates, in conformity with International Financial Reporting Standards and in the manner required by the Kenyan Companies Act. The directors are of the opinion that the financial statements give a true and fair view of the state of the affairs of the Company and of operating results of the company.
The directors further accept responsibility for the maintenance of accounting records which may be relied upon in the preparation of financial statements, as well as adequate systems of internal control.
Nothing has come to the attention of the directors to indicate that the company will not remain going concern for at least the next twelve months from the date of this statement.
---
---Director Director
6th March 2015
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
I have conducted an actuarial valuation of the long term insurance business of CIC Life Assurance Limited as at 31 December 2014.
The valuation was conducted in accordance with generally accepted actuarial principles and in accordance with the requirements of the Kenya Insurance Act.
These principles require prudent provision for future outgo under contracts, generally based upon the assumptions that current conditions will continue. Provision is therefore not made for all possible contingencies.
In completing the actuarial valuation, I have relied upon the audited financial statements of the company. In my opinion, the long term insurance business of the company was financially sound and the actuarial value of the liabilities in respect of all classes of life insurance business did not exceed the amount of funds of the long term insurance business at 31 December 2014.
Name of Actuary : Abel Mureithi Signed: ________________ 6th March 2015
REPORT OF THE CONSULTING ACTUARY
Report on the financial statements
We have audited the accompanying financial statements of CIC Life Assurance Limited which comprise the statement of financial position as at 31 December 2014, statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information as set out on pages 24 to 88.
Directors’ responsibility for the financial statements
The directors of the company are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and in the manner required by the Kenyan Companies Act and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
REPORT OF THE INDEPENDENT AUDITORS TO THE SHAREHOLDERS
OF CIC LIFE ASSURANCE LIMITED
Ernst & Young
Certified Public Accountants (Kenya) Kenya Re Towers, Upper Hill
Off Ragati Road
P.O. Box 44286 - 00100 Nairobi GPO - Kenya www.ey.com
REPORT OF THE INDEPENDENT AUDITORS TO THE SHARE HOLDERS
OF CIC LIFE ASSURANCE LIMITED (Continued)
Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial position of CIC Life Assurance Limited as at 31 December 2014 and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Kenyan Companies Act.
Report on other legal and regulatory requirements
As required by the Kenyan Companies Act, we report to you, based on our audit, that:
i) We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit;
ii) In our opinion proper books of account have been kept by the company, so far as appears from our examination of those books; and
iii) The company’s statement of financial position, statement of profit or loss and other comprehensive income are in agreement with the books of account.
The engagement partner responsible for the audit resulting in this independent auditor’s report is CPA Joseph K Cheboror – P/No. P.1145
Nairobi, Kenya 31st March 2015
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE
INCOME FOR THE YEAR ENDED 31 DECEMBER 2014
INCOME
Notes
2014
KShs’000
2013-
Restated
KShs’000
Gross written premiums 4,102,385 3,003,130
Gross earned premiums 3(a) 4,102,385 3,003,130
Less: Reinsurance premiums ceded 3(b) (230,043) (168,471)
Net earned premiums 3,872,342 2,834,659
Investment income 4 367,092 323,270
Other gains 5 207,972 262,800
575,064 586,070
Total income 4,447,406 3,420,729
EXPENDITURE
Claims and policyholders’ benefits expense 6 (2,831,917) (1,906,999)
Commissions expense (186,645) (176,661)
Operating and other expenses 7 (1,125,037) (886,976)
(4,143,599) (2,970,636)
PROFIT BEFORE TAXATION 303,807 450,093
TAXATION CHARGE 9 (63,987) (113,623)
PROFIT AFTER TAXATION 239,820 336,470
OTHER COMPREHENSIVE INCOME
Other comprehensive income not to be reclassified to profit or loss in subsequent years
Surplus on revaluation of building 10
-
63,480Other comprehensive income not to be reclassified to profit or loss in subsequent years
Fair Value loss on available-for-sale investments (Government
securities) 13(b) (36,701)
-Other comprehensive income for the year (36,701) 63,480
STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2014
Notes
31/12/2014
KShs’000
31/12/2013
Restated
KShs’000
01/01/2013
Restated
KShs’000
ASSETS
Property and equipment 10 292,639 420,759 252,144
Intangible assets 11 57,001 55,576 38,725
Investment properties 12 1,676,000 1,182,000 322,020
Government securities classified as held to
maturity 13(a)
278,345 1,129,081 1,037,482
Loans receivable - Mortgage loans 14 169,558 164,184 465,347
- Other loans 15 195,358 159,617 134,538
Government securities classified as available for
sale 13(b)
992,299 -
-Quoted investments at fair value through profit
or loss 16
77,601 55,962 88,239
Deposits and commercial papers 17 691,892 454,139 346,113
Receivables arising out of reinsurance
arrangements 18
4,853 4,853 10,084
Receivables arising out of direct insurance
arrangements 18
135,105 156,326 82,050
Reinsurers share of liabilities and reserves 32 19,747 52,532 92,939
Tax recoverable 9 13,324 -
-Other receivables 19 115,794 38,925 41,422
Due from related party 20(a) 286,251 160,074 29,156
Deposits with financial institutions 21 1,488,938 1,161,677 1,458,791
Cash and bank balances 131,187
Total assets 6,706,711 5,326,892 4,060,562
EQUITY AND LIABILITIES
EQUITY
Share capital 23 800,000 800,000 700,000
Statutory reserve 24 970,671 830,851 594,381
Revaluation surplus 25 - 74,623 11,143
Fair value reserve 26 (36,701) -
-Retained earnings 27 200,178 125,555 125,555
STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2014 (Continued)
LIABILITIES
Deferred taxation 28 416,001 356,079 254,734
Taxation payable 9 - 9,278 20,833
Due to related party 20(b) 242,955 264,875 313,224
Other payables 29 407,069 162,014 1,484
Payables arising from reinsurance arrangements
and insurance bodies 7,532 21,593 10,438
Actuarial value of policyholder liabilities 30 3,282,604 2,334,927 1,650,108
Insurance contracts liabilities 31 416,402 347,097 378,662
Total liabilities 4,772,563 3,495,863 2,629,483
Total equity and liabilities 6,706,711 5,326,892 4,060,562
Certain amounts shown here do not correspond to the 2012 and 2013 financial statements and reflect adjustments made as detailed in note 28.
The financial statements were approved by the Board of Directors on 6th March 2015 and signed on its behalf by:
--- ---
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2014
Share
Capital
KShs’000
Statutory
Reserve
KShs’000
Revaluation
Surplus
KShs’000
Retained
Earnings
KShs’000
Fair Value
Reserve
KShs’000
Total
KShs’000
At 1 January 2013 700,000 849,115 11,143 125,555 - 1,685,813Prior year adjustment - (254,734) - - - (254,734) 1 January 2013
restated 700,000 594,381 11,143 125,555 - 1,431,079
Shares issued (note
23) 100,000 - - - - 100,000
Transfer from statutory
reserve - (100,000) - 100,000 -
-Tax charged on transfer to general
reserve (note 9(c)) - - - (30,000) - (30,000)
Dividend Paid - - - (70,000) - (70,000)
Profit for the year - 336,470 - - - 336,471
Other comprehensive
income for the year - - 63,480 - - 63,480
Total comprehensive
income for the year - 336,470 63,480 - - 399,951
At 31 December 2013 800,000 830,851 74,623 125,555 - 1,831,029
At 1 January 2014 800,000 830,851 74,623 125,555 - 1,831,029
Transfer from statutory
reserve - (100,000) - 100,000 - -Tax charged on transfer to general reserve (note 18(c)) - - - (30,000) (30,000) Transfer of revaluation surplus to retained earnings - - (74,623) 74,623
-
-Dividend Paid - - - (70,000) - (70,000)Profit for the year - 239,820 - - - 239,820
Other comprehensive
income for the year -
-
-
- (36,701) (36,701) 36,701Total comprehensive
income for the year - 239,820 - - (36,701) 203,119
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2014
Notes
2014
KShs’000
2013
KShs’000
CASH GENERATED FROM OPERATIONS 33 1,088,356 707,378
Taxation paid 9 (55,783) (53,833)
Net cash generated from operating activities 1,032,573 653,545
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investment properties 12 (845) (621,954)
Purchase of furniture and equipment 10 (215,388) (134,105)
Purchase of Computer Equipment 10 (8,269)
-Purchase of intangible assets 11 (20,426) (35,376)
Mortgage loans advanced 14 (65,835) (106,971)
Mortgage loans repaid 14 60,461 8,134
Other Loans advanced 15 (71,050) (39,199)
Other Loans repayment 15 35,309 14,120
Disposal of quoted shares 16 - 63,044
Purchase of quoted shares 16 (10,651)
-Purchase of government securities 13 (220,000) (220,000)
Proceeds of maturity of government securities 13 55,000 120,000
Dividend Income 4 1,397 12,257
Interest Income 4 144,440 146,368
Investment in deposits in non-financial institutions (237,753) (65,546)
Disposal in fixed deposits with financial institutions (Excluding cash and cash equivalents)
(802,000) (1,068,000) Purchase of fixed deposits with financial institutions (Excluding cash
and cash equivalents)
401,165 865,920
Net cash generated from investing activities (954,445) (1,061,308)
CASHFLOWS FROM FINANCING ACTIVITIES
Increase in share Capital - 100,000
Dividends paid (70,000)
-Net cash used in financing activities (70,000) 100,000
INCREASE IN CASH AND CASH EQUIVALENTS 8,128 (307,763)
CASH AND CASH EQUIVALENTS AT 1 JANUARY 820,451 1,128,214
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Statement of compliance with International Financial Reporting Standards (IFRS)
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB).
For the purposes of reporting under the Kenyan Companies Act, in these financial statements the balance sheet is represented by/is equivalent to the statement of financial position and the profit and loss account is presented in the statement of profit or loss and other comprehensive income.
(a) Basis of preparation
The financial statements are prepared on a going concern basis in compliance with International Financial Reporting Standards (IFRS) and the requirements of the Kenyan Companies Act. The measurement basis used is the historical cost basis, as modified by the carrying of certain property and equipment, investment property and certain investments at fair value, impaired assets at their recoverable amounts and actuarially determined liabilities at their present value. The financial statements are presented in Kenya Shillings (KShs), rounded to the nearest thousand, which is also the functional currency.
The financial statements comprise the statement of profit or loss and other comprehensive income, statements of financial position, statements of changes in equity, statements of cash flows, and notes. Income and expenses, excluding the components of other comprehensive income, are recognised in the profit or loss. Other comprehensive income is recognised in the statement of comprehensive income and comprises items of income and expenses (including reclassification adjustments) that are not recognised in the profit or loss as required or permitted by IFRS. Reclassification adjustments are amounts reclassified to profit or loss in the current period that were recognised in other comprehensive income in the previous periods. Transactions with the owners of the company in their capacity as owners are recognised in the statement of changes in equity.
The Company presents its statement of financial position broadly in order of liquidity. An analysis regarding recovery or settlement within twelve months after the reporting date (current) and more than 12 months after the reporting date (non-current) is presented in the notes.
The preparation of financial statements in conformity with International Financial Reporting Standards requires the use of estimates and assumptions. It also requires management to exercise its judgement in the process of applying the accounting policies adopted by the Company. Although such estimates and assumptions are based on the directors’ best knowledge of the information available, actual results may differ from those estimates. The judgements and estimates are reviewed at the end of each reporting period, and any revisions to such estimates are recognised in the year in which the revision is made. The areas involving the judgements of most significance to the financial statements, and the sources of estimation uncertainty that have a significant risk of resulting in a material adjustment within the next financial year, are disclosed in note (2) of these financial statements.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES( continued)
(b) New and amended standards and interpretations
The Company applied for the first time certain standards and amendments, which are effective for annual periods beginning on or after 1 January 2014. The nature and the impact of each new standard and amendment is described below:
Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27)
These amendments provide an exception to the consolidation requirement for entities that meet the definition of an investment entity under IFRS 10 Consolidated Financial Statements and must be applied retrospectively, subject to certain transition relief. The exception to consolidation requires investment entities to account for subsidiaries at fair value through profit or loss. These amendments have no impact on the Company, since none of the entities in the Company qualifies to be an investment entity under IFRS 10.
Offsetting Financial Assets and Financial Liabilities - Amendments to IAS 32
These amendments clarify the meaning of ’currently has a legally enforceable right to set-off’ and the criteria for non-simultaneous settlement mechanisms of clearing houses to qualify for offsetting and is applied retrospectively. These amendments have no impact on the Company, since none of the entities in the Company has any offsetting arrangements.
Novation of Derivatives and Continuation of Hedge Accounting – Amendments to IAS 39
These amendments provide relief from discontinuing hedge accounting when novation of a derivative designated as a hedging instrument meets certain criteria and retrospective application is required. These amendments have no impact on the Company as the Company has not novated its derivatives during the current or prior periods.
IFRIC 21 Levies
IFRIC 21 clarifies that an entity recognises a liability for a levy when the activity that triggers payment, as identified by the relevant legislation, occurs. For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability should be anticipated before the specified minimum threshold is reached. Retrospective application is required for IFRIC 21. This interpretation has no impact on the Company as it has applied the recognition principles under IAS 37 Provisions, Contingent Liabilities and Contingent Assets consistent with the requirements of IFRIC 21 in prior years.
Annual Improvements 2010-2012 Cycle
In the 2010-2012 annual improvements cycle, the IASB issued seven amendments to six standards, which included an amendment to IFRS 13 Fair Value Measurement. The amendment to IFRS 13 is effective immediately and, thus, for periods beginning at 1 January 2014, and it clarifies in the Basis for Conclusions that short-term receivables and payables with no stated interest rates can be measured at invoice amounts when the effect of discounting is immaterial. This amendment to IFRS 13 has no impact on the Company.
Annual Improvements 2011-2013 Cycle
In the 2011-2013 annual improvements cycle, the IASB issued four amendments to four standards, which included an amendment to IFRS 1 First-time Adoption of International Financial Reporting Standards. The amendment to IFRS 1 is effective immediately and, thus, for periods beginning at 1 January 2014, and clarifies in the Basis for Conclusions that an entity may choose to apply either a current standard or a new standard that is not yet mandatory, but permits early application, provided either standard is applied consistently throughout the periods presented in the entity’s first IFRS financial statements. This amendment to IFRS 1 has no impact
NOTES TO THE FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES( continued)
(b) New and amended standards and interpretations (continued)
Standards issued but not yet effective
The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the company’s financial statements are disclosed below.
The Company intends to adopt these standards, if applicable, when they become effective.
IFRS 9 Financial Instruments
In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments which reflects all phases of the financial instruments project and replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Retrospective application is required, but comparative information is not compulsory. Early application of previous versions of IFRS 9 (2009, 2010 and 2013) is permitted if the date of initial application is before 1 February 2015. The adoption of IFRS 9 will have an effect on the classification and measurement of the Company’s financial assets, but no impact on the classification and measurement of the Company’s financial liabilities.
IFRS 14 Regulatory Deferral Accounts
IFRS 14 is an optional standard that allows an entity, whose activities are subject to rate-regulation, to continue applying most of its existing accounting policies for regulatory deferral account balances upon its first-time adoption of IFRS. Entities that adopt IFRS 14 must present the regulatory deferral accounts as separate line items on the statement of financial position and present movements in these account balances as separate line items in the statement of profit or loss and other comprehensive income. The standard requires disclosures on the nature of, and risks associated with, the entity’s rate-regulation and the effects of that rate-regulation on its financial statements. IFRS 14 is effective for annual periods beginning on or after 1 January 2016. Since the Company is an existing IFRS preparer, this standard would not apply.
Amendments to IAS 19 Defined Benefit Plans: Employee Contributions
IAS 19 requires an entity to consider contributions from employees or third parties when accounting for defined benefit plans. Where the contributions are linked to service, they should be attributed to periods of service as a negative benefit. These amendments clarify that, if the amount of the contributions is independent of the number of years of service, an entity is permitted to recognise such contributions as a reduction in the service cost in the period in which the service is rendered, instead of allocating the contributions to the periods of service. This amendment is effective for annual periods beginning on or after 1 July 2014. It is not expected that this amendment would be relevant to the Company, since none of the entities within the Company has defined benefit plans with contributions from employees or third parties.
IFRS 10, IFRS 12 and IAS 28- Amendments to the investment entities – Appying the Consolidation exception
Clarification of the exemption from preparing consolidated financial statements; treatment of a subsidiary that provides services that support the investment entity; and the application of the equity method by a non investment entity that has an interest in an associate or joint venture that is an investment entity
Disclosure initiative amendments –IAS 1
Amendments to IAS 1 to further encourage companies to apply professional judgement in determining what information to disclose and how to structure it in their financial statements
NOTES TO THE FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(b) New and amended standards and interpretations (continued)
Annual improvements 2010-2012 Cycle
These improvements are effective from 1 July 2014 and are not expected to have a material impact on the Company. They include:
IFRS 2 Share-based Payment
This improvement is applied prospectively and clarifies various issues relating to the definitions of performance and service conditions which are vesting conditions, including:
• A performance condition must contain a service condition
• A performance target must be met while the counterparty is rendering service
• A performance target may relate to the operations or activities of an entity, or to those of another entity in the same group
• A performance condition may be a market or non-market condition
If the counterparty, regardless of the reason, ceases to provide service during the vesting period, the service condition is not satisfied.
IFRS 3 Business Combinations
The amendment is applied prospectively and clarifies that all contingent consideration arrangements classified as liabilities (or assets) arising from a business combination should be subsequently measured at fair value through profit or loss whether or not they fall within the scope of IFRS 9 (or IAS 39, as applicable).
IFRS 8 Operating Segments
The amendments are applied retrospectively and clarify that:
• An entity must disclose the judgements made by management in applying the aggregation criteria in paragraph 12 of IFRS 8, including a brief description of operating segments that have been aggregated and the economic characteristics (e.g., sales and gross margins) used to assess whether the segments are ‘similar’.
• The reconciliation of segment assets to total assets is only required to be disclosed if the reconciliation is reported to the chief operating decision maker, similar to the required disclosure for segment liabilities.
IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets
The amendment is applied retrospectively and clarifies in IAS 16 and IAS 38 that the asset may be revalued by reference to observable data on either the gross or the net carrying amount. In addition, the accumulated depreciation or amortisation is the difference between the gross and carrying amounts of the asset.
IAS 24 Related Party Disclosures
The amendment is applied retrospectively and clarifies that a management entity (an entity that provides key management personnel services) is a related party subject to the related party disclosures. In addition, an entity that uses a management entity is required to disclose the expenses incurred for management services.
NOTES TO THE FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(b) New and amended standards and interpretations (continued)
Annual improvements 2011-2013 Cycle
These improvements are effective from 1 July 2014 and are not expected to have a material impact on the Company. They include:
IFRS 3 Business Combinations
The amendment is applied prospectively and clarifies for the scope exceptions within IFRS 3 that:
• Joint arrangements, not just joint ventures, are outside the scope of IFRS 3.
• This scope exception applies only to the accounting in the financial statements of the joint arrangement itself.
IFRS 13 Fair Value Measurement
The amendment is applied prospectively and clarifies that the portfolio exception in IFRS 13 can be applied not only to financial assets and financial liabilities, but also to other contracts within the scope of IFRS 9 (or IAS 39, as applicable).
IAS 40 Investment Property
The description of ancillary services in IAS 40 differentiates between investment property and owner-occupied property (i.e., property, plant and equipment). The amendment is applied prospectively and clarifies that IFRS 3, and not the description of ancillary services in IAS 40, is used to determine if the transaction is the purchase of an asset or business combination.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 was issued in May 2014 and establishes a new five-step model that will apply to revenue arising from contracts with customers. Under IFRS 15 revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide a more structured approach to measuring and recognising revenue. The new revenue standard is applicable to all entities and will supersede all current revenue recognition requirements under IFRS. Either a full or modified retrospective application is required for annual periods beginning on or after 1 January 2017 with early adoption permitted. The Company is currently assessing the impact of IFRS 15 and plans to adopt the new standard on the required effective date.
Amendments to IFRS 11 Joint Arrangements: Accounting for Acquisitions of Interests
The amendments to IFRS 11 require that a joint operator accounting for the acquisition of an interest in a joint operation, in which the activity of the joint operation constitutes a business must apply the relevant IFRS 3 principles for business combinations accounting. The amendments also clarify that a previously held interest in a joint operation is not re-measured on the acquisition of an additional interest in the same joint operation while joint control is retained. In addition, a scope exclusion has been added to IFRS 11 to specify that the amendments do not apply when the parties sharing joint control, including the reporting entity, are under common control of the same ultimate controlling party.
The amendments apply to both the acquisition of the initial interest in a joint operation and the acquisition of any additional interests in the same joint operation and are prospectively effective for annual periods beginning on or after 1 January 2016, with early adoption permitted. These amendments are not expected to have any impact to the Company.
NOTES TO THE FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(b) New and amended standards and interpretations (continued)
Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation
The amendments clarify the principle in IAS 16 and IAS 38 that revenue reflects a pattern of economic benefits that are generated from operating a business (of which the asset is part) rather than the economic benefits that are consumed through use of the asset. As a result, a revenue-based method cannot be used to depreciate property, plant and equipment and may only be used in very limited circumstances to amortise intangible assets.
The amendments are effective prospectively for annual periods beginning on or after 1 January 2016, with early adoption permitted. These amendments are not expected to have any impact to the Company given that the Company has not used a revenue-based method to depreciate its non-current assets.
Amendments to IAS 16 and IAS 41 Agriculture: Bearer Plants
The amendments change the accounting requirements for biological assets that meet the definition of bearer plants. Under the amendments, biological assets that meet the definition of bearer plants will no longer be within the scope of IAS 41. Instead, IAS 16 will apply. After initial recognition, bearer plants will be measured under IAS 16 at accumulated cost (before maturity) and using either the cost model or revaluation model (after maturity). The amendments also require that produce that grows on bearer plants will remain in the scope of IAS 41 measured at fair value less costs to sell. For government grants related to bearer plants, IAS 20 Accounting for Government Grants and Disclosure of Government Assistance will apply.
The amendments are retrospectively effective for annual periods beginning on or after 1 January 2016, with early adoption permitted. These amendments are not expected to have any impact to the Company as the Company does not have any bearer plants.
Amendments to IAS 27: Equity Method in Separate Financial Statements
The amendments will allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements. Entities already applying IFRS and electing to change to the equity method in its separate financial statements will have to apply that change retrospectively.
2014 Annual improvement (2012 -2014 cycle)
IFRS 7 Financial Instruments Disclosures- Servicing contracts
The amendment clarifies that a servicing contract that includes a fee can constitute continuing involvement in a financial asset that has been transferred.
IFRS 7: Financial Instruments Disclosures - Applicability of the amendments to IFRS 7 to condensed interim financial statements.
In respect of IFRS 7 disclosures required in interims, the amendment clarifies that the IFRS 7 disclosures on offsetting are not required in the condensed interim financial report.
IFRS 5: Non -Current Assets Held for Sale and Discontinued Operations -Changes in methods of disposal.
The amendment to IFRS 5 clarifies that changing from one of these disposal methods to the other should not be considered to be a new plan of disposal, rather it is a continuation of the original plan. There is therefore no interruption of the application of the requirements in IFRS 5. The amendment also clarifies that changing the disposal method does not change the date of classification.
NOTES TO THE FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(b) New and amended standards and interpretations (continued)
Amendments to IAS 36 - Impairment of Assets removes the unintended consequences of IFRS 13 Fair Value Measurement on the disclosures required under IAS 36.
The amendment reduces the circumstances in which the recoverable amount of assets or cash-generating units is required to be disclosed. The amendment has also introduced an explicit requirement for an entity to disclose the discount rates that have been used in determining the impairment loss if the recoverable amount of the asset is determined using a present value technique. These amendments did not have a material impact on the Group as the Group did not impair any non-financial assets during the year.
For first-time adopters of IFRS electing to use the equity method in its separate financial statements, they will be required to apply this method from the date of transition to IFRS. The amendments are effective for annual periods beginning on or after 1 January 2016, with early adoption permitted. These amendments will not have any impact on the Company’s financial statements.
(c) Revenue recognition
Revenue represents the fair value of consideration received or receivable for the sale of services in the course of the Company’s activities. It is recognised when it is probable that future economic benefits will flow to the Company and the amount of revenue can be measured reliably. It is stated net of Value Added Tax, rebates and trade discounts.
When revenue is recognised the company estimates whether rebates or trade discounts will be provided and include this estimate in measuring the revenue at the amount received or receivable. Later changes in estimates are included in the revenue line.
Sale of goods are recognised upon the delivery of the product and customer acceptance, while sale of services are recognised upon performance of the service and customer acceptance based on
