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2006 Annual Report for BancABC, BancABC is a full service banking institution offering a diverse range of financial services including personal, business and corporate banking as well as asset ...

2006 Annual Report for BancABC, BancABC is a full service banking institution offering a diverse range of financial services including personal, business and corporate banking as well as asset management, and stock broking and treasury services

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BancABC: 2006 Annual Report Document Transcript

  • 1. Mozambique Tanzania Contents Introduction ............................................................................................ 2 Values and Personality ............................................................................ 2 Group Financial Highlights ...................................................................... 3 Chairman’s Statement ............................................................................. 5 Directorate and Group Management ....................................................... 7 Directorate ............................................................................................. 8 Group Companies Directorate ................................................................. 10 Group Organogram ................................................................................. 12 Chief Executive Officer’s Report .............................................................. 14 Capital Adequacy ................................................................................... 20 Products and Services ............................................................................ 21 Group Management ................................................................................ 23 Risk and Governance ............................................................................. 24 Corporate Social Investment ................................................................... 30 Annual Financial Statements .................................................................. 31 Analysis of Shareholders ......................................................................... 77 Notice to Shareholders ........................................................................... 78 Form of Proxy ......................................................................................... 79 1
  • 2. Introduction ABC Holdings Limited is listed on the Botswana and Zimbabwe Stock exchanges and is the holding company of the African Banking Corporation group of companies which comprise diverse financial services activities in the areas of corporate, international, investment and merchant banking, leasing finance, asset management, stock broking and treasury services. African Banking Corporation aims to deliver world-class financial solutions to the sub-Saharan African region. The African Banking Corporation brand has continued to strengthen and as an institution we have gained recognition from market players and regulators alike. Our strong brand and committed staff have enabled us to weather the volatile conditions and the symbolism of our logo – creative energy, radiance and unity – inspires us to fulfil our vision of delivering world-class financial solutions to our clients and partners in Africa. To ensure that we deliver on our brand promise, we continue to recruit staff with global expertise and a thorough knowledge of the people and cultures we operate in, and to continually train and emphasise development of staff throughout the organisation. Our core values remain the guiding principles by which we operate and form the basis of our corporate personality. Values and Personality Our core values, the result of broad stakeholder consultation, centre on five distinct areas; INTEGRITY, INNOVATION, PASSION, PROFESSIONALISM and PEOPLE. Our INTEGRITY is the result of our being reliable, ethical, credible, trustworthy with a great sense of heritage. Our cast iron ethics form our unquestionable character and business practice. Underpinning INNOVATION are the following traits: visionary, dynamic, energetic, challenging and agile. In practical terms, our adoption of this core value means that we are devoted to driving change by provoking new ideas and always doing things differently. We are PASSIONATE because we are inherently people focused, accessible with a personal and customised approach, not forgetting our vital African energy. In short, we are passionate because we believe in and love what we do. Being PROFESSIONAL to us entails being uncompromising, focused, confident in offering world-class products and services. We strive to be excellent at what we do and are always looking to improve on our performance. And finally our PEOPLE embody the integrity, innovation, passion and professionalism that make us the customer-centric group we are today, delivering world-class financial solutions. With African pride and flair, we traverse Africa leaving our unmistakable footprint that is “African Banking Corporation”. These essential and enduring values are deeply rooted in our organisation, underlying our daily actions. 2
  • 3. Group Financial Highlights Five-year financial highlights on a historical cost basis 31 Dec 06 31 Dec 05 31 Dec 04 31 Dec 03 31 Dec 02 US$ ’000s US$ ’000s US$ ’000s US$ ’000s US$ ’000s INCOME STATEMENT Net interest income after impairment 15,620 20,353 16,671 9,127 6,569 Non interest revenue 30,772 27,974 29,899 24,249 31,256 Total income 46,392 48,327 46,570 33,376 37,825 Operating expenditure (24,757) (29,330) (32,869) (27,221) (20,893) Net operating income 21,635 18,997 13,701 6,155 16,932 Loss on discontinuing operations - - - (284) - Other impairments - (1,845) (373) (4,541) (3,154) Net operating profit before taxation 21,635 17,152 13,328 1,330 13,778 Share of profits of associates and joint venture 1,912 813 831 3,139 - Profit before taxation 23,547 17,965 14,159 4,469 13,778 Taxation (7,673) (6,611) (5,571) (4,214) (3,898) Profit for the year 15,874 11,354 8,588 255 9,880 Attributable to: Equity holders of parent 15,816 11,156 9,791 867 9,880 Minority interest 58 198 (1,203) (612) - Profit for the year 15,874 11,354 8,588 255 9,880 Headline earnings 13,169 11,751 7,743 4,929 13,034 BALANCE SHEET Cash and cash equivalents 70,948 37,657 67,414 71,727 42,439 Financial assets held for trading 140,985 156,437 128,565 73,300 34,544 Derivative assets held for risk management 28,133 - - - - Loans and advances to customers 155,596 120,938 161,449 149,230 101,039 Investments 8,700 6,340 14,287 7,055 11,432 Investment in associates and joint venture 7,050 6,261 6,692 1,849 - Other assets and investment property 6,977 6,690 14,600 15,565 14,957 Property and equipment 8,306 3,916 7,976 8,782 3,137 Intangible assets 6,194 7,285 11,051 11,341 13,741 Total assets 432,889 345,524 412,034 338,849 221,289 Shareholders’ equity 47,075 35,999 43,021 35,867 28,476 Deposits 253,934 256,560 286,249 236,479 121,736 Derivative liabilities held for risk management 28,202 - - - - Borrowed funds 90,666 18,684 30,637 20,959 25,061 Other liabilities and taxation 13,012 13,381 31,227 25,783 27,281 Preference share liabilities - 20,900 20,900 19,761 18,735 Total shareholders’ equity and liabilities 432,889 345,524 412,034 338,849 221,289 Shares in issue 132,568,680 113,449,724 113,449,724 113,449,724 113,449,724 Cost to income ratio 49% 55% 62% 68% 51% Average shareholders’ equity 41,537 39,510 39,444 32,172 30,315 Return on average shareholders’ equity (Headline) 32% 30% 20% 15% 43% Net asset value per share (cents) 35.5 31.7 35.6 27.3 25.1 Closing exchange rates to US$ Botswana Pula 6.05 5.51 4.27 4.43 5.39 Euro 0.76 0.85 0.73 0.80 0.95 Mozambican Metical (dropped three zero in 2006) 25.97 24.18 20.46 23.21 24.10 Tanzanian Shilling 1,264.05 1,162.01 1,073.01 1,035.90 992.22 Zambian Kwacha 4,390.24 3,480.52 4,700.00 4,500.00 4,600.00 Zimbabwe Dollar (dropped three zero in 2006) - official 250.00 26.00 5.61 0.82 0.055 - calculated 2,400.99 88.09 6.20 5.00 1.50 3
  • 4. Net asset value per share 2.1 2.0 1.6 1.6 1.5 1.5 1.3 THEBE 1.0 0.5 0 2002 2003 2004 2005 2006 Total assets 3,000 2,500 2,000 BWP MILLIONS 1,500 2,617 1,902 1,000 1,759 1,501 1,193 500 0 2002 2003 2004 2005 2006 Return on average shareholders’ equity (Headline) 50% 45% 40% 35% PERCENTAGES 30% 25% 43% 20% 32% 15% 30% 20% 10% 15% 5% 0% 2002 2003 2004 2005 2006 4
  • 5. Chairman’s Statement Global environment The world economy continued to grow strongly recovering from In January 2006 the bank rate was 14,5%, but rose to 15% in a growth rate of 4,3% in 2005 to grow at 5,2% in 2006. The February 2006, and has remained unchanged since. The prime 2006 strong growth was underpinned by China, India and the lending rate rose in tandem with this from 16% in January 2006 recovery in Japan. to 16.5% in February 2006. For 2007, the world economy is expected to grow at a reduced The Bank of Botswana is expected to start loosening monetary rate of at least 4,5% with China and India being the main growth policy in 2007, as inflation pressures are expected to abate. sources and Japanese economic growth off-setting the weakness Lower real rates should help to stimulate economic activity. in the US economy. The major positives for growth in 2007 will be the expected low and stable oil prices and high consumer The Pula opened the year at BWP 5.4 to the US dollar but edged demand especially in Asia. up in the second half to BWP 6.45 before stabilizing to close the year at 6.04 to the US dollar and 1.16 to the South African The African continent saw strong economic growth in 2006 Rand. with real GDP growing by 5,4% compared to 5,2% in 2005. The strong growth was a result of the success of the economic Mozambique management on the continent and the high commodity prices. Economic growth in Mozambique remained quite high in 2006, More than half of the continent’s countries experienced growth forecast at 7,0% slightly lower than the 7,7% achieved in 2005. of more than 5,0%. In 2007 African real economic growth is Mozambique has witnessed strong economic growth due to forecast to average 5% with most economies benefiting from the large mining investments and prudent macro-economic high commodity prices, low oil prices and continued sound management policies. macro-economic policies and programmes. Inflation in Mozambique ended the year at 9,4% compared to In Southern Africa, economic growth was projected to average 11,2% in 2005 and 9,1% in 2004. Notwithstanding the above 6,0% in 2006 with most countries achieving growth rates the 2006 inflation rate was higher than the Government target above the average. Angola was the economy with the highest rate of 7,5%. The decrease in inflation is a reflection of the contribution to regional economic growth on the back of strong good harvest recorded in 2006 as food is heavily weighted in commodity prices and a massive economic recovery programme. the consumer price index. The other contributory factors were The above regional growth was spurred by investments and the strong local currency and tight monetary policies pursued production from the mining sector, tourism and manufacturing. by the central bank. Inflation is now forecast to fall within the Government target level of 7,5% during 2007. For the year 2007, the region is expected to grow at an average of 7,0% spurred on by improved energy supplies, low fuel and The central bank tightened monetary policy in the first half of energy prices and strong commodity prices. All the regional 2006 on account of rapid monetary expansion. The central countries, except Zimbabwe, are expected to witness strong bank raised the policy rate by 3.38% to 19% in March 2006 to growth this year. contain inflation and provide reasonable real rate of return. In the second half of the year the rate was cut to 17% and the rate Botswana is expected to stabilize in the first half of 2007. The Botswana economy continued on its growth path in 2006 registering growth of 6,5% up from the 3,8% recorded in 2005. The metical traded in a narrow range in 2006, averaging MZM The economy has registered an average growth rate of more 25.20 to MZM 26.85 to the US dollar. The stabilisation of the than 7,0% over the past 20 years, with mining and construction metical in the second half of the year was a reflection of the being the major sources of growth. The economy is expected to healthy donor inflows and a weaker US dollar. grow by 7,0% in 2007. Tanzania Inflation ended the 2006 year at 8,5% compared to 11,4% The Tanzanian economy grew at 5,9% in 2006 lower than the in 2005, with the major impact coming from the decline in oil average of 7,0% recorded in 2004 and 2005. In 2006 growth prices and the weaker South African rand. In 2007 inflation is was affected by power shortages, drought and high oil prices. forecast to continue falling and should be within the Central The economy is forecast to grow at 7,4% in 2007, higher than Bank desired range of 4%-7%. Interest rates increased across the average growth rates for the Eastern Africa and sub Saharan the board on the back of high inflation. African regions. 5
  • 6. The rate of inflation closed the 2006 year at 6,7% up from 5,9% not helped the few companies that still produce, including the in 2005 largely due to food inflation as a result of drought, and mining industry which has shrunk despite record international high transport costs. In 2007, inflation is expected to fall as mineral prices. Tanzania should record a good harvest and the impact of falling international oil prices reduces transport costs. Interest rates remained high in 2006 with the Reserve Bank of Zimbabwe tightening monetary policy at the beginning of In early 2006, the monetary authorities relaxed their policy the year. Overnight accommodation rates went from 650% in stance and reduced interest rates with treasury bills reducing February to 800% in May 2006. In the mid-year Monetary Policy from 15% to 12%. However, the short-term interest rates were Review the RBZ reduced rates to 300% in a bid to stimulate pushed upwards in the second half in a bid to curb inflation. private sector credit extension. However, in October the central Strong government revenue and comfortable debt position bode bank reversed the policy move by hiking rates to 500% because well for interest rates in 2007. of rapid monetary expansion and runaway inflation. Zambia Directorate The Zambian economy continued to grow strongly reflecting the Mr. Modiri Mbaakanyi resigned from the board on 6 August mining and agricultural sectors contribution to GDP. In 2006 2006, having served the Group since its formation. I would like growth is expected to be 6,0% up from 5,1% in 2005 and 5,4% to thank Modiri for the services rendered to the Group and wish in 2004. The mining sector has continued to record high levels of him well in his future endeavours. Ms. Doreen Khama joined the investment underpinned by high commodity prices. In January board on 28 November 2006 as a non-executive independent 2007, the Government launched its long-term economic plan Director and brings in a wealth of business experience and legal (Vision 2030) which aims at a short-term (2007 to 2010) growth expertise. Doreen is Chairperson of the board of African Banking rate of 6% and long-term growth rate of 10% from 2021 to 2030. Corporation Botswana, and is a highly regarded attorney who The economy is expected to grow by 6,0% in 2007 which is in runs her own practice in Gaborone. We look forward to her line with the plan’s budgeted growth rate. valuable contribution. The inflation rate for 2006 was 8,2% a sharp drop from the Capitalisation 15,9% recorded in December 2005. The fall in inflation was The Group successfully raised USD 60 million by way of due principally to a good agricultural harvest which resulted medium to long-term debt during the second half of 2006. USD in a significant fall in food prices. Zambia recorded a bumper 12 million was injected into the subsidiaries as Tier 1 capital and maize harvest in 2006 and hence witnessed a significant fall in this should be repaid to the lenders through dividends from the food inflation. In 2007, the rate of inflation is expected to fall, subsidiaries. A further USD 20 million has been injected as Tier albeit at a reduced rate to close the year within the 7,0% to II capital in 2007. As a result, all banking subsidiaries would 7,5% range. have capital of at least USD 15 million by end of 2007. The shareholders’ funds are as follows: The positive economic achievements of Zambia are a result of high foreign direct investment and sound macro-economic USD ’000 Tier I Tier II Total policies. Exports have been increasing significantly and are now fairly diversified and the developments in the agriculture sector ABC Botswana 10,640 5,000 15,640 have resulted in near food sufficiency and hence a fall in food imports. The major challenge, however, remains in the area of ABC 10,060 5,000 15,060 social investment and development. Mozambique Declining inflation and strong demand for government securities ABC Tanzania* 9,300 5,000 14,300 are the major reasons for the decline in treasury bill interest rate in 2006. Average treasury bill yield rate fell from 16.7% ABC Zambia 7,960 5,000 12,960 in 2005 to 9.8% in 2006 and the composite treasury bond yield rate fell from 23% to 12.6%. The average lending rates ABC Zimbabwe 16,650 - 16,650 fell from 34% in December 2005 to 28% in December 2006. However, the government is of the view that there is still room for more reduction in accordance with inflation and other macro- * including TDFL economic developments. Dividend Zimbabwe With the capital raising initiatives that are in place, the directors Zimbabwe was the only Southern African economy expected recommend that a dividend be passed. to register a decline in economic production as the economic problems of the past ten years continue. With an unfavourable Conclusion investment environment, shortages of foreign exchange and lack I would like to thank management and staff most sincerely for of international support, the decline is expected to intensify in their contribution in producing an impressive set of results. 2007. During 2006 most production indeces, in volume terms, fell to their 1957 levels signalling a significant decline of the production base. Inflation reached an all time high of 1,282% in December 2006 and is expected to exceed 2,000% in 2007. The authorities OM Chidawu have tried various approaches to fighting inflation but with no Chairman international budget and balance of payments support, these 6 March 2007 measures have come short as recourse to flat and large budget deficits has been a significant contributor to the inflation pressures. Price controls and a rigid exchange rate regime have 6
  • 7. Directorate and Group Management ABC Holdings Limited - Board of Directors Chairman Mr O M Chidawu Non-Executive Directors Mr H Buttery Mrs D Khama Mr N Kudenga Mr J Moses Mr T S Mothibatsela Mr H Wasmus Executive Director Mr D T Munatsi (Chief Executive Officer) Back row from left: O M Chidawu, H Buttery, N Kudenga, J Moses Front row from left: D T Munatsi, H Wasmus, T S Mothibatsela Executive Committee Chief Executive Officer D T Munatsi Chief Banking Officer F M Dzanya Chief Financial Officer B Moyo Group Head of Treasury H Matemera and Structured Finance Chief Risk Officer J J I Machapu Head of Human N Gapare Resources Group Legal Counsel M de Klerk Chief Information Officer L W Vermeulen Back row from left: F M Dzanya, B Moyo, J J I Machapu, M de Klerk (Secretary) Front Row from left: D T Munatsi and H Matemera Remuneration Committee Audit and Risk Committee Executive Committee Mr H Buttery Mr N Kudenga (Chairman) Mr D T Munatsi (Chairman) Mr O M Chidawu Mr J Moses Mr F M Dzanya Mr J Wasmus Mr B Moyo Mr H Matemera Mr J J I Machapu 7
  • 8. Directorate CHIDAWU, Oliver M. (Zimbabwean) - Chairman BUTTERY, Howard J. (South African) Oliver Chidawu is Chairman of the ABC Holdings Board. Born in Howard Buttery was born in South Africa in 1946. In his position as Zimbabwe in 1954, he is a first-generation entrepreneur who founded Chairman of Bell Equipment Ltd, a listed South African company, his and manages the Kuchi group of companies, which is active in building current focus is on the development of a strategic alliance of three and electrical contracting. Mr. Chidawu is a major shareholder in international companies namely John Deer (United States), Liebher Bitumen Construction Services and Heritage Insurance Company. He (Germany) and Hitachi (Japan). In addition to serving on the ABC was a founding shareholder and director of Heritage Investment Bank Holdings board, Mr. Buttery also serves as a non-executive director of that merged with First Merchant Bank in 1997. several companies, including Rodgers and Company Limited (Mauritius) and two Swiss international management funds . KUDENGA, Ngoni (Zimbabwean) MOSES, John (South African) Ngoni Kudenga was born in Zimbabwe in 1952. He is a Chartered John Moses was born in South Africa in 1945. He built a distinguished career Accountant. He holds a Bachelor of Accountancy degree from the in banking, commencing with First National Bank in 1975 where he rose University of Zimbabwe and is a fellow of the Chartered Institute of through the ranks and retired as Chairman of Regional Banking in January Management Accountants. He is a past president of the Institute of 2000. He was a council member of the South African Institute of Bankers. Chartered Accountants. Mr. Kudenga is currently the Managing Partner He remains a fellow of this institution. of BDO Kudenga and Co. Chartered Accountants of Zimbabwe. He serves on the boards of Bindura Nickel Corporation, Hypo Valley Estates Ltd and several private companies. 8
  • 9. WASMUS, Johannes (Dutch) MOTHIBATSELA, Tshipa S. (Botswanian) Hans Wasmus was born in Holland in 1941. He holds a diploma in Tshipa Mothibatsela was born in South Africa in 1948. He holds a accountancy from the Netherlands Institute for Chartered Accountants Bachelor of Engineering in mining from the University of Zambia and a Diploma in Economics. He was employed by FMO, the Netherlands- and a Masters in Engineering from Pennsylvania State University in based development finance institution for 25 years until 2002, initially as the USA. Mr. Mothibatsela completed a management development Regional Manager for Africa and thereafter as CFO. During this period he programme with Anglo American Corporation and went on to establish was seconded to Inde Bank Malawi as senior adviser. He is still a senior his own company, TTCS in Botswana. He is the Chief Executive Officer adviser to FMO and is a non-executive director of several companies. and director of Mothibatsela and Associates Consulting Engineers, a company which he founded. KHAMA, Doreen (Botswanian) MUNATSI, Douglas T. (Zimbabwean) Doreen Khama was born in Botswana in 1949. Mrs Khama is the - Chief Executive Officer Honorary Consul for Austria in Botswana and a practising lawyer by Douglas Munatsi was born in Zimbabwe in 1962. He has been Chief profession. She is the founder and senior partner of Doreen Khama Executive Officer of the ABC Holdings Group since its formation in 2000. Attorneys, a legal firm that has been in operation for more than 20 years. Prior to the establishment of African Banking Corporation, Douglas The firm has offered legal advice to companies such as Damp Holding founded Heritage Investment Bank (HIB), which quickly established AB Sweden, Admiral Leisure World Limited Austria and South Africa, a reputation for successful introduction of innovative capital market LID Limited Russia and Israel, as well Equity Diamond Cutting Works products and became one of the leading merchant banks in Zimbabwe. (Pty) Ltd in South Africa. She is an active business individual nationally, Following the merger of HIB and First Merchant Bank in 1997, Douglas regionally and internationally, and has been able to execute several became Managing Director of the merged bank, which retained the First business developments and maintain a high standing of professional Merchant Bank name. Prior to establishing HIB, Douglas Munatsi was prominence through her affiliations in Greece, Italy and England. She an executive in the Southern Africa regional mission of the International serves as a director and board member for several organisations. Finance Corporation (IFC). Douglas Munatsi holds a Bachelor of Business Studies degree from the University of Zimbabwe and a Master of Business Administration (Finance) from the American University, Washington D.C. He is also an Associate of the Institute of Bankers of Zimbabwe. 9
  • 10. Group Companies Directorate African Banking Corporation of Botswana Limited African Banking Corporation Mozambique SARL Chairperson D Khama Chairman B Alfredo J Kurian J McGuffog D Moremi D T Munatsi T Mothibatsela V Viseu B Moyo Registered Address: No. 999 Avenida Julius D T Munatsi Nyerere, Polana Cimento, Maputo, Mozambique. Registered Address: ABC House, Tholo Office Park, Plot 50669, Fairground Office Park, Gaborone, Botswana. Tanzania Development Finance Company Limited African Banking Corporation Zambia Limited Chairman I Chasosa Chairman C Chileshe J Doriya N Kudenga J Kipokola C Milupi N Kudenga D T Munatsi DT Munatsi G Narder W Nyachia B Nundwe Registered Address: TDFL Building, Ohio St./ Z C Shaba Upanga Rd, J W Thomas P O Box 2478, Dar es Salaam, Tanzania. Registered Address: National Savings & Credit Building, Northend Cairo Road, Lusaka, Zambia. Microfin Africa Zambia Limited Chairperson R Credo R Jere African Banking Corporation Tanzania Limited R Liebenthal Chairman J Kipokola B Machila I Chasosa R Mavhunga R Dave L Mwafulilwa J Doriya Registered Address: Third Floor Alliance House D T Munatsi Cairo Road, South End. W Nyachia P.O. Box 32482, Lusaka, Zambia. Registered Address: First Floor Barclays House, Ohio Street, P.O. Box 31, Dar es Salaam, Tanzania. 10
  • 11. African Banking Corporation Zimbabwe Limited Share Transfer Secretaries Chairman N Kudenga ABC Transfer & Secretarial Services (Pty) Ltd H Brits ABC House, Tholo Office Park, F M Dzanya Plot 50669, F R G Read Fairgrounds Office Park, J Sibanda Gaborone, Registered Address: ABC House, Botswana. Mount Pleasant Business Park, 1 Endeavour Crescent, Mount Pleasant, Harare, Zimbabwe. First Transfer Secretaries (Private) Ltd 13th Floor, Century House, Iroko Financial Products Limited 45 Samora Machel Avenue, Chairman D T Munatsi P O Box 11, F M Dzanya Harare, F Ekam-Dick Zimbabwe. U K Gujadhur Y K Juwaheer ABC Holdings Limited Registered Address: 10, Frere Felix de Valois Company Secretary and Legal Advisor Street, Port Louis, Mauritius. Armstrongs Attorneys 5th Floor, Barclays House, Incorporation Details P O Box 1368, ABC Holdings Limited Gaborone, Registration number: 99/4865 Botswana. ABC House, Tholo Office Park, Plot 50669, Fairgrounds Office Park, Gaborone, Botswana. Auditors KPMG Certified Public Accountants Plot 50364B, Fairgrounds Office Park, Gaborone, Botswana. 11
  • 12. Organisation Structure - ABC Holdings Ltd ABC Holdings Ltd (listed on BSE & ZSE) Tanzania Development Iroko Financial Microfin Africa Finance Company Ltd Products Zambia ABC ABC ABC ABC ABC Other ABCH Zimbabwe Mozambique Botswana Zambia Tanzania Subsidiaries Regulated Banking Regulated Financial • Only significant operating subsidiaries are shown Institution Institution Group Management - ABC Holdings Ltd Chief Executive Officer Chief Financial Chief Risk Legal Chief Banking Officer Officer Council Officer Group Head Country Group Head Treasury and Managing Investment Structured Directors Banking Finance Chief Group Group Head Information Internal Human Officer Audit Resources 12
  • 13. Governance Structure - ABC Holdings Ltd ABC Holdings Ltd (Board of Directors) Nominations Executive Audit and Risk Remuneration Committee Committee Committee Committee ABC ABC ABC ABC ABC Microfin Africa Mozambique Botswana Zambia Tanzania Zimbabwe Zambia Board Credit Board Credit Board Credit Board Credit Board Credit Board Credit Committee Committee Loan Review Committee Committee Committee Committee Management Management Management Management Management Management Committee Committee Committee Committee Committee Committee Audit Audit Audit Audit Audit Audit Committee Committee Committee Committee Committee Committee 13
  • 14. Chief Executive Officer’s Report Headline earnings It is pleasing to note that with the exception of ABC 100 Tanzania which recorded a small attributable loss of BWP 13 000, all banking operations recorded profits in Headline earnings (BWP ’million) 80 2006, a good indication that the Group is now poised to 60 deliver sustainable future earnings for the shareholders. 40 Botswana and Zambia doubled their earnings in 2006 77 70 in comparison to 2005, whilst Mozambique registered a 61 20 36 95% increase in attributable earnings. The turnaround 22 0 of Microfin Zambia during the second half of the year is 2002 2003 2004 2005 2006 indeed a good development as the operation recorded a Profit for the year and return on average equity profit of BWP 0.969 million for the year, coming from a half year loss of BWP 9.3 million. Owing to the above, 100 45% the subsidiaries outside Zimbabwe contributed BWP 90 40% 31 million to the bottom line, which translates to 33% 80 35% 70 of current year attributable profits. This year’s solid 30% 60 25 % performance is indicative of the fact that the Group has ROaE Profits 50 40 20% now matured and its diversification strategy is beginning 30 15% to bear fruit. 10% 20 10 5% 0 0% The Group’s return on average assets improved from 2002 2003 2004 2005 2006 3.2% in 2005 to 4.1% in 2006. Strong growth in operating Profit for the year ROaE income was the main driver of the increase in the ratio. Overview ABC Holdings Group once again produced an excellent Financial Performance Net interest income set of results for the year ended 31 December 2006, with Net interest income amounted to BWP 118 million down strong contributions from all major banking subsidiaries. from BWP 126 million recorded in 2005. The reduction Attributable profit at BWP 93 million was 60% higher than is a result of translation of Zimbabwe operations results BWP 58 million recorded in prior year. Group headline at an exchange rate of ZWD 397:BWP 1 compared to earnings of BWP 77 million were 26% higher than prior ZWD 16: BWP 1 used in 2005. On a segmental basis, all year earnings of BWP 61 million. Headline earnings per the other subsidiaries recorded increases in net interest share increased by 15% to 62 Thebe in comparison to income in 2006 compared to 2005 as a result of an 54 Thebe achieved in the previous financial year. Average increase in interest earning assets. Mozambique and return on shareholders’ equity of 40% is in line with the Botswana contributed 17% each to net interest income Group’s long-term target and is significantly higher than due to a combination of an increase in interest earning 32% achieved in 2005. The satisfactory return on equity assets and the portfolio mix. The Zimbabwe operations is attributable to a combination of solid earnings growth contributed 24% due to the high margins prevailing in and sound capital management in spite of the interest that market. Net interest margin in respect of average and exchange rate volatility in some countries that the earning assets increased during the year in spite of the Group operates in. Net asset value per share improved to continued pressure on lending margins as a result of both BWP 2.08 from BWP 1.63 recorded in 2005. competition and a general reduction in rates. 14
  • 15. Chief Executive Officer’s Report Impairment of loans and advances Taxation Impairment of loans and advances of BWP 26.4 million The Group’s effective tax rate reduced to 33% in 2006, for the year ended 31 December 2006 was higher than compared to 37% recorded in 2005. The reduction is BWP 20.7 million recorded in 2005. ABC Botswana, ABC attributable to higher income being generated in lower tax Tanzania and Microfin Africa Zambia contributed BWP 22 regimes and the return to profitability of operations which million to impairments. The resolution of the reconciliation recorded losses for which no tax relief was obtained in and arrears issues in Microfin Africa Zambia led to an prior years. overall reduction of the impairment charge by BWP 5 million in the second half of 2006. The ratio of non- Balance sheet review performing loans to gross loans declined to 11% from The balance sheet grew by 37% from BWP 1.9 billion 13% recorded in 2005. The non-performing loans ratio is recorded at 2005 year-end to BWP 2.6 billion as at 31 still considerably higher than the industry average and the December 2006. The growth is attributed to organic growth Group is working hard to reduce this to more acceptable in the subsidiaries, coupled with the USD 60 million long- levels of between 2% to 3%. term debt raised by the holding company from National Development Bank of Botswana (NDB) and BIFM Capital Non- interest revenue during the last six months of 2006. Non-interest income increased by a commendable rate of 25% to BWP 180 million in 2006 compared to BWP Loans and advances increased by 41% from BWP 666 145 million recorded in 2005. Some 29% of the total non- million to BWP 941 million at end of 2006. In a bid to funded revenue was derived from the investment portfolio improve net interest margin Botswana recorded a 49% held for trading. Foreign exchange gains contributed 22% increase in loans and advances. Zimbabwe’s contribution with transaction based fee and commission income also has shrunk to below 1% as the balance sheet is strategically contributing 22%. Botswana, Mozambique and Zambia skewed towards low risk liquid assets. Overall, the quality recorded impressive foreign currency trading income as of loans improved during 2006, with the non-performing a result of higher volumes and slightly enhanced margins loan ratio reducing from 13% at 2005 year end to 11% at in 2006. 31 December 2006. Operating expenses Five year loans and NPL movement 1000 16 % 900 80 14 % 74% 800 Cost to income ratio 70 12 % 63% 700 60 600 10 % 50 55% 56% 40 49% 500 8% 30 400 941 6% 666 662 636 20 300 10 4% 397 200 0 2% 100 2002 2003 2004 2005 2006 0 0% 2002 2003 2004 2005 2006 Cost to income ratio of 49% is significantly better than 56% Loans NPLs recorded in 2005 and marginally better than the Group’s short-term target of 50%. The reduction in the Group’s cost Deposits increased by 8% from BWP 1.4 billion at to income ratio is due to a combination of higher operating 2005 year-end to BWP 1.5 million as at 31 December income and containment of operating expenses for the 2006. Significant growth was recorded in Botswana year ended 31 December 2006. and Mozambique. ABC Tanzania and ABC Zambia also recorded increases in deposits albeit coming off a low Operating expenditure in absolute terms reduced from BWP base. ABC Zimbabwe recorded a hefty 72% reduction in 152 million to BWP 145 million mainly as a result of the deposits from BWP 149 million to BWP 42 million. The depreciation of the Zimbabwe dollar which resulted in ABC reduction in Botswana Pula terms is a result of the strong Zimbabwe costs being lower than prior year in Botswana performance by the equities which are perceived to be Pula terms. On a segmental basis, ABC Mozambique and an inflation hedge, hence significant funds have been ABC Zambia recorded the highest operating expenses with invested in the property and equity market. In addition, the ABC Tanzania recording the lowest costs in the Group. Staff massive depreciation of the ZWD has resulted in deposits costs amounted to BWP 83 million (2005: BWP 88 million) coming down in BWP terms. Botswana contributed 56% and constituted 57% of total cost base compared to 58% to total deposits slightly down from 58% recorded in in 2005. Total number of employees reduced from 369 in 2005. 2005 to 342 at end of 2006. 15
  • 16. Chief Executive Officer’s Report (continued) 1,800 Botswana 1,600 1,400 African Banking Corporation of Botswana Limited – 100% holding Deposits (BWP ’million) 1,200 ABC Botswana’s attributable profits at BWP 11.8 million 1,000 are more than double the USD 5.1 million achieved in 1,535 800 prior year. The performance is commendable considering 1,415 1,222 600 1,048 400 the level of loan impairment that was made relating to the 656 200 perennial non performing debt problem. The provisioning 0 exercise effectively put the impairment issue behind the 2002 2003 2004 2005 2006 bank. The operation recorded net interest income of BWP 20.4 million which covers 95% of operating expenses. Deposits by geographical segment The bank’s strong performance was underpinned by Zambia Zimbabwe improved foreign exchange trading income and fees 10% 3% Tanzania and commissions earned. Cost to income ratio at 49% is 12% significantly lower than 80% recorded in 2005 and is now within the group’s short-term target of 50%. Total deposits of BWP 1.1 billon comfortably exceed BWP 900 million as Mozambique Botswana at 31 December 2005. 20% 55% Mozambique Net asset value increased by 49% from BWP 185 million African Banking Corporation Mozambique Sarl – 100% holding to BWP 276 million. However, NAV per share increased ABC Mozambique posted profit of BWP 13 million for the by 27% as a result of an increase in issued and fully paid year ended 31 December 2006 compared to BWP 6.7 shares. The increase in shareholders’ equity is due to million recorded in 2005. The good performance was as a strong performance during the year and the new shares result of higher net interest income and foreign currency issued to preference shareholders under the Preference trading income. Cost to income ratio of 61% is significantly Share Restructuring Agreement (BWP 34.4 million) and lower than 69% recorded in prior year. Net asset value to employees and directors under the Staff and Directors’ increased to BWP 63.9 million from BWP 31.4 million Share Purchase Scheme (BWP 8.9 million). The increase in 2005, as a result of an additional capital injection of in NAV is commendable considering that the foreign BWP 18.1 million coupled with profit retention. Balance currency translation reserve increased by BWP 70 sheet footings increased from BWP 184 million to BWP million largely due to the depreciation of the Zimbabwe 382 million as at 31 December 2006. dollar. Shareholders’ equity in each of the main banking subsidiaries increased during the year on the back of Tanzania strong performance and the injection of capital from African Banking Corporation Tanzania Limited – 74% holding ABCH. All banking subsidiaries had healthy capital and Tanganyika Development Finance Company Limited – 68% holding liquidity ratios as at 31 December 2006. ABC Tanzania posted an attributable loss of BWP 17 000 for the year ended 31 December 2006 compared to a Shareholders equity (BWP ’million) 300 prior year loss of BWP 3.3 million. Although the bank’s losses have continued, there has been a significant 250 decrease in their magnitude from 2005 to 2006. The major 200 contributors were the improvement in net interest income 150 due to an increase in the balance sheet and margin. The 276 reasonably good performance was dented somewhat by a 185 100 173 153 huge impairment of loans and advances of some BWP 4.8 137 50 million on two accounts. Were it not for this the operation 0 2002 2003 2004 2005 2006 would have posted a profit for the first time since its formation. Whilst cost to income ratio at 84% is better than Segmental Analysis 115% achieved in 2005, it is still well above the Group’s Geographical Segment- Profit for the year ABCH and other short-term target of 50%. Total assets grew by 61% 2% Botswana 13% from BWP 140 million to BWP 226 million. Tanganyika Development Finance Company Limited (TDFL) recorded Mozambique profit for the year of BWP 3 million compared to BWP 2.2 14% million recorded in 2005. 2006 performance was buoyed Zimbabwe Tanzania 13% by dividend income and share of profits from Associate 67% Zambia 5% companies which contributed BWP 4.3 million. 16
  • 17. Chief Executive Officer’s Report Zambia Business Segment African Banking Corporation Zambia Limited – 100% holding Treasury Microfin Africa Zambia Limited – 100% holding Treasury operations contributed markedly to the group’s ABC Zambia posted profit for the year of BWP 4.0 million bottom line with improved performances in all our banking compared to prior year’s profits of BWP 1.5 million. Income operations. Strong performance in foreign currency trading from Government securities and loans and advances were resulted in an 11% contribution to total income for the year. adversely affected by the falling interest rates. Late draw Interest from money market placements and investment downs on approved facilities also contributed negatively securities contributed 51%, down from 64% contribution in as the bulk of funds were invested in the low yielding 2005. The change in asset mix in Botswana and Mozambique overnight placements. In addition, mark to market losses contributed to this reduction as the group’s balance sheet of government bonds affected the operation and this led to was realigned towards lending assets. Interest from cash the disposal of long dated securities in the second half of and cash equivalents and investment securities reduced the year. Cost to income ratio reduced to 77% from 87% from BWP 206 million in 2005 to BWP 157 million in 2006. recorded in 2005. Net asset value improved markedly In Zambia, margins came under pressure as interest rates from BWP 29.4 million to BWP 50.6 million. However, eased in 2006, compared to 2005. The reduction in rates deposit mobilisation continues to be a big challenge for this was due to higher demand for government securities from operation. Microfin Africa Zambia Limited made a dramatic offshore and local investors emanating from the increased recovery from the huge loss of BWP 9.3 million recorded confidence from the investor community after the foreign in the first half of the year. The operation recorded a profit debt write off and the prudent fiscal policy management of BWP 1 million for the year ended 31 December 2006, by the Government. High net interest margins coupled with translating to second half performance of BWP 10 million improved liquidity contributed to the good performance by post tax. The remarkable recovery is a result of reversals the Zimbabwe treasury division. of the impairment loses and the high net interest income coupled with lower operating expenses in the second half. Corporate and Private Banking Corporate and Private Banking division had a satisfactory Zimbabwe year beating prior year performance by 30%. A pleasing African Banking Corporation Zimbabwe (Holdings) Limited – 100% holding growth in loan book was registered in Botswana and ABC Zimbabwe posted profit after tax of BWP 62 million Mozambique albeit margins remained under pressure for the year ended 31 December 2006 compared to in the big ticket transactions segment. Gross loan book prior year’s profit of BWP 53 million. Despite translating increased from BWP 729 million to BWP 1,019 million, the Zimbabwe results at Old Mutual implied rate of ZWD translating into a 40% increase. Interest from loans and 397: BWP 1 (2005: ZWD 16:BWP 1) the operation posted advances contributed 49% of total gross income up from impressive results mainly as a result of high net interest 36% recorded in 2005. Interest from loans and advances margins and mark to market gains on investment portfolio. increased by 30% from BWP 116 million recorded in 2005 Zimbabwe contribution to group profits reduced from 92% to BWP 151 million for the year ended 31 December 2006. in 2005 to 67% for the year ended 31 December 2006. The overall quality of the loan book improved during the Cost to income ratio at 23% is well within the group’s long- year as the ratio of NPLs to gross loans reduced from 13% term target of 40%. The environment in Zimbabwe will in to 11%. Despite this improvement in asset quality, the credit all likelihood continue to be challenging in 2007. However, impairment increased by 27% reflecting the increase in the we believe our strategy to preserve capital in Zimbabwe gross book. puts us in good stead going forward. As a result whilst Zimbabwe’s contribution to Group profits is likely to come Zambia recorded modest growth due to challenges in down as other operations continue to grow, we have no mobilising local currency funding. Tanzania held fort in doubt that Zimbabwe will be a significant contributor to spite of not having significant capital and closed the year Group profits, albeit at a reduced level. with a vibrant deal pipeline. 17
  • 18. Chief Executive Officer’s Report (continued) The Zimbabwean macro-economic situation continued to During the year, Group Finance made progress in implementing deteriorate in 2006 with no signs of slowdown in the meltdown. the Management Information System and this is seen as a good This was compounded by unpredictable and inconsistent ingredient in ensuring timeous financial reporting to both internal monetary policy pronouncements resulting in the corporate and external stakeholders. To ensure that staff in Finance are sector restricting borrowings. A deliberate policy has been taken up-to-date with new regulations and International Financial to curtail lending in Zimbabwe as the inherent interest and credit Reporting Standards, training sessions were organised in the risks outweigh the potential returns on lending. Consequently the countries and at group level. loan book has shrunk to an all time low of only BWP 6 million as at 31 December 2006. Group Risk is responsible for monitoring the key daily risks faced by the Group, including credit, market and operational risk. Overall the Division improved on credit administration resulting in The risk management function of the Group are vested in the a noticeable improvement in the quality of the loan book across Group Risk department headed by the Chief Risk Officer who the group. Injection of fresh capital in our operations outside has direct access to the Audit and Risk Committee. Credit risk Zimbabwe which has raised the single obligor limits of those has continued to be a key area receiving attention from the risk operations will see this Division becoming a meaningful player department. There has been improvement in the ratio of non in the short financing arena in the middle to blue chip corporate performing loans to gross loans in 2006 as a result of enhanced sector in all the markets we operate. monitoring and reporting by the department. Microfinance Internal audit plays a key role in maintaining and improving the Strong brand recognition and loyalty in the market place enabled internal control environment in the group. The department is the operation to maintain a steady loan book. The unit is poised to headed by the Group Internal Auditor who reports directly to the grow in 2007 as the legacy issues have been addressed. Audit and Risk Committee and his reports are acted upon by management throughout the group. Investment Banking The group’s investment banking division contributed 3% to total The Group Human Resources department is responsible for income up from 2% recorded in 2005. Assets under management human capital management and formulating HR and reward reduced slightly from BWP 257 million to BWP 256 million as a strategies for the group. The head of the HR department reports result of the exchange movement in Zimbabwe. directly to the Group CEO. The Group has a strong management team within the country operations and at the centre. The Support Divisions team comprises highly qualified and experienced bankers The Group continued to place emphasis on technology with on- with a wealth of international and local experience. The Group going investments in IT. The group operates a centralized IT unit is seeking to build a deep bench of skilled and experienced with responsibility for all components of the Group’s technology managers through its comprehensive Graduate Management development and support services. In the second half of 2006 Development Programme. Following the success of the first the group experienced serious VSAT connectivity issues. Owing to intake of 2003, the second programme which commenced in the above a decision has been taken to migrate from the current 2005 had overwhelming response from all countries. The Group Linkway mesh network to the I-Direct network. We remain of the is soon to implement an Executive Management Development view that this will result in marked improvement in connectivity Programme which will groom future ABC senior executives. and should help in improving service levels to our customers. Further the group is in the process of implementing the Balance In addition the FCC Banking platform will be upgraded from the Score Card, a tool for formulating strategy and measuring current version 5 to the latest version 7.X. This should enable performance of the organisation down to the individual. the Bank to offer products that have hitherto not been part of its service offering. The upgrade will deliver significant benefits to Future prospects our business units and ultimately to our customers. Following the injection of capital into the subsidiaries the Group’s medium term ambition is to position all banking operations Group Finance is responsible for Management and Financial into the top tier of every market that it operates in. This will be reporting, Regulatory reporting, Budgeting and Group Tax. achieved by expanding product range and networks to meet the 18
  • 19. Chief Executive Officer’s Report organic growth demands. Where opportunities arise, the Group Rating will seek to pursue acquisitions which will enhance both the Global Credit Rating has awarded ABC Holdings Limited an balance sheet and earnings. improved rating of BBB for long-term debt and remains at A3 for short-term debt. This is a welcome development as it reinforces Whilst ABC Zimbabwe’s contribution will continue to be the general positive market perception that the ABC Group is significant, it is pleasing to note that, its overall contribution is much improved and poised for exciting growth. We expect the projected to come down from 67% in 2006 to below 50% in rating to translate into stronger deposit mobilisation for the whole 2007 as other subsidiaries’ performance improves. Group. Clearly the prospects for the Group have never been brighter. Acknowledgements The Group has successfully dealt with the perennial problems of I would like to thank and congratulate management and staff on bad debts, cash flow and lack of capital. Management and the these pleasing set of results. Board believe that the Group is now on a firm footing to achieve sustained growth going forward. Our biggest challenge for 2007 and beyond is to deliver growth which is commensurate with our current and planned capitalisation and the expectations of our capital partners. It is DT Munatsi – Chief Executive Officer clear that the ability of our operations to respond to the new 6 March 2006 capitalisation will take some time to entrench. 19
  • 20. ABC Holdings Limited Capital Adequacy Capital Adequacy statement as at 31 December 2006 2006 2005 2004 2003 2002 % % % % % CAPITAL ADEQUACY OF ABC BANKING OPERATIONS ABC Zimbabwe Limited 23% 32% 17% 13% 13% ABC Botswana Limited 30% 23% 24% 19% 20% ABC Mozambique Sarl 31% 18% 21% 21% 38% ABC Zambia Limited 27% 22% 21% 24% 21% ABC Tanzania Limited 20% 10% 11% 6% 12% Consolidated Capital Adequcy of ABC Holdings Limited on a Historical Cost Basis 2006 2005 Asset per Risk-weighted Asset per Risk-weighted Balance Sheet Assets BWP Balance Sheet Assets BWP BWP ’000s ’000s BWP ’000s ’000s RISK-WEIGHTED ASSETS On balance sheet 0% risk weighting 1,047,073 - 799,003 - 20% risk weighting 339,338 67,868 215,709 43,142 50% risk weighting 47,322 23,661 5,008 2,504 100% risk weighting 1,157,595 1,157,595 853,995 853,995 Off balance sheet 0% risk weighting - 1 - 50% risk weighting 57,136 28,568 46,738 23,369 100% risk weighting 79,353 79,353 31,684 31,684 Total 2,727,817 1,357,045 1,952,137 954,694 Qualifying Capital Percentage of Percentage of 2006 2005 risk-weighted risk-weighted BWP ’000s BWP ’000s assets assets PRIMARY CAPITAL Share capital and premium 270,157 20% 225,205 24% Capital Reserves and Retained Earnings 329,218 25% 213,534 22% Goodwill and FCTR (358,666) -27% (288,177) -30% 240,709 18% 150,562 16% SECONDARY CAPITAL Preference share capital - - 23,011 - General debt provision (50%) 4,285 - 3,018 - Available for sale reserves 908 - 1,364 - 5,193 0% 27,393 3% TOTAL QUALIFYING CAPITAL 245,902 18% 177,955 19% This statement has been prepared by applying the risk weightings applicable to regulated banks in Botswana, to all group assets, in order to derive a consolidated capital adequacy ratio. It is intended as a guideline only . 20
  • 21. Products and S Corporate and international banking Products offered by treasury division include: The corporate and international Banking division has Domestic highly motivated and professional staff with a wealth of • demand deposits experience who are able to provide clients with prompt, • call deposits advice and personalised service. • forward rate agreements • Bills of Exchange, including Treasury Bills, Banker’s The team strives to carefully balance available resources Acceptances, Accommodation Bills, Negotiable to fulfil the group’s goal of achieving high capital ratios, Certificates of Deposit, Promissory Notes and liquidity and strong credit quality. The division offers the Commercial Paper; following comprehensive facilities: • capital markets instruments including government, • bridging loans municipal and parastatal bonds; and • short-term loans • other derivate products, including but limited to • medium term loans options on bonds and index linked bonds • cash advances • off-shore finance (import and export) International • documentary letters of Credit • demand deposits • guarantees • call deposits • asset finance • spot foreign exchange market transactions in major • syndicated loans and certain regional currencies; • commodity finance • forward exchange rates • currency options African Banking Corporation’s international banking • currency swaps team uses its experience to provide clients with high level expertise in conducting international banking Investment banking transactions. ABC’s investment banking division is committed to: • delivering first class, independent professional Treasury advisory services; Our Treasury team is committed to providing world-class • establishing strong value- added partnerships by service in every sphere, both domestic and international acquiring an in- depth understanding of clients’ by: businesses; • providing a top quality and professional level of • creating innovative financial structures to achieve service in both domestic and international financial clients’ strategic goals consistent with their cost and markets; risk management objectives; • offering interest and exchange rates that are among • effecting corporate restructurings with the objective of the most competitive in the market; reducing cost of borrowing and managing foreign • being one of the market leaders in the development exchange risk in order to help create wealth for its of new financial products in the respective countries; clients; • supplying an impartial and expert advisory service; • providing expert underwriting and placement and building a close personal relationship with clients capability for equity and debt issues; to obtain a full understanding of their particular • raising long term capital on both corporate and businesses in order to tailor services that meet project finance basis; individual needs. • structuring privatisations to unlock value for Government, create ownership opportunities for the public and private productive assets in the hands of the private sector; 21
  • 22. Products and services (continued) • establishing and maintaining relationships with major Structured trade finance stockbrokers, accounting and legal firms, as well as Our structured trade finance unit creates tailor-made emerging market funds and institutional and private frameworks to cater for clients’ requirements and needs investors; and outside normal banking credit lines. Here the focus is on • employing and motivating professionals of the highest underlying transaction flows, rather than balance sheet calibre and integrity. strength. Advisory services Whilst core trade products, such as negotiable • Debt and equity capital markets instruments (e.g. bills of exchange, promissory notes) - Private placements and documentary credit (letters of credit), still play a role - Privatisation in cross-border trade, our structured Trade Finance Unit - Mergers, acquisitions and disposals provides more sophisticated derivatives of these products - Restructuring and risk-hedging instruments. • Project financing - Infrastructure Finance Types of financing includes back to back transactions, - Public-private partnership or private finance collateralised management stock financing, avalised note - Mining finance discounting, structured discounting facility and order - Property Finance finance. • Securitisation Investment management services The investment management team advises and manages funds on behalf of institutional and retail clients. We offer: • Asset management for institutions and corporations. This includes exposure to equity, property, bond and money markets • Ancillary support services - safe custody, dividends, cash management and investment commentaries • Portfolio management • Unit trusts which include; - Equity-based funds - Cash-based Funds - Property-based funds 22
  • 23. Group Management Douglas Munatsi-Chief Executive Officer Francis Dzanya-Chief Banking Officer Douglas Munatsi was born in Zimbabwe in 1962. He has been Chief Executive Officer of the Francis Dzanya was born in Zimbabwe in 1960. Francis has over 20 years experience in the ABC Holdings Group since its formation in 2000. Prior to the establishment of African Banking banking industry in Southern Africa, of which 10 years was in ABC Holdings and its predecessor Corporation, Douglas founded Heritage Investment Bank (HIB), which quickly established a companies. Before assuming his current position, Francis Dzanya was Group Head of Corporate, reputation for successful introduction of innovative capital market products and became one Private and International Banking and Managing Director of ABC Zimbabwe. Prior to the formation of the leading merchant banks in Zimbabwe. Following the merger of HIB and First Merchant of ABC Holdings in 2000, Francis was General Manager, Corporate, Private and International Bank in 1997, Douglas became Managing Director of the merged bank, which retained the Banking at First Merchant Bank, a predecessor entity of ABC Holdings. He also held the position First Merchant Bank name. Prior to establishing HIB, Douglas Munatsi was an executive in the of General Manager, Risk Management at Heritage Investment Bank (HIB). He also worked as a Southern Africa regional mission of the International Finance Corporation (IFC). Douglas Munatsi Branch Manager at Zimbabwe Banking Corporation in Zimbabwe and Botswana. Francis Dzanya holds a Bachelor of Business Studies degree from the University of Zimbabwe and a Master of holds a Bachelor of Arts (Honours) degree in Banking, Insurance and Finance from Sheffield Business Administration (Finance) from the American University, Washington D.C. He is also an Hallam University in the UK and Higher National Diploma in Banking and Finance from John Associate of the Institute of Bankers of Zimbabwe. Moores University, also in the UK. He is an Associate of the Chartered Institute of Bankers. Beki Moyo-Chief Financial Officer Julias Machapu-Chief Risk Officer Beki Moyo was born in Zimbabwe in 1967. Prior to his current appointment, Beki held the Julias Machapu was born in Zimbabwe in 1957. Before the appointment to his present position, position of Head of Treasury and was an Executive Director of ABC Botswana. In the course Julias was the Chief Financial Officer of ABCH Holdings a position he held from the establishment of of a banking career spanning over 10 years, Beki also held the position of Finance Director the African Banking Corporation Group (ABC). He was also the Finance Director of the predecessor of ABC Zimbabwe, and was General Manager – Finance at udc, a predecessor entity of ABC entities of ABC, namely First Merchant Bank of Zimbabwe Limited and Heritage Investment Bank Holdings and Chief Accountant at Stanbic Bank Zimbabwe. Before entering banking, Beki Moyo Limited (HIB). Before entering banking, Julias was Finance Director at Treger Group of Companies trained and qualified as a Chartered Accountant with Deloitte and Touche, where he was later where he worked for 9 years. He trained and qualified as a Chartered Accountant with Deloitte appointed Audit Manager. Beki Moyo holds a Bachelor of Accountancy (Honours) degree from and Touche. Julias holds a Bachelor of Accountancy (Honours) degree from the University of the University of Zimbabwe and a Master of Business Administration degree in Banking and Zimbabwe and is a member of the Institute of Chartered Accountants (Zimbabwe). Finance from Manchester University. He is a Chartered Accountant (Zimbabwe). Hashmon Matemera-Group Head of Treasury and Structured Finance Markus de Klerk-Group Legal Counsel and Secretary to the Board Hashmon Matemera was born in Zimbabwe in 1964. He has over 17 years‚ banking experience, Markus de Klerk was born in Zimbabwe in 1966. Markus joined ABC Holdings Limited from gained in merchant banking, commercial banking and as a central banker. Before being Phoenix Associates where he was a Consultant. Previously he was with Merchant Bank of Central appointed to his current position, Hashmon was Head of Structured Finance and an Executive Africa Limited (MBCA), for a period of five years, where he held various posts in the Recoveries, Director of Banking Services at ABC Zimbabwe. He also served as General Manager, Risk Risk Management and Company Secretariat Departments. Markus, an admitted Attorney of Management, at ABC Zimbabwe and as Senior Manager, Risk Management at the Commercial Zimbabwe, has also practiced in a number of legal firms both in Zimbabwe and South Africa. Bank of Zimbabwe (CBZ). Prior to joining CBZ, Hashmon spent 10 years at the Reserve Bank Markus holds a BA LLB from the KwaZulu-Natal University. of Zimbabwe, mostly in the Supervision and Surveillance Division, where he held the position of Manager Offsite Supervision, with responsibility for commercial and merchant banks. Hashmon Matemera holds a Bachelor of Science (Honours) degree in Economics and a Master of Science in Economics, both from the University of Zimbabwe. 23
  • 24. Risk and Governance Effectiive risk management is critical in a complex framework clearly documents the risk management organisation like ABC Holdings Ltd (“ABCH”). A strong policies which are to be followed in the Group. Group and solid risk management culture exists that ensures Risk Management is responsible for maintaining and that sound business decisions are made that properly updating the risk management framework. balance the diverse risks inherent in any transaction and the rewards. A culture of risk awareness and compliance • Reporting is embedded in ABCH’s day to day activities. Each subsidiary or business unit produces risk reports which are discussed at board level. Group risk Approach to Risk Management provides detailed risk information to the ABCH Board The board of ABCH recognises that it is ultimately of Directors. The risk reports contain a balanced responsible for, and accountable to shareholders for: assessment of significant risks and the effectiveness of • the process of risk management and the systems of risk management procedures and what management internal control. is doing in mananging those risks • identifying, evaluating and managing the significant risks faced by the group; Risk Governance Structure • ensuring that there is an adequate system of internal control in place to mitigate the significant risks faced Board of directors by the company to an acceptable level. • ensuring that there is a documented and tested Executive Commitee Risk, Loans Review and Audit Committee process in place, which allows the company to continue its critical business, processes in the event of Chief Executive a disastrous incident impacting its activities. Officer • reviewing the system of internal control for effectiveness and efficacy; Group Risk Country Group Group Group Internal Level As a banking group, risk identification and management is Legal Compliance Function Audit an integral part of our business processes and must be a core competence of the group. The Board has approved Role of Group Risk Management a Group Risk Management Framework which applies to The Group Risk function is responsible for the all group companies. maintenance of a culture of risk awareness throughout the group. While each business unit retains the primary Risk managemement in the Group is underpinned by the responsibility for managing its own risks, Group Risk following pillars. Management independently monitors, manages and reports on all risks facing the Group as mandated by • Governance Structuress the Board of Directors. It co-ordinates risk management The board has put in place a risk governance structure activities across the group, ensuring that risk parameters throughout the Group which ensures effective are properly set and adhered to across all risk categories oversight. and in all of the group’s businesses. Group Risk ensures that all risk exposures can be measured and effectively • Risk Ownership, Identification and Evaluation. monitored across the group. The effective management of Ownership and management of risks begins in the risk was one of the key drivers for the group’s investment business units and each subsidiary. Risks are identified in technology. and evaluated at this level, following through to the Holding Company and Group level. Group Risk Management continually seeks new ways to enhance its risk management techniques. It also updates • Group Risk Management Framework the Group Risk Management Framework on a regular The Group has a comprehensive risk management basis to capture new policies adopted by the Board of framework which was approved by the board. The Directors. 24
  • 25. Risk and Governance Group Risk regularly reports to the Executive Committee Compliance risk is managed effectively through and the Risk, Loans Review and Audit Committee, the development and implementation of compliance providing the board with the assurance that it requires that processes, development of effective policies and risks are being managed and controlled in the Group. procedures affecting the respective regulatory framework, provide advice and training on the constantly changing The key role of Group Risk is recognised by ABCH and the regulatory issues. A key role of compliance officers function is headed by a member of executive management in the Group is to develop and maintain sound and who reports to the Chief Executive Officer. smooth working relationships with the various regulators throughout the countries in which ABCH has operations. Group Internal Audit The primary function of internal audit is to give an Group Legal objective assurance to the board that there are adequate The function is headed by the Group Legal Counsel and management processes to identify and monitor risks is responsible for ensuring that legal risk is adequately and that effective internal controls are in place to managed. This is effected through the use of standard manage those risks. Group Internal Audit independently approved legal documentation wherever possible. audits and evaluates the effectiveness of the Group’s Specialised external legal advisors are used whenever risk management, internal controls and governance required for non-standard transactions. The Group Legal processes. Counsel ensures that only approved legal advisors are used to give legal opinions or to draw up specialised Internal Audit operates under Terms of Reference which agreements. were approved by the Risk, Loans Review and Audit Committee. The terms of reference defines the role The main categories of risk inherent in the business of and objectives, authority and responsibility of the audit the group are: function. The reporting structures in the Group ensure • Credit Risk that the Group Internal Auditor has unrestricted access • Country Risk to the Chairman of the Risk, Loans Review and Audit • Liquidity Risk Committee and the Chief Executive Officer. • Interest Rate Risk • Market Risk At the beginning of each financial year Internal Audit • Currency Risk carries out a risk assessment for all business units and • Operational Risk subsidiaries. A comprehensive audit plan for the year is • Solvency Risk then derived based on this risk assessment and identifies • Reputational Risk areas of focus. The areas of focus are confirmed with executive management before they are approved by the Credit Risk is the risk of loss due to the inability or Risk, Loans Review and Audit Committee. The audit plan unwillingness of a particular counterpart to meet is reviewed regularly and any changes are approved by their obligations. Country (or Sovereign) risk is part of the Risk, Loans Review and Audit Committee. overall credit risk and is managed as part of the credit risk management function as it has a major impact on Compliance individual counterparties ability to perform. Compliance risk is the risk of non-compliance with all relevant regulatory statutes, central bank supervisory The Board has defined and documented a credit policy requirements and industry code of practice. The for the group which forms the basis of credit decisions. compliance function is an integral part of the overall Group This policy includes a framework of limits and delegation Risk Management function. A decentralised compliance of credit approval authority which are strictly adhered function has been implemented within the business to. No one individual has the power to authorize credit units and subsidiaries. Compliance officers have been exposures. appointed in each operating entity. 25
  • 26. Risk and Governance (continued) Each country in which the group operates has a credit each country and meet on a monthly basis. They operate committee which operates within the defined limits set by within the prudential guidelines and policies established the Board. by Group ALCO. These committees are responsible for the management of The group has adopted a conservative approach to credit risk within their country including, credit decisions, liquidity risk exceeding statutory requirements. It holds processes, legal and documentation risk and compliance liquidity reserves in highly tradable instruments or money with impairments policies. market placements which are immediately available if required. Liquidity is assessed by currency as well as by The Risk department regularly reviews each country’s time bracket. Group liquidity management is dependent adherence to required standards. upon accurate cash flow projections and the monitoring of its future funding requirements. The Executive Committee reports to the Board and is responsible for approval of credit decisions that are above In order to reduce interest rate risk, the majority of the country limits, recommendations on exposure limits and group’s lendings are on a variable interest rate with a term provisioning policies. of less than one year. This approach has been adopted as a result of the scarcity of term deposits in the region which The group has adopted standard provisioning policies limits the group’s ability to build a substantial, stable pool which at a minimum comply with the prudential guidelines of fixed rate funding. of the respective countries’ central banks. Provisions are determined monthly at country level and are subject to Market Risk is the risk that adverse changes in the market regular review by Group Risk. On a bi-annual basis the value of a portfolio of financial instruments (including levels of impairments are reviewed by external auditors. derivatives) may result in losses to the group. Currency Risk is the risk of adverse movements in exchange rates Country Risk is the risk that arises from the uncertainty that resulting in a loss to the group. counterparties in a particular country maybe prevented from meeting their foreign financial and contractual Market and foreign currency exposures related to dealing obligations to the Group because of political, exchange positions are housed and managed in the Treasury division controls and economic conditions in that particular within a framework of pre-approved dealer, currency and country. counterparty limits. All trading positions are marked to market as required by IAS39. The Group has put in place guidelines for all cross border transactions. In addition limits are in place as to how The Group Risk division is responsible for monitoring of much cross border exposures each subsidiary and the limits and pricing, thereby ensuring that any errors or Group can take on its balance sheet. unauthorized transactions are promptly identified. Liquidity Risk is the risk that the group may not be able The currency exposure that arises as a result of the to meet its commitments due to a shortage of funds that group’s continuing expansion and cross border investment normally arises as a result of maturity mismatch between activities is managed through EXCO and Group ALCO. assets and liabilities. Interest Rate Risk is the risk of incurring losses as a result of a change in interest rates Operational Risk is the risk of loss due to inadequate, that arises when assets and liabilities reprice at different or breakdowns in, internal processes, systems, and times. people as well as the effect of external events. It includes reputational risk and technology risk. The Assets and Liabilities Management committee (ALCO) is responsible for managing liquidity and interest rate risk in the group. ALCO committees have been established in 26
  • 27. Risk and Governance Corporate Governance The group tries to mitigate these risks through strong ABC Holdings Ltd (ABCH) is committed to the principles corporate governance structures and internal control of openness, integrity and accountability. In February systems and complimented by a healthy culture system. 2003, the board endorsed the adoption of the second report of the King Commission. The Risk, Loans Review and Audit committee is responsible for monitoring operational risk, reputational Board of Directors risk and other risks not managed by separate committees. The board currently comprises 8 directors, including 5 However, management throughout the organisation is independent non-executive directors and 2 non-executive responsible for introducing and maintaining effective directors. The board composition is balanced so that no operational processes and procedures. They are the front one individual or small group can dominate decision line in managing operational risk. taking. The depth of experience and diversity of the board ensures that robust and forthright debate on all issues of Effective compliance and internal audit functions are material importance to the group occurs. ABCH Director’s a critical part of the governance activities relating to profiles may be found on page 8 of this report. operational risk. Compliance officers have been appointed in each jurisdiction although in countries where businesses The roles of Chairman and CEO are separate and no are still small, the compliance and risk functions have individual has unfettered control over decision making. been combined. The chairman is a non-executive director appointed by the board. Internal audit reviews the efficacy of internal controls and procedures, recommending improvements to The board is responsible to shareholders for setting of management where applicable. strategic direction, monitoring of operational performance and management, risk management processes and The governance of technology issues was given particular policies, compliance and setting of authority levels as attention in King II and the IT Steering Committee has well as the selection of new directors. The board is also wide representation from business areas and meets responsible for the integrity and quality of communication regularly to address policy issues. with stakeholders, including employees, regulators and shareholders. The Board has adopted a Risk Management Solvency Risk Framework and has delegated its responsibility for risk The level of capital and unimpaired reserves are evidence to the Risk, Loans Review and Audit Committee. This of the shareholder’s commitment to ensuring the committee reviews risk management processes in the continuing operations and solvency of the group. Group and ensures that Board policies and decisions on risk are properly implemented. The committee assesses Solvency risk is measured by the capital adequacy ratio the adequacy and effectiveness of the risk management which requires capital to be held in relation to risk weighted structures in the group and report to the board on all risk asset classifications. The group is committed to holding governance issues. sufficient capital to meet both the capital requirements at a consolidated level and to maintain capital adequacy All Directors have direct access to the advice and service levels at a country level that are above the minimum of the Group Legal Counsel and Secretary. A formal Board requirements of the respective central banks. charter has been adopted which deals with board’s role, responsibility and procedures. Reputational Risk is managed through adherence to corporate governance standards, the Group’s business Country operations have their own boards, with external integrity policy and corporate values. representation and function within the requirements of their jurisdiction. 27
  • 28. Corporate Governance (continued) At the August 2006 board meeting, the board made a The following divisional and functional heads comprise decision to meet at least six times a year from the previous EXCO: 4 times a year. In this regard during 2006 it met 5 times, • Chief Executive Officer (Chairman) and held several additional telephonic meetings. The • Chief Banking Officer CEO and senior executives are available to brief Directors • Chief Financial Officer where required. • Chief Risk Officer Director’s attendance at meetings in 2006. The Group Head of Treasury and Structured Finance was FEB MAY AUG OCT DEC appointed to EXCO at the discretion of the Chief Executive Buttery Y Y Y Y Y Officer. Chidawu Y Y Y Y Y In the past EXCO was made up of 2 non-executive directors Kudenga Y Y Y N Y and 2 executives. Mbaakanyi Y N n/a n/a n/a Mothibatsela n/a n/a Y Y Y The committee also considers non-remuneration aspects Moses Y Y Y Y Y of human resources such as succession planning and Munatsi Y Y Y Y Y skills development within the Group Wasmus Y Y Y Y Y Risk, Loans Review and Audit Committee Board Committees The audit committee is chaired by Mr N Kudenga, a The board is assisted in the discharge of its responsibilities non-executive director of ABCH. The audit committee by a number of sub-committees. A pictoral representation has adopted the Terms of References for both the Risk of the governance structure can be found on page 24. Committee and Audit Committee as detailed in the King II report. In particular it assists the board in the discharge of These committees are accountable to the board. Minutes its duties relating to financial reporting to all stakeholders, of sub-committee meetings are circulated and reported compliance, risk management, loans review and the on at the following board meeting. Senior executives are effectiveness of accounting and management information invited to attend meetings where appropriate. systems. Board committees may make use of external professional Meetings are held regularly throughout the year and advisers, when necessary, to discharge specific tasks. are attended by external and internal auditors as well as senior executive management. The committee met Executive Committee four times in 2006. Issues addressed include the review The Executive Committee (EXCO) is constituted to assist the of accounting policies, internal and external audit Chief Executive in managing the group and implementing functions, IT risks, business continuity planning, financial strategy, policies and procedures subject to the board’s reporting, operational risks, risk management, capital limitations on delegation to the Chief Executive. adequacy, compliance and the adequacy of management information. Detailed loans information and all arrears are The chief executive’s authority in managing the group is considered by the committee together with the adequacy unrestricted. EXCO assists the chief executive to guide of the bad debt provisions. and control the overall direction of the business of the group and acts as a medium of communication and co- The committee considered whether the company and ordination between business units and group companies, the group are going concerns and recommended that and the board. EXCO meets monthly. During 2006, EXCO the board endorse a statement to this effect and that the was restructured to fall in line with King II guidelines and financial statements prepared on this basis should be best international practice. approved. 28
  • 29. Corporate Governance Remuneration committee part of the business culture. While it is probably impossible The remuneration committee is chaired by Mr. O M to achieve a perfect result, we attempt to limit the cost of Chidawu a non-executive Director of ABCH. The CEO unethical behaviour to our stakeholders. attends the meetings of this committee by invitation but does not participate in any discussions on his The group has adopted a business integrity policy which remuneration. The committee is responsible for the senior comprehensively deals with issues such as money executive remuneration policy. It fixes the remuneration laundering, insider trading, bribery, political activities, packages of individual Directors within agreed terms of confidentiality and data privacy as well as whistle blowing. reference, in order to avoid potential conflicts of interest. ABCH adopts a firm approach in dealing with any inappropriate or fraudulent behaviour of management or staff at any level. Our policies and procedures are being The remuneration committee is responsible for setting constantly improved to prevent possible future losses in the remuneration philosophy of the group. It aims to this critical area. ensure that the financial rewards offered by the company to employees are sufficient to attract people of the Directors and Executives disclose any material interests calibre required for effective running of the company they may have and recuse themselves from participating and to produce the required returns to its shareholders. in discussions on credit or other proposals relating to their Annually the committee reviews the profit sharing scheme interests. which is based on achievement of a specified return to shareholders. The committee met four times in 2006. Dealing on Stock Exchanges. As part of its commitment to conducting business in a Nominations Committee professional and ethical manner at all times, the Group The Nomination Committee comprises two non-executive follows strict guidelines in respect of dealing on the Stock Directors and is responsible for making recommendations Exchanges by employees and Directors. A policy is in to the board on all new board appointments. A formal place prohibiting Directors and employees in dealing in process is in place in terms of which the skills needed are stocks when they are in possession of price-sensitive identified and those individuals who might best assist the information, which may generally not be available to the Board in their endeavors are recruited. During the year public. Dealing is further restricted in dealing in ABCH’s Mr. John Moses was appointed to the board. In terms of shares and other related counters during defined periods the memorandum and articles, the longest serving one which are generally six weeks prior to the publication of third of directors retire by rotation annually and stand for the interim and final results. re-election. Messrs. Mothibatsela, Munatsi and Wasmus will retire at the AGM to be held in May 2007, and being Health and Safety Policy eligible, will stand for re-election. Resumes of Mr. Moses ABCH seeks to ensure that it engages in activities which and directors standing for re-election are given in the do not jeopardise the health and safety of its employees, Notice to Shareholders. taking into account the industrial sectors concerned. ABCH will encourage businesses supported by it to adopt Organisational Ethics and Business Integrity appropriate health and safety measures and endeavour to The need for the organisation to act professionally at all comply, within a reasonable period, with local legislative times is enshrined in the Group’s mission statement. Good requirements, as far as occupational health and safety is concerned. governance and ethical conduct is critical to counterparty and investor perceptions of a banking group, particularly Environmental Policy in Africa. Professional and ethical conduct is an integral ABCH recognises that environmental risks should be part of how the Group conducts its business on a daily part of the normal checklist of risk assessment and basis and the Group strives to ensure that its integrity and management. As part of ABCH’’s credit risk assessment, professional conduct is beyond reproach at all times. Every it seeks to ensure that the environmental effects of its six months each employee’s performance is measured support are assessed and monitored in the planning, against set targets. Leadership development programmes implementation and operational stages of a project. are in place to ensure that ethical conduct is an integral 29
  • 30. Corporate Social Investment African Banking Corporation is a bank with an authentic football tournament, held to raise funds to facilitate a African heritage and we owe our success, in large part, kidney transplant for a young child, Obakeng Kgosi. to the support of the communities we operate in. We recognise the opportunity our role as a corporate citizen ABC Zimbabwe sponsored the Mashonaland West Ladies’ avails us to be a catalyst for positive change and are Golf tournament, which provided women with a networking committed to being instrumental in finding solutions to platform for various business and social initiatives. The some of Africa’s problems. bank also supported the NOMADS Golf Championship – a fund-raising event where the proceeds were donated In line with ABC’s commitment to positively contribute to various charities. In conjunction with celebrated golfer, to our communities, the Group identified and worked Nick Price, ABC Zimbabwe donated towards developing with social partners with focus on community initiatives young and up-coming talent in golf. contributing to the upliftment of women, protection and development of children and promotion of Africa’s The Group invested in initiatives in support of the Arts expression of its rich cultural heritage. as part of its commitment to develop well-rounded communities. Despite the rich resource base in Africa, scarcity is a key impediment to social development, hindering provision of ABC Mozambique made financial contributions towards basic human rights such as shelter, food, clothing and a very successful music festival in Maputo – which education to much of Africa’s population. In recognition showcased local artists – as well as to a UB40 Concert of this, ABC Mozambique joined forces with local in Maputo aimed at raising awareness of HIV/AIDS. In organisation “Ndyoko”, which targets poverty reduction Zimbabwe, the bank continued its support of HIFA (Harare and community empowerment in rural areas via need- International Festival of the Arts), a long-term partner and specific projects such as clothing and school materials champion of African Arts and Culture, by sponsoring the provision, home development and recreation-centre opening night. Held in April each year, HIFA is a week- building. ABC Mozambique provided financial assistance long showcase and cultural exchange of talent from all and took part in community activities in the rural district parts of the continent and beyond, spanning visual to of Xinavane. In addition to this, ABCM committed $5,000 performing arts. to rebuilding an orphanage, refurbishment of which is expected to end in 2007. As we look forward to 2007 and beyond, we remain committed to nurturing and expanding the horizons of Health is a priority issue for our markets. The Group our people by continuing to focus on causes that help was very active in supporting causes designed to bring translate our great African potential into African realities. assistance to needy communities. Building on the relationship established in October 2005, ABC Zambia continued to support Our Lady’s Hospice in Zambia by way of monthly financial disbursements to assist with the latter’s operating expenses. Based in Kalingalinga, this worthy cause is an NGO run by volunteers with focus on HIV/AIDS VCT and ARV dispensation, HIV/ AIDS awareness building and home-based care support programmes in its surrounding community. A visit was undertaken to give employees insight into the value contribution of the hospice and to express the company’s support for the hospice’s principles and operations. ABC Botswana supported the “Obakeng Kgosi Charity Cup” 30
  • 31. Annual Financial Statements Zambia South Africa Contents Directors’ Responsibility .......................................................................... 32 Report of the Independent Auditors’ ....................................................... 33 Directors’ Report .................................................................................... 34 Consolidated Income Statement .............................................................. 36 Consolidated Balance Sheet ................................................................... 37 Statement of Changes in Shareholders’ Equity ......................................... 38 Consolidated Cashflow Statement ........................................................... 39 Significant Accounting Policies ............................................................... 40 Notes to the Financial Statements ........................................................... 46 Company Financial Statements ............................................................... 47 Company Income Statement ................................................................... 68 Company Balance Sheet ......................................................................... 68 Statement of Changes in Shareholders Equity ......................................... 69 Company Cashflow Statement ................................................................. 69 Notes to the Company Financial Statements ........................................... 70 Analysis of Shareholders ......................................................................... 77 ABC Top 10 Shareholders ....................................................................... 77 31
  • 32. Directors’ Responsibility Responsibility for the Annual Financial Statements The Directors are responsible for the preparation, integrity The directors have no reason to believe that the group or and objectivity of the financial statements that fairly present any subsidiary company within the group will not be going the state of the affairs of the company and of the group at concerns in the year ahead, based on the forecasts and the end of the financial year and the net income and cash available cash resource. These financial statements have flow for the year, and other information contained in this accordingly been prepared on that basis. annual report. It is the responsibility of the independent auditors to report To enable the Directors to meet these responsibilities: on financial statements. Their report to the members of • The Board and management set standards and the Company is set out on page 33 of this annual report. management implements systems of internal control and accounting and information systems aimed Approval of the Annual Financial Statements at providing reasonable assurance that assets are The Directors’ report and the annual financial statements, safeguarded and the risk of error, fraud or loss is which appear on pages 36 to 75, were approved by the reduced in a cost effective manner – these controls, Board of Directors on 6 March 2007 and are signed by: contained in established policies and procedures, include the proper delegation of responsibilities and authorities, effective accounting procedures and adequate segregation of duties; • The group’s internal audit function, which operates O M CHIDAWU D T MUNATSI independently from operational management and CHAIRMAN CHIEF EXCECUTIVE OFFICER unimpeded, and has unrestricted access to the Group Audit and Risk Committee, appraises, evaluates and, when necessary, recommends improvements in the systems of internal control and accounting practices, based on audit plans that take cognizance of the relative degrees of risk of each function and internal control, accounting policies, reporting and disclosure; and • The Group Audit and Risk Committee, together with the external auditors, play an integral role in matters relating to financial and internal control, accounting policies, reporting and disclosure. The annual financial statements have been prepared in accordance with the provisions of the Botswana Companies Act, the Botswana Stock Exchange Regulations and International Financial Reporting Standards relating to companies and banks. 32
  • 33. Report of the Independent Auditors’ client will supply soon 33
  • 34. Directors’ Report Nature of Business ABC Holdings Limited is listed on the Botswana and The financial statements have been prepared in accordance Zimbabwe Stock exchanges and is the holding company with International Financial Reporting Standards and the of the African Banking Corporation group of companies accounting policies of the group, which are considered which comprise diverse financial services activities in by the directors to be appropriate. Accounting policies the areas of corporate, international, investment and have been applied in a manner consistent with that in the merchant banking, leasing finance, asset management, previous financial year and details of significant policies stock broking and treasury services. African Banking can be found on pages 40 to 45. Corporation aims to deliver world-class financial solutions to the sub-Saharan African region. Subsidiary and Associated Companies Details of the groups’ subsidiaries and associated companies are set out in note 33 of this annual report. Authorised share capital There were no changes to the authorised share capital Acquisitions and disposals during the year. During the financial year, the company made no material acquisitions or disposals. However, discussions to exit Issued Iroko Financial Products Limited are at an advanced stage The preference share agreement was terminated by and the net assets of Iroko have been classified as assets mutual consent on 31 May 2006 and, in terms of the available-for-sale, which assets have been fully impaired. agreement, the preference shareholders converted 30% of their redeemable preference shares to ordinary equity. Directors’ Interests in the shares of ABC Holdings Limited 11,344,972 ordinary shares were issued to the preference The following table depicts the interests of Directors in the share holders. During the year 7,773,984 ordinary shares shares of ABC Holdings Limited. were issued to staff in line with the Staff Share Purchase Scheme approved at the Annual General Meeting of Annual report disclosure 31 May 2005. Shares to directors No of shares 2006 2005 Group Results OM Chidawu 17,981,108 13,006,966 Inflation adjusted headline earnings amounted to BWP DT Munatsi 14,816,861 11,764,517 61 million and headline earnings per share to 50 Thebe. N Kudenga 392,465 304,008 On a historical cost basis, the group posted headline Total 33,190,434 25,075,491 earnings of BWP 77 million compared to BWP 61 million achieved in the prior year and headline earnings per Directors’ interests in transactions share of 62 Thebe. Headline earnings were derived Any interests by Directors in transactions between the principally from the group’s banking activities. Group company and third parties were disclosed to committees profits attributable to ordinary shareholders amounted to that were responsible for approval prior to such approval BWP 77 million on an inflation-adjusted basis and BWP being granted and interested parties are required to 93 million on a historical cost basis. recuse themselves from any approval process. Details of lending exposures can be found in the note on related A general review of the business and operations of major party transactions on page 58 of this report. subsidiaries is given in the Chief Executive Officer’s review on pages 14 to 19 of this annual report. 34
  • 35. Directors’ Report Directors’ Emoluments Dividends Directors’ emoluments in respect of the company’s With the capital raising initiatives that are in place, the Directors (Executive and Non-Executive) are shown in Directors recommend that a dividend be passed. note 4.2 to the financial statements. Insurance The earnings and perquisites of the Group Chief Executive ABC Holdings Limited and its subsidiaries are insured Officer are approved by the Remuneration Committee of against banking risks, asset losses, professional indemnity the Board. and Directors and officers’ claims at a level of cover, which is considered to be adequate by the Directors. Directors and Secretaries Full details of the directorate are shown on page 17. Post-balance sheet events Details of the secretary are given on page 11. There are no significant post-balance sheet events. The following resignations and appointments occurred during the current year: Mr M Mbaakanyi resigned from the board on 6 August 2006. Mr J Moses and Mrs D Khama were appointed to the Board on 28 February 2006 and 28 November 2006, respectively. The following directors retire by rotation at the Annual General Meeting to be held on 29 May 2007: Mr D T Munatsi, Mr H Wasmus and Mr T S Mothibatsela. Brief CVs of Directors eligible and available for re-election at the Annual General Meeting are included in the Notice to Shareholders. 35
  • 36. ABC Holdings Limited Consolidated income statement for the year ended 31 December 2006 Inflation Adjusted Historical Cost 2006 2005 2006 2005 Notes BWP ’000s BWP ’000s BWP ’000s BWP ’000s Interest and similar income 476,653 438,955 309,791 322,041 Interest expense and similar charges (323,816) (268,991) (191,813) (195,959) Net interest income before impairment 1 152,837 169,964 117,978 126,082 Impairment of loans and advances 2 (26,366) (20,728) (26,366) (20,728) Net interest income after impairment 126,471 149,236 91,612 105,354 Non interest revenue 3 220,487 164,521 180,480 144,806 Total operating income 346,958 313,757 272,092 250,160 Operating expenditure 4 (165,496) (189,272) (145,203) (151,825) Other impairments 5 - (9,552) - (9,552) Loss on net monetary position 6 (67,620) (62,581) - - Net operating income 113,842 52,352 126,889 88,783 Share of profits of associates and joint venture 15 11,216 4,209 11,216 4,209 Profit before taxation 125,058 56,561 138,105 92,992 Taxation 7 (47,899) (38,453) (45,003) (34,221) Profit for the year 77,159 18,108 93,102 58,771 Attributable to: Equity holders of parent 76,821 17,082 92,764 57,745 Minority interests 338 1,026 338 1,026 Profit for the year 77,159 18,108 93,102 58,771 Earnings per share Thebe Thebe Thebe Thebe Basic and diluted earnings per share 8.1 62 15 75 51 Headline earnings per share 8.2 50 18 62 54 36
  • 37. ABC Holdings Limited Consolidated balance sheet as at 31 December 2006 Inflation Adjusted Historical Cost 2006 2005 2006 2005 Notes BWP ’000s BWP ’000s BWP ’000s BWP ’000s ASSETS Cash and cash equivalents 9 428,947 207,304 428,947 207,304 Financial assets held for trading 10 852,386 861,202 852,386 861,202 Derivative assets held for risk management 11 170,089 - 170,089 - Loans and advances to customers 12 940,729 665,778 940,729 665,778 Other assets 13 12,804 17,577 12,804 17,577 Investments 14 52,601 34,901 52,601 34,901 Investments in associates and joint venture 15 48,896 34,467 42,622 34,467 Investment property 16 24,171 10,811 24,171 10,811 Property and equipment 17 54,136 31,856 50,217 21,520 Deferred tax asset 18 5,208 8,441 5,208 8,441 Intangible assets 19 42,906 43,486 37,451 40,143 TOTAL ASSETS 2,632,873 1,915,823 2,617,225 1,902,144 LIABILITIES Deposits 20 1,535,272 1,415,369 1,535,272 1,415,369 Derivative liabilities held for risk management 11 170,505 - 170,505 - Borrowed funds 21 548,164 102,950 548,164 102,950 Current tax liabilities 7,043 10,187 7,043 10,187 Deferred tax liability 18 31,450 20,305 28,556 16,073 Preference share liability 22 - 115,056 - 115,056 Other liabilities 23 43,071 44,330 43,071 44,330 TOTAL LIABILITIES 2,335,505 1,708,197 2,332,611 1,703,965 SHAREHOLDERS’ EQUITY Share capital and premium 24 270,157 225,205 270,157 225,205 Foreign currency translation reserve (55,464) (28,386) (324,199) (253,712) Capital and other reserves 19,527 19,119 49,070 24,503 Retained earnings 54,618 (21,464) 281,056 189,031 Total equity attributable to equity holders of parent 288,838 194,474 276,084 185,027 Minority interests 8,530 13,152 8,530 13,152 Total shareholders’ equity 297,368 207,626 284,614 198,179 TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES 2,632,873 1,915,823 2,617,225 1,902,144 37
  • 38. ABC Holdings Limited Statement of changes in shareholders equity for the year ended 31 December 2006 Attributable to holders of the parent Foreign Regulatory Currency General Property Available Share Share Translation Credit Risk Revaluation For Sale Statutory Retained Minority Total INFLATION ADJUSTED (BWP’ 000’s) Capital Premium Reserve Reserve Reserve Reserve Reserve Earnings Total Interest Equity Balance at 1 January 2005 3,979 221,226 (4,442) - 443 1,084 16,751 (42,400) 196,641 11,029 207,670 Profit for the year 17,082 17,082 1,026 18,108 Foreign currency translation effects (23,944) (23,944) 1,097 (22,847) Movement in general credit risk reserve 205 (205) - - Movement in available -for -sale reserve 280 280 280 Movement in statutory reserve 356 (356) - - Negative goodwill 4,415 4,415 4,415 Balance at 31 December 2005 3,979 221,226 (28,386) 205 443 1,364 17,107 (21,464) 194,474 13,152 207,626 Profit for the year 76,821 76,821 338 77,159 Shares issued 956 42,335 43,291 43,291 Foreign currency translation effects (27,078) (27,078) (4,960) (32,038) Movement in general credit risk reserve 84 (84) - - Revaluation of property (443) 378 (65) (65) Movement in available -for -sale reserve (266) (266) (266) Movement in statutory reserve 1,033 (1,033) - - Movement in treasury shares 1,661 1,661 1,661 Balance at 31 December 2006 6,596 263,561 (55,464) 289 - 1,098 18,140 54,618 288,838 8,530 297,368 HISTORICAL COST (BWP’ 000’s) Balance at 1 January 2005 3,979 221,226 (202,501) - 11,699 1,084 5,495 131,684 172,666 11,029 183,695 Profit for the year 57,745 57,745 1,026 58,771 Foreign currency translation effects (51,211) (51,211) 1,097 (50,114) Movement in general credit risk reserve 205 (205) - - Revaluation of property 1,132 1,132 1,132 Movement in available -for -sale reserve 280 280 280 Movement in statutory reserve 4,608 (4,608) - - Negative goodwill 4,415 4,415 4,415 Balance at 31 December 2005 3,979 221,226 (253,712) 205 12,831 1,364 10,103 189,031 185,027 13,152 198,179 Profit for the year 92,764 92,764 338 93,102 Shares issued 956 42,335 43,291 43,291 Foreign currency translation effects (70,487) (70,487) (4,960) (75,447) Movement in general credit risk reserve 84 (84) - - Revaluation of property 23,906 378 24,284 24,284 Movement in available -for -sale reserve (456) (456) (456) Movement in statutory reserve 1,033 (1,033) - - Movement in treasury shares 1,661 1,661 1,661 Balance at 31 December 2006 6,596 263,561 (324,199) 289 36,737 908 11,136 281,056 276,084 8,530 284,614 38
  • 39. ABC Holdings Limited Consolidated cashflow statement for the year ended 31 December 2006 Inflation Adjusted Historical Cost 2006 2005 2006 2005 Notes BWP ’000s BWP ’000s BWP ’000s BWP ’000s CASH FLOWS FROM OPERATING ACTIVITIES Profit before taxation 125,058 56,561 138,105 92,992 Adjusted for: Depreciation and amortisation 8,791 15,961 8,791 5,785 Profit on sale of property and equipment (24) (516) (24) (516) Impairment of loans and advances 26,366 20,728 26,366 20,728 Loss on net monetary position 67,620 62,581 - - Impairment of investment in a subsidiary - 5,093 - 5,093 Goodwill impairment - 17,133 - 17,133 Investment property revaluation gains (22,390) (9,290) (22,390) (9,290) Other impairment losses - 493 - 493 Net cash inflow from operating activities before changes in 205,421 168,744 150,848 132,418 operating assets and liabilities Changes in financial assets held for trading 8,816 (312,248) 8,816 (312,248) Changes in derivative assets held for risk management (170,089) - (170,089) - Changes in loans and advances (301,317) 24,850 (301,317) 24,850 Changes in other assets 4,773 15,117 4,773 15,117 Changes in investment securities (17,700) 26,103 (17,700) 26,103 Changes in deposits to customers 119,903 165,985 119,903 165,985 Changes in derivative liabilities held for risk management 170,505 - 170,505 - Increase in other liabilities (1,259) (5,449) (1,259) (5,449) Taxation paid (36,666) (50,664) (32,434) (40,014) Net cash from (utilised in) operating activities 17,613 32,438 (67,954) 6,762 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (4,368) (5,862) (4,055) (5,386) Proceeds on disposal of property and equipment 1.165 1,210 1,165 1,210 Purchase of intangible assets (1,526) - (1,280 - Net cash utilised in investing activities (4,729) (4,652) (4,170) (4,176) CASH FLOWS FROM FINANCING ACTIVITIES Changes in borrowed funds 445,214 (27,870) 445,214 (27,870) Repayment of preference share liability (115,056) - (115,056) - Issue of new ordinary shares 44,952 - 44,952 - Net cash from (utilised in) financing activities 375,110 (27,870) 375,110 (27,870) Net increase/(decrease) in cash and cash equivalents 352,768 (84) 302,986 (25,284) Cash and cash equivalents at the beginning of the year 207,304 287,846 207,304 287,846 Exchange adjustment on opening balance (136,125) (80,458) (81,343) (55,258) CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 9 428,947 207,304 428,947 207,304 39
  • 40. Significant accounting policies Reporting entity which form the basis of making the judgements about ABC Holdings Limited (the “company”) is domiciled in carrying values of assets and liabilities that are not readily Botswana. The consolidated financial statements of the apparent from other sources. Actual results may differ company for the year ended 31 December 2006 comprise from these estimates. the company and its subsidiaries (together referred to as the “group”) and the group’s interest in associates and its The estimates and underlying assumptions are reviewed jointly controlled entity. on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates is Statement of compliance revised if the revision affects only that period, or in the The consolidated financial statements have been prepared period of the revision and future periods if the revision in accordance with International Financial Reporting affects both current and future periods. Standards (IFRSs) and the requirements of the Botswana Companies Act (Chapter 42:01). Judgements made by management in the application of IFRSs that have a significant effect on the financial Basis of preparation statements and estimates with a significant risk of material Inflation-adjusted accounts adjustment in the next year are discussed below: The financial results of entities in Zimbabwe have been adjusted to reflect the changes in the general level of • Fair value of financial instruments prices as they operate in a hyperinflationary economy Many of the group’s financial instruments are with cumulative three-year inflation of over 100%. The measured at fair value on the balance sheet and it is restatement for the purchasing power of the Zimbabwe usually possible to determine their fair values within entities is based on IAS 29 Financial Reporting in a reasonable range of estimates. Fair value estimates Hyperinflationary Economies, which requires that financial are made at a specific point in time, based on market statements prepared in the currency of a hyperinflationary conditions and information about the financial economy be stated in terms of the measuring unit current instrument. These estimates are subjective in nature at the balance sheet date. The restatement was calculated and involve uncertainties and matters of judgement by conversion factors derived from the countrywidae (e.g. interest rates, volatility, estimated cash flows etc) consumer price index published by the Central Statistical and therefore cannot be determined with precision. Office of Zimbabwe. The restated results are converted into the group’s presentation currency, Botswana Pula, at • Deferred tax assets the closing rate ruling on 31 December 2006. The recognition of deferred tax asset is based on profit forecasts made by management of the particular group The group presents both inflation-adjusted accounts and company where the asset has arisen. These forecasts historical cost accounts excluding the impact of IA529 are based on the group’s re-capitalisation plans of the Financial Reporting in hyperinflationary economies for subsidiary and market conditions prevailing in the the benefit of investors. Financial instruments held for economy in which the company operates. trading and available for sale investments are stated at fair value. Other financial assets and financial liabilities are The accounting policies set out below have been applied stated at amortised cost. consistently to all periods presented in these consolidated financial statements. The accounting policies have been The preparation of consolidated financial statements applied consistently by Group entities. in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the Functional and presentation currency application of policies and reported amounts of assets The financial statements are presented in Botswana Pula and liabilities, income and expenses. These estimates (BWP), which is the company’s functional currency and and associated assumptions are based on historical the group’s presentation currency. Except as indicated, experience and various other factors that are believed to financial information presented in BWP has been rounded be reasonable under the circumstances, the results of off to the nearest thousand. 40
  • 41. Significant accounting policies Basis of consolidation Goodwill and negative goodwill Subsidiaries All business combinations are accounted for by applying Subsidiaries are those enterprises controlled by the the purchase method. Goodwill is any excess of the cost company. Control is defined as the power to govern the of an acquisition over the group’s interest in the fair value financial and operating policies of the entity so as to of the identifiable assets and liabilities acquired. Goodwill obtain benefits from its activities. The existence and effect is carried at cost less accumulated impairment losses. of potential voting rights that are currently exercisable or Goodwill is allocated to cash generating units and is no convertible are considered when assessing whether the longer amortised but is tested annually for impairment. group controls another entity. Impairment loses are recognised in the income statement. The financial statements of subsidiaries are included in the consolidated financial statements from the date that Negative goodwill arising on an acquisition represents control commences until the date that control ceases. any excess of the fair value of the group’s share of the identifiable net assets acquired over the cost of the Associates acquisition. Associates are those enterprises in which the group has significant influence, but not control over the financial and Foreign entities operating policies. The consolidated financial statements The company’s subsidiaries are considered as include the group’s share of the total recognised gains independent foreign entities for accounting purposes. and losses of associates on an equity accounted basis Accordingly, the assets and liabilities of foreign operations from the date significant influence commences until the are translated to the group’s presentation currency, date that significant influence ceases. Botswana Pula, from their respective measurement currencies at foreign exchange rates ruling at the Jointly controlled entities balance sheet date. The revenues and expenses of Jointly controlled entities are those enterprises over foreign operations are translated to Botswana Pula at the whose activities the group has joint control, established average exchange rate for the year, with the exception of by contractual agreement. The consolidated financial Zimbabwean entities whose revenues and expenses are statements include the group’s share of the total gains converted at the closing rate for the year. Foreign exchange or losses of the entity on an equity accounted basis from differences arising on translation are recognised in the the date that joint control commences until the date joint foreign currency translation reserve. control ceases. Foreign currency transactions Transactions eliminated on consolidation Foreign currency transactions are translated at the foreign Intra-group balances and transactions, and any unrealised exchange rates ruling at the date of the transaction. gains arising from intra-group transactions, are eliminated Monetary assets and liabilities denominated in foreign in preparing the consolidated financial statements. currencies at the balance sheet date are translated at the Unrealised gains arising from transactions with associates foreign exchange rate ruling at that date. Foreign exchange and jointly controlled entities are eliminated to the extent differences arising on translation are recognised in the of the group’s interest in the enterprise. Unrealised income statement and shown under other income. Non- gains arising from transactions with associates and joint monetary assets and liabilities denominated in foreign ventures are eliminated against the investment in the currencies that are measured at fair value are retranslated associate. Unrealised losses are eliminated in the same to the functional currency at the exchange rate at the date way as unrealised gains, but only to the extent that there that the fair value was determined. is no evidence of impairment. Recognition of assets and liabilities Assets are recognised when the group irrevocably gains control of a resource from which future economic benefits are expected to flow to the group. 41
  • 42. Significant accounting policies (continued) Liabilities are recognised when the group has a legal or Investments constructive obligation as a result of past events and a Investments comprise held-to-maturity and available- reliable estimate of the amount of the obligation is, or for-sale fixed interest and equity or other financial outflow of resources from the group can be made. If instruments. there is a possible obligation or outflow of resources from the group or where a reliable estimate is not available, a Held-to-maturity fixed interest instruments held in contingent liability is disclosed. investments portfolio are stated at amortised cost less any impairment losses. Derecognition of assets and liabilities An asset is derecognised when the group losses control Available-for-sale quoted investments are valued at market over the contractual rights that comprise the asset. A value using the offer rate. Unlisted equity investments and liability is derecognised when it is extinguished. instruments for which there is no quoted market price are measured using valuation models. Where the valuation Cash and cash equivalents models may not be relevant the unquoted investments Cash and cash equivalents comprise cash balances on are stated at cost. hand, cash deposited with banks and short-term highly liquid investments with maturities of three months or less Available for sale investments are marked to market and any from the date of purchase. For cash flow purposes, cash gains or losses arising from the revaluation of investments and cash equivalents include bank overdrafts. Cash and are shown in shareholders’ equity as available-for-sale cash equivalents are stated at fair value. reserves. On realisation of the investment, the available- for-sale reserves are transferred to income statement. Financial assets held for trading Financial assets held for trading are those instruments that Loans and advances the group principally holds for the purposes of short-term Loans and advances are initially measured at fair value profit making. These include investments and derivatives plus incremental direct transaction cost, and subsequently held for trading. measured at their amortised cost using the effective interest rate method. Trading instruments are measured at initial recognition and subsequently at fair value based on quoted market Included in loans and advances are finance lease price using the offer rate at the balance sheet date. If receivables. Finance lease receivables are those leases there is no quoted market price in an active market, the where the group transfers substantially all the risks and instruments are measured using valuation models. Where rewards incident to ownership of an asset. Finance lease the valuation models are considered not relevant, the charges are recognised in income using the effective instruments are measured at amortised cost. interest rate method. All changes in fair value are recognised in profit or loss. Impairment of loans and advances Specific impairments allowances are made against the Derivatives held for risk management purposes carrying amounts of loans and advances that are identified Derivatives held for risk management purposes include as being impaired based on regular reviews. The amount all derivative assets and liabilities that are not classified of impairment is the group’s conservative estimate of the as held for trading. Derivatives held for risk management amount needed to reduce the carrying value of the asset purposes are measured at fair value in the balance sheet. to the expected recoverable amount. The recoverable Changes in their fair values are recognised in profit or amount is measured as the present value of expected loss. future cash flows, discounted based on the original effective interest rate. If a loan has a variable interest rate, the discount rate is the current effective rate determined under the contract. 42
  • 43. Significant accounting policies Portfolio impairments are maintained to reduce the Software carrying amount of portfolios of similar loans and Software acquired by the group is stated at cost less advances to their estimated recoverable amounts accumulated amortisation and accumulated impairment at the balance sheet date and is determined having losses. regard to economic conditions and general risk factors. Amortisation is recognised in the income statement on Irrecoverable loans and advances are written-off after all a straight-line basis over the estimated useful life of the reasonable restructuring and collection activities have software, from the date that it is available for use. The taken place and the possibility of further recovery is estimated useful life of software is three to five years. considered remote. Investment property Property and equipment Investment properties are properties which are held Items of property and equipment are stated at cost or by the group either to earn rental income or for capital valuation less accumulated depreciation and impairment appreciation or for both. Investment property is stated losses. Where parts of an item of property and equipment at fair value determined annually by an independent have different useful lives, they are accounted for as registered valuer. Fair value is based on open market separate items of property and equipment. Valuations value and any gain or loss arising is recognised in the of freehold properties are carried out periodically by income statement. independent professional property valuers based on open market values of the properties. Surpluses and deficits Deposits and other borrowed funds arising thereon are transferred to the property revaluation Deposits and other borrowed funds are initially measured reserve in equity. The revaluation surplus or deficit is at fair value plus transaction costs and subsequently reversed when the asset is disposed of. measured at their amortised cost, using the effective interest method. Depreciation is charged to the income statement on a straight-line basis over the estimated useful life of the Repurchase agreements property and equipment. Land is not depreciated. Securities sold subject to a linked repurchase agreement (“repos”) are recorded in the balance sheet as trading The estimated useful lives are as follows: securities and the counterparty liability is included in • Buildings 40 - 50 years liabilities. Gains, losses or interest resulting from these • Bank premises and renovations 20 years transactions are included in income. • Computer equipment 3 - 5 years • Office equipment 3 - 5 years Managed funds and trust activities • Furniture and fittings 5 - 10 years Certain companies in the group operate unit trusts, hold • Vehicles 4 - 5 years and invest funds on behalf of clients and act as trustees and in other fiduciary capacities. Assets and liabilities The assets’ residual values, depreciation methods and representing such activities are not included on the useful lives are reviewed, and adjusted if appropriate, at balance sheet, as these relate directly to clients. The each balance sheet date. values of these items are disclosed in note 27. Income from these activities is brought into account over the Subsequent costs are included in the asset’s carrying period to which the service relates. amount or are recognised as a separate asset, as appropriate only when it is probable that future economic Share capital benefits associated with the item will flow to the group. The Preference share capital cost of day-to-day servicing of property and equipment Preference share capital is classified as equity if it is are recognised in profit or loss as incurred. non-redeemable and any dividends are discretionary at the option of the directors. Preference share capital is 43
  • 44. Significant accounting policies (continued) classified as a liability if it is redeemable on a specific Fees and commission date or at the option of the shareholders and dividends Fee and commission income arises from services provided thereon are recognised in the income statement as an by the group including cash management, project and interest expense. structured trade finance transactions. Fee and commission income is recognised when the corresponding service is Repurchase of share capital provided and receipt of the fee is certain. Shares repurchased by group companies are classified as treasury shares, and held at cost. These shares are Net trading income treated as a deduction from the issued share capital and Net trading income includes realised gains and losses the cost price of the shares is presented as a deduction arising from trading in financial assets and liabilities and from total equity. Dividend received from treasury shares unrealised changes in fair value of these instruments. is eliminated on consolidation. Dividends Dividends Dividend income is recognised in the income statement Dividends are recognised as a liability in the period in on the date that the dividend is declared. which they are declared. Rental income Netting Rental income from investment property is recognised Financial assets and liabilities are offset and the net in the income statement on a straight-line basis over the amount is reported in the balance sheet when the group term of the lease. Lease incentives granted are recognised has a legally enforceable right to set off the recognised as an integral part of total rental income. amounts and the transactions are intended to be settled on a net basis. Operating lease payments Payments made under operating leases are recognised in Impairment the income statement on a straight-line basis over the term At each balance sheet date the group reviews the carrying of the lease. Lease incentives received are recognised amounts of assets that are not carried at fair value for any in the income statement as an integral part of the total indication of impairment. If the recoverable amount of an lease expense. asset is less than its carrying amount, the carrying amount is reduced to its recoverable amount. An impairment loss Employee benefits is recognised as an expense in the income statement in Defined contribution plans the period in which it is identified. It is the policy of the group to provide pension fund benefits to employees under defined contribution funds. Operating income Income such as revenue derived from service fee, net The group’s obligations for contributions to defined interest income, commissions, net surplus arising from contribution pension plans are recognised as an expense trading activities and other income are included in in the income statement as incurred. operating income. Post retirement medical aid benefits Interest In terms of certain employment contracts, the group Interest income and interest expense are recognised in provides for medical aid contributions to qualifying the income statement for all interest bearing financial employees beyond the date of normal retirement. Although instruments on an accruals basis using the effective yield these benefits are a defined benefit plan, the full liability method based on the original settlement amount. has not been recognised as the number of employees affected is very small. The contributions are recognised as an expense in the income statement as incurred. 44
  • 45. Significant accounting policies Termination benefits The group recognises gratuity and other termination Deferred tax is provided using the balance sheet liability benefits in the financial statements when it has a present method, providing for temporary differences between obligation relating to termination. the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation Leave pay accrual purposes. Deferred tax assets or liabilities are measured The group’s obligation in respect of accumulated leave using tax rates enacted or substantively enacted at the days is recognised in full in the financial statement, on balance sheet date. an undiscounted basis and are expensed as the related services are provided. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available Share-based compensation against which the asset can be utilised. Deferred tax assets The group operates a Staff Share Purchase Scheme, are reduced to the extent that it is no longer probable that whereby shares in ABC Holdings Limited are offered to staff the related tax benefit will be realised. at a discount. The net discount is recognised as an expense, with a corresponding credit recognised in equity. Segmental reporting The group’s segmental reporting is in the form of a Taxation geographical analysis. A geographical segment refers to Income tax on the profit or loss for the year comprises a distinguishable component of the group that is engaged current and deferred tax. in providing a service within a particular economic environment and is subject to risks and rewards that are Current tax is the expected tax payable on the taxable different from those of the other segments. income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Additional income taxes that arise from the distribution of dividend are recognised at the same time as the liability to pay the related dividend is recognised. 45
  • 46. ABC Holdings Limited Notes to the financial statements for the year ended 31 December 2006 Inflation Adjusted Historical Cost 2006 2005 2006 2005 1. NET INTEREST INCOME BWP ’000s BWP ’000s BWP ’000s BWP ’000s Interest and similar income Cash and cash equivalents 50,160 56,003 47,617 39,238 Investment securities 196,126 249,438 109,653 166,595 Loans and advances 228,347 133,514 150,501 116,208 Derivative assets held for risk management 2,020 - 2,020 - 476,653 438,955 309,791 322,041 Interest expense Banks and customers 250,986 251,183 155,024 178,151 Borrowed funds 62,533 7,973 26,492 7,973 Preference shares 5,767 9,835 5,767 9,835 Derivative liabilities held for risk management 4,530 - 4,530 - 323,816 268,991 191,813 195,959 Net interest income 152,837 169,964 117,978 126,082 Investment securities comprise of government securities, treasury bills, bankers’ acceptances and other bills. 2. IMPAIRMENT OF LOANS AND ADVANCES Specific impairments 34,299 21,347 34,299 21,347 Portfolio impairments 2,534 210 2,534 210 Recoveries (10,467) (829) (10,467) (829) 26,366 20,728 26,366 20,728 3. NON INTEREST REVENUE Fees and commission receivable 73,729 54,848 47,934 49,893 Foreign currency trading income 30,717 1,325 30,348 5,238 Money market trading income 15,840 22,394 9,099 16,617 Gains from investments 57,966 53,677 57,236 53,398 Fair value adjustment on investment property 22,390 9,290 22,390 9,290 Rental and other income 19,845 22,987 13,473 10,370 220,487 164,521 180,480 144,806 4. OPERATING EXPENDITURE Administrative expenses 51,808 52,005 43,094 42,196 Property lease rentals 6,389 9,041 6,389 8,496 Staff costs (note 4.1) 86,729 104,733 75,716 88,248 Auditors’ remuneration 2,632 2,972 2,066 2,540 Amortisation of Software (note 19) 3,255 2,813 3,255 2,813 Depreciation (note 17) 5,536 13,148 5,536 2,530 Directors’ remuneration (note 4.2) 9,147 4,560 9,147 4,560 165,496 189,272 145,203 151,825 4.1 STAFF COSTS Salaries 55,224 52,072 52,398 47,185 Employer contributions to post retirement funds 1,867 3,208 1,867 2,350 Other staff costs 29,638 49,453 21,451 38,713 86,729 104,733 75,716 88,248 The average number of employees during the year ended 31 December 2006 was 342 (2005: 369). Included in other staff costs are discounts on shares issued to staff of BWP 617 thousand (2005: nil). 46
  • 47. ABC Holdings Limited Notes to the financial statements for the year ended 31 December 2006 Inflation Adjusted Historical Cost 2006 2005 2006 2005 BWP ’000s BWP ’000s BWP ’000s BWP ’000s 4.2 DIRECTORS’ REMUNERATION For management services Remuneration for management services 3,625 2,996 3,625 2,996 Non-executive directors Fees as director of holding company 1,832 1,228 1,832 1,228 Fees as director of subsidiaries 736 336 736 336 2,568 1,564 2,568 1,564 6,193 4,560 6,193 4,560 5. OTHER IMPAIRMENTS Investments - 9,552 - 9,552 The impairment relates to investment in Iroko Financial Products Limited and net recovery of loans in Tanganyika Lease Hire Limited 6. LOSS ON NET MONETARY POSITION ABC Zimbabwe 67,620 62,581 - - The financial results in Zimbabwe have been adjusted to reflect changes in the general level of prices as they operate in a hyperinflationary economy with cumulative three year inflation of over 100%. The loss on net monetary position is calculated by the converting balance sheet and income statement using factors derived from the countrywide consumer price index published by the Central Statistical Office of Zimbabwe. Monetary assets and liabilities are not restated because they are already expressed in terms of monetary unit current at balance sheet date. Non-monetary assets and liabilities and components of shareholders’ equity are restated by the relevant monthly conversion factors. All items in the income statements are restated by applying the relevant monthly, yearly or year-end conversion factors. The effects of inflation on net monetary position of the Zimbabwe entities are included in the income statement as loss on net monetary position. 7. TAXATION Current tax expense Current year 20,213 16,917 20,213 16,917 (Over)/under- provision in prior years (330) 991 (330) 991 Bank levies 1,957 2,213 1,957 2,213 Tax on treasury bills/ other bills income 658 549 658 549 22,498 20,670 22,498 20,670 Deferred taxation Current year 25,401 17,743 22,505 13,511 Rate change - 40 - 40 25,401 17,783 22,505 13,551 47,899 38,453 45,003 34,221 Reconciliation of effective tax charge Current year’s charge 44,752 24,713 49,121 30,184 Non-deductible expenses 13,656 22,701 6,391 12,998 Tax exempt revenues (7,712) (7,396) (7,712) (7,396) Tax incentives not recognised in income statement (8,177) (3,271) (8,177) (3,271) Effect of tax losses utilised 3,753 (1,538) 3,753 (1,538) (Over)/under provision in prior years (330) 991 (330) 991 Bank levies 1,957 2,213 1,957 2,213 Rate change - 40 - 40 47,899 38,453 45,003 34,221 Effective tax rate 38% 68% 33% 37% 47
  • 48. ABC Holdings Limited Notes to the financial statements for the year ended 31 December 2006 (continued) Inflation Adjusted Historical Cost 2006 2005 2006 2005 BWP ’000s BWP ’000s BWP ’000s BWP ’000s 8. EARNINGS PER SHARE 8.1 Basic and diluted earnings per share Profit attributable to equity holders of the parent 76,821 17,082 92,764 57,745 Weighted average number of shares in issue (’000) 123,688 113,450 123,688 113,450 Basic and diluted earnings per share (thebe) 62 15 75 51 8.2 HEADLINE EARNINGS PER SHARE Headline earnings 61,293 20,163 77,236 60,826 Weighted average number of shares in issue (’000) 123,688 113,450 123,688 113,450 Headline earnings per share (thebe) 50 18 62 54 Reconciliation of profit for the year to headline earnings Profit attributable to equity holders of the parent 76,821 17,082 92,764 57,745 Less: (15,528) (19,145) (15,528) (19,145) Property revaluation gain (15,504) (5,955) (15,504) (5,955) Recovery of impaired loan book - (12,674) - (12,674) Profit on disposal of property and equipment (24) (516) (24) (516) Add: - 22,226 - 22,226 Goodwill impairment - 17,133 - 17,133 Investment impairment - 5,093 - 5,093 Headline earnings 61,293 20,163 77,236 60,826 Number of shares (’000) Shares at the beginning of the year 113,450 113,450 113,450 113,450 Shares issued during the year 19,119 - 19,119 - Closing number of shares in issue 132,569 113,450 132,569 113,450 Weighted average number of shares 123,688 113,450 123,688 113,450 9. CASH AND CASH EQUIVALENTS Cash on hand 8,086 5,942 8,086 5,942 Balances with central banks 105,974 60,011 105,974 60,011 Balances with other banks 314,887 141,351 314,887 141,351 428,947 207,304 428,947 207,304 Included in balances with Central banks are stationary reserve deposits amounting to BWP 59 million (2005: BWP 22 million). 10. FINANCIAL ASSETS HELD FOR TRADING Government bonds 25,874 33,569 25,874 33,569 Corporate bonds - 9,692 - 9,692 Treasury bills 749,563 731,333 749,563 731,333 Equities 70,987 85,838 70,987 85,838 Foreign currency swaps 5,962 770 5,962 770 852,386 861,202 852,386 861,202 48
  • 49. ABC Holdings Limited Notes to the financial statements for the year ended 31 December 2006 Inflation Adjusted Historical Cost 2006 2005 2006 2005 BWP ’000s BWP ’000s BWP ’000s BWP ’000s 11. DERIVATIVES HELD FOR RISK MANAGEMENT 11.1 Derivative assets held for risk management Cross-currency swap 170,089 - 170,089 - Maturity analysis Less than 1 year 12,206 - 12,206 - 1 - 2 years 10,637 - 10,637 - 2 - 3 years 11,016 - 11,016 - 3 - 4 years 11,409 - 11,409 - 4 - 5 years 11,815 - 11,815 - More than 5 years 113,006 - 113,006 - 170,089 - 170,089 - 11.2 Derivative liabilities held for risk management Cross-currency swap 170,505 - 170,505 - Maturity analysis Less than 1 year 13,005 - 13,005 - 1 - 2 years 10,738 - 10,738 - 2 - 3 years 11,119 - 11,119 - 3 - 4 years 11,518 - 11,518 - 4 - 5 years 11,929 - 11,929 - More than 5 years 112,196 - 112,196 - 170,505 - 170,505 - Net derivatives held for risk management Cashflow hedges of foreign currency borrowed funds (1,402) - (1,402) - Net investment hedges 986 - 986 - (416) - (416) - Cashflow hedges of foreign currency borrowed funds The group uses cross-currency swaps to hedge the foreign currency risk arising from its borrowings in foreign currencies. The cash flows on the cross-currency swaps substantially match the cash flow profile of the borrowings. Net investment hedges The group uses cross- currency interest rate swaps to hedge the foreign currency translation risk on net investment in foreign subsidiaries. 49
  • 50. ABC Holdings Limited Notes to the financial statements for the year ended 31 December 2006 (continued) Inflation Adjusted Historical Cost 2006 2005 2006 2005 BWP ’000s BWP ’000s BWP ’000s BWP ’000s 12. LOANS AND ADVANCES TO CUSTOMERS Corporate and trade finance 804,240 545,676 804,240 545,676 Instalment finance 143,637 109,938 143,637 109,938 Micro finance 58,004 59,806 58,004 59,806 Other 13,815 13,637 13,815 13,637 Gross loans 1,019,696 729,057 1,019,696 729,057 Impairment of loans and advances (78,967) (63,279) (78,967) (63,279) Net loans and advances 940,729 665,778 940,729 665,778 Cash collateralised loans included above 67,846 209,759 67,846 209,759 Collateral held is shown in deposits from customers 12.1 MATURITY ANALYSIS On demand to one month 166,436 109,665 166,436 109,665 One month to three months 67,062 222,953 67,062 222,953 Three months to one year 426,663 200,147 426,663 200,147 Greater than one year 280,568 133,013 280,568 133,013 940,729 665,778 940,729 665,778 12.2 SECTORAL ANALYSIS Agriculture and agro-processing 92,886 51,650 92,886 51,650 Construction 38,898 21,185 38,898 21,185 Wholesale, retail trade and other services 210,740 40,884 210,740 40,884 Public sector 11,013 10,717 11,013 10,717 Manufacturing 94,189 104,561 94,189 104,561 Finance 122,562 117,102 122,562 117,102 IT and telecommunication 7,147 27,685 7,147 27,685 Transport 62,946 43,845 62,946 43,845 Mining and energy 74,142 49,588 74,142 49,588 Individuals 102,946 100,298 102,946 100,298 Other 123,260 98,263 123,260 98,263 940,729 665,778 940,729 665,778 12.3 GEOGRAPHIC ANALYSIS Botswana 245,892 116,683 245,892 116,683 Zambia 201,772 167,429 201,772 167,429 Zimbabwe 233,224 169,477 233,224 169,477 Mozambique 118,906 102,193 118,906 102,193 Tanzania 111,917 106,817 111,917 106,817 Other 29,018 3,179 29,018 3,179 940,729 665,778 940,729 665,778 50
  • 51. ABC Holdings Limited Notes to the financial statements for the year ended 31 December 2006 Inflation Adjusted Historical Cost 2006 2005 2006 2005 BWP ’000s BWP ’000s BWP ’000s BWP ’000s 12.4 IMPAIRMENT OF LOANS AND ADVANCES Balance at the beginning of the year 63,279 79,686 63,279 79,686 Exchange and inflation adjustment (12,692) (470) (12,692) (470) Amounts written off during the year (9,412) (40,743) (9,412) (40,743) 41,175 38,473 41,175 38,473 Specific impairment - interest 959 3,249 959 3,249 Impairment of loans and advances 36,833 21,557 36,833 21,557 Specific impairments 34,299 21,347 34,299 21,347 Portfolio impairments 2,534 210 2,534 210 Balance at the end of the year 78,967 63,279 78,967 63,279 Comprising: Specific impairments 70,397 57,243 70,397 57,243 Portfolio impairments 8,570 6,036 8,570 6,036 78,967 63,279 78,967 63,279 As % of Outstanding Securities & Net Impairment Loans & Balance Recoveries Exposure losses Advances BWP ’000s BWP ’000s BWP ’000s BWP ’000s 12.5 NON-PERFORMING ADVANCES 2006 Corporate and trade finance 7% 68,951 25,354 43,597 42,952 Instalment finance 2% 20,087 3,125 16,962 16,354 Microfinance 2% 24,893 - 24,893 18,668 Other 0% 182 - 182 993 11% 114,113 28,479 85,634 78,967 Sectoral analysis Agriculture and agro-processing 4% 4,391 856 3,535 3,011 Construction 25% 28,794 9,944 18,850 17,891 Wholesale, retail trade and other services 6% 7,111 1,372 5,739 5,230 Public sector 0% - - - - Manufacturing 15% 16,520 5,693 10,827 10,726 Finance 0% 113 2 111 25 IT and telecommunication 5% 6,254 1,138 5,116 5,073 Transport 12% 13,423 4,427 8,996 8,479 Mining and energy 0% 330 1 329 139 Individuals 25% 28,743 4,066 24,677 21,351 Other 8% 8,434 980 7,454 7,042 100% 114,113 28,479 85,634 78,967 51
  • 52. ABC Holdings Limited Notes to the financial statements for the year ended 31 December 2006 (continued) As % of Outstanding Securities & Net impairment 12.5 NON-PERFORMING ADVANCES (continued) Loans & Balance Recoveries Exposure Losses Advances BWP ’000s BWP ’000s BWP ’000s BWP ’000s 2005 Corporate and trade finance 6% 44,098 12,242 31,856 28,699 Installment finance 3% 25,337 7,307 18,030 16,902 Microfinance 4% 28,155 2 28,153 11,453 Other 0% 189 - 189 189 13% 97,779 19,551 78,228 57,243 Sectoral Analysis Agriculture and agroprocessing 7% 6,748 2,442 4,306 3,538 Construction 9% 8,703 1,081 7,622 6,509 Wholesale, retail trade and other services 13% 12,591 1,394 11,197 11,185 Public sector 0% - - - - Manufacturing 15% 14,904 8,089 6,815 5,734 Finance 1% 1,239 - 1,239 1,237 IT and telecommunication 0% - - - - Transport 7% 7,306 3,157 4,149 3,448 Mining and energy 1% 507 32 475 235 Individuals 33% 32,376 623 31,753 15,102 Other 14% 13,405 2,733 10,672 10,255 100% 97,779 19,551 78,228 57,243 Inflation Adjusted Historical Cost 2006 2005 2006 2005 BWP ’000s BWP ’000s BWP ’000s BWP ’000s 13. OTHER ASSETS Accounts receivable and prepayments 7,141 15,256 7,141 15,256 Other amounts due 5,663 2,321 5,663 2,321 12,804 17,577 12,804 17,577 14. INVESTMENTS Government bonds 24,055 1,953 24,055 1,953 Listed equity securities 152 668 152 668 Unlisted equity securities 28,394 32,280 28,394 32,280 52,601 34,901 52,601 34,901 Portfolio analysis Held to maturity 12 - 12 - Available-for-sale 27,892 27,875 27,892 27,875 - at cost 26,794 26,511 26,794 26,511 - fair value adjustment 1,098 1,364 1,098 1,364 Fair value through profit and loss 24,697 7,026 24,697 7,026 - at cost 24,339 6,870 24,339 6,870 - fair value adjustment 358 156 358 156 52,601 34,901 52,601 34,901 15. INVESTMENTS IN ASSOCIATES AND JOINT VENTURE Carrying value at beginning of the year 34,467 28,572 34,467 28,572 Exchange and inflation adjustment 6,719 3,619 445 3,619 Reclassification during the year 1,102 - 1,102 - Share of profits 11,216 4,209 11,216 4,209 Less: taxation (4,287) (1,933) (4,287) (1,933) Less: dividend received (321) - (321) - 48,896 34,467 42,622 34,467 During the year the investment in PG Industries Zimbabwe was reclassified from financial assets held for trading to investments in associates. 52
  • 53. Notes to the financial statements for the year ended 31 December 2006 Inflation Adjusted Historical Cost 2006 2005 2006 2005 BWP ’000s BWP ’000s BWP ’000s BWP ’000s 16. INVESTMENT PROPERTY Balance at beginning of the year 10,811 16,770 10,811 16,770 Exchange and inflation adjustment (9,030) (15,249) (9,030) (15,249) Increase in fair value 22,390 9,290 22,390 9,290 Balance at end of the year 24,171 10,811 24,171 10,811 Investment property comprises commercial properties that are leased to third parties. During the year ended 31 December 2006 BWP 627 thousand was recognised as rental income in the income statement (2005: BWP 102 thousand).The carrying amount of the investment property is the fair value of the property as determined by registered independent valuers. 17. PROPERTY AND EQUIPMENT Computer Land and and office Furniture buildings Vehicles equipment and fittings Total INFLATION ADJUSTED BWP ’000s BWP ’000s BWP ’000s BWP ’000s BWP ’000s Details of the group’s property and equipment are as follows: Cost or valuation at 31 December 2005 13,227 6,904 75,314 9,225 104,670 Exchange and inflation adjustments (1,488) (1,428) (7,505) (436) (10,857) Additions 7,112 1,826 1,991 551 11,480 Revaluation surplus 23,143 - - - 23,143 Disposals (1,141) (418) (300) (82) (1,941) Cost or valuation at 31 December 2006 40,853 6,884 69,500 9,258 126,495 Accumulated depreciation at 31 December 2005 (616) (2,964) (65,182) (4,052) (72,814) Exchange and inflation adjustments 118 216 3,695 1,162 5,191 Disposals 150 311 17 322 800 Charge for the year (496) (908) (2,917) (1,215) (5,536) Accumulated depreciation at 31 December 2006 (844) (3,345) (64,387) (3,783) (72,359) Carrying amount at 31 December 2006 40,009 3,539 5,113 5,475 54,136 Carrying amount at 31 December 2005 12,611 3,940 10,132 5,173 31,856 Carrying amount at 31 December 2004 18,650 1,725 42,309 5,999 68,683 On 31 December 2006, buildings situated in Zimbabwe were revalued by independent professional valuers based on open market values of the properties. HISTORICAL COST Details of the group’s property and equipment are as follows: Cost or valuation at 31 December 2005 14,227 4,376 19,066 6,132 43,801 Exchange adjustments (1,478) (1,236) (2,105) (334) (5,153) Additions 7,112 1,738 1,973 344 11,167 Revaluation surplus 23,143 - - - 23,143 Disposals (1,141) (418) (300) (82) (1,941) Cost or valuation at 31 December 2006 41,863 4,460 18,634 6,060 71,017 Accumulated depreciation at 31 December 2005 (1,626) (1,406) (17,777) (1,472) (22,281) Exchange adjustments 118 216 5,592 291 6,217 Disposals 150 311 17 322 800 Charge for the year (496) (908) (2,917) (1,215) (5,536) Accumulated depreciation at 31 December 2006 (1,854) (1,787) (15,085) (2,074) (20,800) Carrying amount at 31 December 2006 40,009 2,673 3,549 3,986 50,217 Carrying amount at 31 December 2005 12,601 2,970 1,289 4,660 21,520 Carrying amount at 31 December 2004 16,374 829 11,977 4,878 34,058 On 31 December 2006, buildings situated in Zimbabwe were revalued by independent professional valuers based on open market values of the properties. 53
  • 54. ABC Holdings Limited Notes to the financial statements for the year ended 31 December 2006 (continued) Inflation Adjusted Historical Cost 2006 2005 2006 2005 BWP ’000s BWP ’000s BWP ’000s BWP ’000s 18. DEFERRED TAXATION Balance at the beginning of the year 11,864 9,893 7,632 (757) Exchange and inflation adjustment (11,088) (10,752) (6,854) (102) Income statement charge (note 7) 25,401 17,783 22,505 13,551 Deferred tax on amounts transferred to equity 65 (5,060) 65 (5,060) Balance at the end of the year 26,242 11,864 23,348 7,632 Tax effects of temporary differences: Accruals (1,053) (877) (1,053) (877) Impairment losses (703) (205) (703) (205) Property and equipment 9,149 4,030 9,130 4,030 Gain on investments 14,219 10,072 11,344 5,840 Tax losses 4,630 (1,156) 4,630 (1,156) 26,242 11,864 23,348 7,632 Disclosed as follows: Deferred tax assets (5,208) (8,441) (5,208) (8,441) Deferred tax liability 31,450 20,305 28,556 16,073 26,242 11,864 23,348 7,632 19. INTANGIBLE ASSETS Goodwill 34,467 34,467 34,467 34,467 Software 8,439 9,019 2,984 5,676 42,906 43,486 37,451 40,143 Goodwill Cost Balance at the beginning of the year 67,342 62,927 67,342 62,927 Negative goodwill - 4,415 - 4,415 67,342 67,342 67,342 67,342 Impairment losses Balance at the beginning of the year 32,875 15,742 32,875 15,742 Impairment losses - 17,133 - 17,133 32,875 32,875 32,875 32,875 Carrying amount at the end of the year 34,467 34,467 34,467 34,467 Software Cost Balance at the beginning of the year 30,900 39,134 13,095 19,424 Exchange and inflation adjustment (2,568) (8,234) (1,373) (6,329) Additions 1,526 - 1,280 - 29,858 30,900 13,002 13,095 Amortisation and impairment losses Balance at the beginning of the year 21,881 24,843 7,419 9,560 Exchange and inflation adjustment (3,717) (5,775) (656) (4,954) Amortisation 3,255 2,813 3,255 2,813 21,419 21,881 10,018 7,419 Carrying amount at the end of the year 8,439 9,019 2,984 5,676 54
  • 55. ABC Holdings Limited Notes to the financial statements for the year ended 31 December 2006 Inflation Adjusted Historical Cost 2006 2005 2006 2005 BWP ’000s BWP ’000s BWP ’000s BWP ’000s 20. DEPOSITS Deposits from banks 218,154 126,919 218,154 126,919 Deposits from other customers 1,272,481 1,214,890 1,272,481 1,214,890 Deposits received under repurchase agreements 44,637 73,560 44,637 73,560 1,535,272 1,415,369 1,535,272 1,415,369 Payable on demand Corporate customers 252,772 264,667 252,772 264,667 Public sector 41,423 4,196 41,423 4,196 Private banking customers 42,520 28,548 42,520 28,548 Other financial institutions 47,152 1,010 47,152 1,010 Banks 148,491 15,973 148,491 15,973 532,358 314,394 532,358 314,394 Term deposits Corporate customers 360,807 329,347 360,807 329,347 Public sector 398,114 426,312 398,114 426,312 Private banking customers 26,025 26,130 26,025 26,130 Other financial institutions 148,305 208,240 148,305 208,240 Banks 69,663 110,946 69,663 110,946 1,002,914 1,100,975 1,002,914 1,100,975 1,535,272 1,415,369 1,535,272 1,415,369 Maturity analysis On demand to one month 967,458 773,947 967,458 773,947 One month to three months 409,067 472,177 409,067 472,177 Three months to one year 152,148 165,266 152,148 165,266 Over one year 6,599 3,979 6,599 3,979 1,535,272 1,415,369 1,535,272 1,415,369 Geographical analysis Botswana 643,596 678,173 643,596 678,173 Mozambique 321,396 217,233 321,396 217,233 Tanzania 211,392 126,522 211,392 126,522 Zambia 160,020 101,006 160,020 101,006 Zimbabwe 71,751 198,573 71,751 198,573 Other 127,117 93,862 127,117 93,862 1,535,272 1,415,369 1,535,272 1,415,369 21. BORROWED FUNDS National Development Bank of Botswana Limited (NDB) 121,018 - 121,018 - BIFM Capital Investment Fund One (Pty) Limited 248,383 - 248,383 - Other borrowings 178,763 102,950 178,763 102,950 548,164 102,950 548,164 102,950 Maturity analysis On demand to one month 32,232 133 32,232 133 One month to three months 772 6,972 772 6,972 Three months to one year 83,740 41,667 83,740 41,667 Over one year 431,420 54,178 431,420 54,178 548,164 102,950 548,164 102,950 55
  • 56. Notes to the financial statements for the year ended 31 December 2006 (continued) 21. BORROWED FUNDS continued National Development Bank of Botswana Limited The loan from National Development Bank of Botswana is denominated in Japanese Yen and attracts interest at a fixed rate of 3.53%. Principal and interest is payable semi-annually on 15 June and 15 December. The loan matures on 15 December 2016. BIFM Capital Investment Fund One (Pty) Limited The loan from BIFM Capital Investment Fund One (Pty) Limited is denominated in Botswana Pula and attracts interest of 11.63% per annum payable semi annually. The redemption dates are as follows: 30 September 2017 - P62 500 000 30 September 2019 - P62 500 000 30 September 2018 - P62 500 000 30 September 2020 - P62 500 000 Other borrowings Other borrowings ralate to medium to long-term funding from international financial insitutions for onward lending to ABC clients. Inflation Adjusted Historical Cost 2006 2005 2006 2005 BWP ’000s BWP ’000s BWP ’000s BWP ’000s 22. PREFERENCE SHARES 22.1 Authorised 50 shares of USD 1 million (BWP 5.5 million) each 275,000 275,000 275,000 275,000 22.2 Issued and fully paid 19 shares of USD 1 million (BWP 5.5 million) each - 104,104 - 104,104 Transaction costs - (3,121) - (3,121) Net preference share liability at date of issue - 100,983 - 100,983 Accrued interest - 10,460 - 10,460 Foreign currency translation gain - 3,613 - 3,613 Amount classified as debt - 115,056 - 115,056 The preference share agreement was terminated by mutual agreement on 31 May 2006 and in terms of the agreement the preference shareholders converted 30% of their redeemable shares amounting to USD 5.7 million to ordinary share capital. The balance of USD13.3 million was repaid during the year. 23. OTHER LIABILITIES Accrued expenses 19,119 28,570 19,119 28,570 Other amounts due 23,952 15,760 23,952 15,760 43,071 44,330 43,071 44,330 Accrued expenses include leave pay and other performance benefits accruals. Other liabilities are due and payable within twelve months. 24. SHARE CAPITAL AND PREMIUM 24.1 Authorised 150 000 000 shares of BWP 0.05 each 7,500 7,500 7,500 7,500 24.2 Issued and fully paid 132 568 680 (2005: 113 449 724) shares of BWP 0.05 each 6,628 5,672 6,628 5,672 Share premium 263,561 221,226 263,561 221,226 Total company 270,189 226,898 270,189 226,898 Recognised as treasury shares (32) (1,693) (32) (1,693) Total group 270,157 225,205 270,157 225,205 24.3 Reconciliation of the number of shares in issue At the beginning of the year 113,449,724 113,449,724 113,449,724 113,449,724 Shares issued in respect of conversion of preference shares 11,344,972 - 11,344,972 - Shares issued to staff under the Staff Share Purchase Scheme 7,773,984 - 7,773,984 - At the end of the year 132,568,680 113,449,724 132,568,680 113,449,724 The holders of ordinary shares are entitled to receive a dividend as declared from time to time and are entitled to one vote per share at the meetings of the company. The unissued ordinary shares are under control of the directors. Treasury shares comprise the cost of the company’s own shares held by a subsidiary company. 56
  • 57. ABC Holdings Limited Notes to the financial statements for the year ended 31 December 2006 Inflation Adjusted Historical Cost 2006 2005 2006 2005 BWP ’000s BWP ’000s BWP ’000s BWP ’000s 25. CONTINGENT LIABILITIES The company has the following contingent liabilities as at 31 December:- Guarantees 37,591 47,581 37,591 47,581 Letters of credit and other contingent liabilities 126,572 46,598 126,572 46,598 164,163 94,179 164,163 94,179 26. COMMITMENTS The company has the following commitments as at 31 December:- Commitments in respect of capital expenditure Approved and contracted for 6,189 - 6,189 - Approved but not contracted for 46,045 13,128 46,045 13,128 52,234 13,128 52,234 13,128 Funds to meet these commitments will be provided from existing group resources. Commitments under operating leases Office premises 18,864 21,492 18,864 21,492 Equipment and motor vehicles 159 337 159 337 19,023 21,829 19,023 21,829 Maturity Analysis Less than one year 2,307 3,976 2,307 3,976 Between one year to five years 10,845 12,162 10,845 12,162 Over five years 5,871 5,691 5,871 5,691 19,023 21,829 19,023 21,829 27. ASSET MANAGEMENT AND UNIT TRUSTS ACTIVITIES The group provides asset management and unit trusts activities to pension funds, individuals, trusts and other institutions, whereby it holds and manages assets. The group receives a management fee for providing these services. Assets under management are not assets of the Group and are not recognised in the balance sheet. The group is not exposed to any credit risk relating to such placements. Funds under management 256,330 257,439 256,330 257,439 28. EMPLOYEE BENEFITS The group makes contributions to defined contribution plans which are administered externally and for which both the employee and the employer contribute. In Zimbabwe all employees of the group are members of the African Banking Corporation Zimbabwe Limited Pension Fund to which both the employee and the employer contribute. In addition the National Social Security Authority Scheme was introduced on 1 October 1994 and with effect from that date all employees became members of the scheme, to which both the employee and the employer contribute. Amounts recognised in expenses have been disclosed in Note 4.1. 57
  • 58. ABC Holdings Limited Notes to the financial statements for the year ended 31 December 2006 (continued) Closing Average Closing 31 December 2006 31 December 2006 31 December 2005 29. EXCHANGE RATES United States Dollar 0.1654 0.1705 0.1817 Zimbabwe Dollar 397.12 397.12 16.00 Tanzanian Shilling 209.07 213.14 211.08 Zambian Kwacha 726.15 622.07 632.24 Mozambican Metical 4.30 4.48 4.39 South African Rand 1.16 1.16 1.15 30. RELATED PARTY TRANSACTIONS Related party transactions are a normal feature of business and are disclosed in terms of IAS 24 as knowledge of related party transactions may affect the assessment of operations, risks and opportunities facing the organisation. An entity is defined as related to a director when the director or his/her immediate family hold more than 20% of the equity or exercise significant influence over the operating policies of the entity ABC Holdings Limited is the ultimate holding company. The list of the top ten shareholders in the group is included. Subsidiary companies and associates ABC Holdings Limited and its subsidiaries entered into various financial services contracts with fellow subsidiaries and associates during the year. These transactions are entered into the normal course of business, under terms that are no more favourable than those arranged with third parties. Loans to associates as at 31 December 2006 amounted to BWP 29.5 million (2005: BWP 20.1 million) which represents 11% (2005: 10%) of shareholder’s funds. ABC Consulting and Management Services Limited has entered into management services agreement with group companies on arms length basis. Details of disclosures of investments in subsidiaries, associate and jointly controlled entity are set out in note 33. Directors and officers Emoluments to directors have been disclosed in note 4.2. The list of directors of ABC and its major subsidiaries are shown. The total exposure of the group to directors and parties related to them in terms of IAS 24 as at 31 December 2006 is BWP 4.2 million (2005:BWP 5.0 million) which represents 2% (BWP 2005: 3%) of shareholder’s funds. Particulars of lending transactions entered into with directors or their related companies which have given rise to exposure on the balance sheet as at the end of the year are as follows: 31 December 2006 31 December 2005 BWP ’000s BWP ’000s Loans to entities related to OM Chidawu and DT Munatsi - 125 Loans to entities related to OM Chidawu 501 1,239 Loans to entities related to OM Chidawu and N Kudenga 3,744 2,990 Loans to entities related to C Chileshe - 596 4,245 4,950 Loans to key management personnel DT Munatsi 2,020 1,740 F Dzanya 5,117 5,057 B Moyo 2,451 1,628 H Matemera 4,255 1,383 J Machapu 545 548 Remuneration to key management personnel 14,388 10,356 Short-term employment benefits 22,182 10,627 Post-employment benefits 478 338 Discounts on shares issued 475 - 23,135 10,965 All loans bear interest and fees at rates applicable to similar exposures to third parties and have appropriate security. The group assists officers and employees in respect of housing, motor vehicle and personal loan at subsidised rates in some instances. Consistent policies and processes govern the granting and terms of such loans. 58
  • 59. ABC Holdings Limited Notes to the financial statements for the year ended 31 December 2006 Headline Profit for Total Total BWP ’000s earnings Contribution the year Contribution Assets Contribution Equity Contribution 31. SEGMENTAL ANALYSIS Inflation Adjusted for the year ended 31 December 2006 Botswana 11,399 19% 11,812 15% 1,311,771 50% 67,559 23% Mozambique 12,945 21% 13,015 17% 381,629 15% 63,902 21% Tanzania 2,073 3% 2,691 3% 281,002 11% 21,292 7% Zambia 4,978 8% 4,999 7% 270,198 10% 58,277 20% Zimbabwe 30,983 51% 46,080 60% 219,666 8% 118,519 40% ABCH & other (1,085) -2% (1,776) -2% 168,607 6% (32,181) -11% Total 61,293 100% 76,821 100% 2,632,873 100% 297,368 100% For the year ended 31 December 2005 Botswana 5,080 25% 5,080 30% 947,101 49% 46,975 23% Mozambique 6,689 33% 6,689 39% 184,284 10% 31,437 15% Tanzania (1,417) -7% (901) -5% 159,979 8% 20,741 10% United Kingdom 1,970 10% 1,970 12% - - - - Zambia 1,341 7% 1,341 8% 239,148 13% 38,002 18% Zimbabwe 6,430 32% 12,385 72% 302,600 16% 69,159 33% ABCH & other 70 0% (9,482) -56% 82,711 4% 1,312 1% Total 20,163 100% 17,082 100% 1,915,823 100% 207,626 100% Historical Cost for the year ended 31 December 2006 Botswana 11,399 15% 11,812 13% 1,311,771 50% 67,559 24% Mozambique 12,945 17% 13,015 14% 381,629 15% 63,902 22% Tanzania 2,073 3% 2,691 3% 281,002 11% 21,292 8% Zambia 4,978 6% 4,999 5% 270,198 10% 58,277 20% Zimbabwe 46,926 61% 62,023 67% 204,018 8% 105,765 37% ABCH & other (1,085) -2% (1,776) -2% 168,607 6% (32,181) -11% Total 77,236 100% 92,764 100% 2,617,225 100% 284,614 100% For the year ended 31 December 2005 Botswana 5,080 8% 5,080 9% 947,101 50% 46,975 24% Mozambique 6,689 11% 6,689 12% 184,284 10% 31,437 16% Tanzania (1,417) -2% (901) -2% 159,979 8% 20,741 10% United Kingdom 1,970 4% 1,970 4% - 0% - 0% Zambia 1,341 2% 1,341 2% 239,148 13% 38,002 19% Zimbabwe 47,093 77% 53,048 92% 288,921 15% 59,712 30% ABCH & other 70 0% (9,482) -17% 82,711 4% 1,312 1% Total 60,826 100% 57,745 100% 1,902,144 100% 198,179 100% 59
  • 60. ABC Holdings Limited Notes to the financial statements for the year ended 31 December 2006 (continued) 32. FINANCIAL INSTRUMENTS Exposures to credit, interest rate, currency risk and liquidity risk arise in the normal course of the group’s business. Credit Risk Credit risk is the risk of loss due to inability or unwillingness of a client or other counter parties to meet its obligations. Credit risk is a significant risk facing the group. In order to manage this risk, the Board has a defined credit policy for the group, which is documented and forms the basis of all credit decisions. The group structures the levels of credit risk it undertakes placing limits on the amounts of risk accepted in relation to one borrower, or group of borrowers, and to geographical and industry segments. The group also makes provision against non-performing accounts. Interest Rate Risk The group is exposed to various risks associated with the effects of fluctuations in the prevailing levels of market rates of interest on its financial position and cash flows. The Asset and Liabilities management Committee (ALCO) is responsible for managing liquidity and interest rate risk in the group. In order to minimise interest rate risk, the majority of the group’s lendings are on a variable interest rate basis with a term of less than one year. Liquidity Risk The analysis of assets and liabilities of the group into relevant maturity groups is based on the remaining period at balance sheet date to the contractual maturity date. The matching and controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental to the management of the company. It is unusual for banks ever to be completely matched since business transacted is often of uncertain items and of different types. An unmatched position potentially enhances profitability, but can also increase the risk of loss. Currency Risk Currency risk is the risk of adverse movements in exchange rates that will result in a decrease in the value of foreign exchange assets or an increase in the value of foreign currency liabilities. The group manages foreign currency exposures in terms of approved limits. Further details on managing of risks is set out in the Risk Management report on page 24. Capital management The parent company and individual banking operations are directly supervised by the local regulators, who set and monitor the capital requirements of each entity. In implementing current capital requirements, the regulators require the entities to maintain a prescribed ratio of total capital to risk-weighted assets The regulatory capital is analysed into two tiers: Tier 1 capital, which includes ordinary share capital, share premium, retained earnings, translation reserve after deduction of goodwill and other regulatory adjustments relating to items that are included in equity but are treated differently for capital adequacy purposes. Tier 2 capital, which includes qualifying subordinated liabilities, portfolio impairment and fair value reserve relating to gains on equity instruments classified as available-for-sale. The group’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future developments of the business. All regulated banking operations have complied with all externally imposed capital requirements throughout the year. There have been no material changes to the group’s management of capital during the year. The computation of the group’s capital adequacy ratio is on page 19. Capital allocation The allocation of capital between specific operations and activities is, to a large extent, driven by optimisation of the return achieved on the capital allocated. The amount of capital allocated to each subsidiary is based upon the regulatory capital requirements of the countries we operate in and the need to maximise returns to shareholders. The group’s policies in respect of capital management and allocation are reviewed regularly by the board of directors. 60
  • 61. ABC Holdings Limited Notes to the financial statements for the year ended 31 December 2006 32.1. CURRENCY RISK EUR USD BWP ZAR ZWD Other Total INFLATION ADJUSTED BWP ’000s BWP ’000s BWP ’000s BWP ’000s BWP ’000s BWP ’000s BWP ’000s Assets Cash and cash equivalents 15,464 150,773 72,242 28,241 10,366 151,861 428,947 Financial assets held for trading - - 578,937 - 126,476 146,973 852,386 Derivative assets held for risk management - - - - - 170,089 170,089 Loans and advances to customers 9,940 460,072 201,859 9,796 53,662 205,400 940,729 Other assets - 5,407 669 412 1,716 4,600 12,804 Investments - 23,594 23,770 - 619 4,618 52,601 Investments in associates and joint venture - - - - 30,746 18,150 48,896 Investment property - - 1,760 - 22,411 - 24,171 Property and equipment - - 807 500 37,963 14,866 54,136 Deferred tax asset - - - 1,200 5 4,003 5,208 Intangible assets - 34,465 - - 6,391 2,050 42,906 Total Assets 25,404 674,311 880,044 40,149 290,355 722,610 2,632,873 Shareholders’ equity and liabilities Shareholders’ equity - (42,789) 67,559 2,078 118,519 143,471 288,838 Minority interest - - - - - 8,530 8,530 Liabilities Deposits 11,403 438,950 605,411 24,006 71,233 384,269 1,535,272 Derivative liabilities held for risk management - 170,505 - - - - 170,505 Borrowed funds 36,347 83,607 279,392 504 - 148,314 548,164 Current tax liabilities - 183 2,067 - 7,155 (2,362) 7,043 Deferred tax liability - 1,747 - - 29,682 21 31,450 Other liabilities 166 13,568 2,135 765 23,013 3,424 43,071 Total equity and liabilities 47,916 665,771 956,564 27,353 249,602 685,667 2,632,873 Net balance sheet position at 31 December 2006 (22,512) 8,540 (76,520) 12,796 40,753 36,943 - Net balance sheet position at 31 December 2005 (10,402) (36,954) 11,142 4,632 16,436 15,146 - 61
  • 62. ABC Holdings Limited Notes to the financial statements for the year ended 31 December 2006 (continued) 32.1. CURRENCY RISK EUR USD BWP ZAR ZWD Other Total HISTORICAL COST BWP ’000s BWP ’000s BWP ’000s BWP ’000s BWP ’000s BWP ’000s BWP ’000s Assets Cash and cash equivalents 15,464 150,773 72,242 28,241 10,366 151,861 428,947 Financial assets held for trading - - 578,937 - 126,476 146,973 852,386 Derivative assets held for risk management - - - - - 170,089 170,089 Loans and advances to customers 9,940 460,072 201,859 9,796 53,662 205,400 940,729 Other assets - 5,407 669 412 1,716 4,600 12,804 Investments - 23,594 23,770 - 619 4,618 52,601 Investments in associates and - - - - 24,472 18,150 42,622 joint venture Investment property - - 1,760 22,411 - 24,171 Property and equipment - - 807 500 34,044 14,866 50,217 Deferred tax asset - - - 1,200 5 4,003 5,208 Intangible assets - 34,465 - - 936 2,050 37,451 Total Assets 25,404 674,311 880,044 40,149 274,707 722,610 2,617,225 Shareholders’ equity and liabilities Shareholders’ equity - (42,789) 67,559 2,078 105,765 143,471 276,084 Minority interest - - - - - 8,530 8,530 Liabilities Deposits 11,403 438,950 605,411 24,006 71,233 384,269 1,535,272 Derivative liabilities held for risk management - 170,505 - - - - 170,505 Borrowed funds 36,347 83,607 279,392 504 - 148,314 548,164 Current tax liabilities - 183 2,067 - 7,155 (2,362) 7,043 Deferred tax liability - 1,747 - - 26,788 21 28,556 Other liabilities 166 13,568 2,135 765 23,013 3,424 43,071 Total equity and liabilities 47,916 665,771 956,564 27,353 233,954 685,667 2,617,225 Net balance sheet position at 31 December 2006 (22,512) 8,540 (76,520) 12,796 40,753 36,943 - Net balance sheet position at 31 December 2005 (10,402) (36,954) 11,142 4,632 16,436 15,146 - 62
  • 63. ABC Holdings Limited Notes to the financial statements for the year ended 31 December 2006 32.2. INTEREST RATE RISK Non- Up to 3-12 interest 1 month 1-3 months months 1 - 5 years bearing Total INFLATION ADJUSTED BWP ’000s BWP ’000s BWP ’000s BWP ’000s BWP ’000s BWP ’000s Assets 1,427,013 316,341 554,447 183,733 151,339 2,632,873 Shareholders’ equity and minority interest - - - - 297,368 297,368 Liabilities 1,278,162 276,367 603,947 103,898 73,131 2,335,505 Repricing gap 148,851 39,974 (49,500) 79,835 (219,160) - Cumulative repricing gap at 31 December 2006 148,851 188,825 139,325 219,160 - - Cumulative repricing gap at 31 December 2005 178,010 (127,079) (6,397) (461) - - HISTORICAL COST Assets 1,427,013 316,341 554,447 183,733 135,691 2,617,225 Shareholders’ equity and minority interest - - - - 284,614 284,614 Liabilities 1,278,162 276,367 603,947 103,898 70,237 2,332,611 Repricing gap 148,851 39,974 (49,500) 79,835 (219,160) - Cumulative repricing gap at 31 December 2006 148,851 188,825 139,325 219,160 - - Cumulative repricing gap at 31 December 2005 178,010 (127,079) (6,397) (461) - - 63
  • 64. ABC Holdings Limited Notes to the financial statements for the year ended 31 December 2006 (continued) 32.3. LIQUIDITY RISK Up to 3-12 Greater 1 month 1-3 months months than 1 year Total INFLATION ADJUSTED BWP ’000s BWP ’000s BWP ’000s BWP ’000s BWP ’000s Assets Cash and cash equivalents 343,892 85,055 - - 428,947 Financial assets held for trading 468,118 184,666 195,581 4,021 852,386 Derivative assets held for risk management - 701 11,505 157,883 170,089 Loans and advances to customers 166,436 67,062 426,663 280,568 940,729 Other assets 3,135 3,562 2,177 3,930 12,804 Investments 195 - 1,560 50,846 52,601 Investments in associates and joint venture - - - 48,896 48,896 Investment property - - - 24,171 24,171 Property and equipment - - - 54,136 54,136 Deferred tax asset - - - 5,208 5,208 Intangible assets - - - 42,906 42,906 Total assets 981,776 341,046 637,486 672,565 2,632,873 Shareholders’ equity and liabilities Shareholders’ equity - - - 288,838 288,838 Minority interest - - - 8,530 8,530 Liabilities Deposits 967,458 409,067 152,148 6,599 1,535,272 Derivative liabilities held for risk management - 1,741 11,264 157,500 170,505 Borrowed funds 32,232 772 83,740 431,420 548,164 Current tax liabilities 6,947 96 - - 7,043 Deferred tax liability - - - 31,450 31,450 Other liabilities 35,207 1,453 4,574 1,837 43,071 Total equity and liabilities 1,041,844 413,129 251,726 926,174 2,632,873 Net balance sheet position at 31 December 2006 (60,068) (72,083) 385,760 (253,609) - Net balance sheet position at 31 December 2005 245,582 (261,556) 113,908 (97,934) - 64
  • 65. ABC Holdings Limited Notes to the financial statements for the year ended 31 December 2006 32.3. LIQUIDITY RISK Up to Greater than 1 month 1-3 months 3-12 months 1 year Total HISTORICAL COST BWP ’000s BWP ’000s BWP ’000s BWP ’000s BWP ’000s Assets Cash and cash equivalents 343,892 85,055 - - 428,947 Financial assets held for trading 468,118 184,666 195,581 4,021 852,386 Derivative assets held for risk management - 701 11,505 157,883 170,089 Loans and advances to customers 166,436 67,062 426,663 280,568 940,729 Other assets 3,135 3,562 2,177 3,930 12,804 Investments 195 - 1,560 50,846 52,601 Investments in associates and joint venture - - - 42,622 42,622 Investment property - - - 24,171 24,171 Property and equipment - - - 50,217 50,217 Deferred tax asset - - - 5,208 5,208 Intangible assets - - - 37,451 37,451 Total assets 981,776 341,046 637,486 656,917 2,617,225 Shareholders’ equity and liabilities Shareholders’ equity - - - 276,084 276,084 Minority interest - - - 8,530 8,530 Liabilities Deposits 967,458 409,067 152,148 6,599 1,535,272 Derivative liabilities held for risk management - 1,741 11,264 157,500 170,505 Borrowed funds 32,232 772 83,740 431,420 548,164 Current tax liabilities 6,947 96 - - 7,043 Deferred tax liability - - - 28,556 28,556 Other liabilities 35,207 1,453 4,574 1,837 43,071 Total equity and liabilities 1,041,844 413,129 251,726 910,526 2,617,225 Net balance sheet position at 31 December 2006 (60,068) (72,083) 385,760 (253,609) - Net balance sheet position at 31 December 2005 245,582 (261,556) 113,908 (97,934) - 65
  • 66. ABC Holdings Limited Notes to the financial statements for the year ended 31 December 2006 (continued) 33. INVESTMENT IN SUBSIDIARIES AND ASSOCIATES Ownership of ordinary Carrying value on a Nature of business shares historical cost basis 2006 2005 2006 2005 % % BWP ’000s BWP ’000s BOTSWANA African Banking Corporation of Botswana Limited Registered Bank 100 100 52,241 39,494 African Banking Corporation International Limited Registered Bank 100 100 10,779 10,779 MOZAMBIQUE African Banking Corporation Mozambique Sarl Registered Bank 100 100 47,752 28,391 SOUTH AFRICA Fastpulse Trading 327 (Pty) Limited t/a ABC South Africa Management Services 100 100 - - TANZANIA African Banking Corporation Tanzania Limited Registered Bank 74 74 71,792 45,977 Tanzania Development Finance Company Limited Financial Services 68 68 14,059 14,059 UNITED KINGDOM Iroko Securities Limited Financial Services 63 63 - - Iroko Financial Products Limited Financial Services 63 63 11,816 11,816 ZAMBIA African Banking Corporation Zambia Limited Registered Bank 100 100 40,974 17,426 Microfin Africa Zambia Limited Microfinance 100 100 921 921 ZIMBABWE African Banking Corporation Holdings (Zimbabwe) Limited Registered Bank 100 100 144,690 144,690 Discount house, Stockbroking and Asset Management Leasing LUXEMBOURG EDFUND S.A. Management 100 100 48,959 48,959 Services 443,983 362,512 INVESTMENT IN ASSOCIATE AND JOINT VENTURE CBAQ Limited (Registered in Mauritius) Investment holding company 50 50 22,383 19,986 Capital Properties Limited (Registered in Tanzania) Property holding company 40 40 13,707 11,120 Lion of Tanzania Insurance Company Limited Insurance (Registered in Tanzania) 38 38 3,922 2,762 Pyramid Plaza (Pty) Ltd (Registered in Zambia) Property holding company 25 25 521 599 PG Industries (Zimbabwe) Limited (Registered in Zimbabwe) Construction 21 - 2,089 - 42,622 34,467 66
  • 67. ABC Holdings Limited Notes to the financial statements for the year ended 31 December 2006 34. ASSETS CLASSIFIED AS HELD FOR SALE Inflation Adjusted Historical cost 2006 2005 2006 2005 BWP ’000s BWP ’000s BWP ’000s BWP ’000s IROKO FINANCIAL PRODUCTS LIMITED Total assets 73,376 78,469 73,376 78,469 Total liabilities (70,385) (70,385) (70,385) (70,385) Minoriy interests (2,991) (2,991) (2,991) (2,991) Net asset value attributable to ABC Holdings Limited - 5,093 - 5,093 Estimated recoverable amount - - - - Carrying amount - 5,093 - 5,093 Impairment loss - (5,093) - (5,093) Net assets classified as held for sale - - - - In 2005, ABC Holdings Limited entered into discussions to exit Iroko Financial Products Limited. In accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, the net assets of the entity have been classified as assets held for sale. The carrying amount of the net assets has been impaired to the estimated net realisable value. 35. NEW INTERNATIONAL FINANCIAL REPORTING STANDARDS At the date of authorisation of the financial statements for the year ended 31 December 2006, the standards and interpretations listed below are not yet effective for the year ended 31 December 2006, and have not been applied in preparing these consolidated financial statements: Standards/Interpretation Effective date IFRS 7 Financial Instruments: Annual periods commencing on or after 1 January 2007 Disclosures (including amendments to IAS 1 Presentation of Financial Statements: Capital Disclosures) IFRIC 9 Scope of IFRS 2 Share-based Payment Annual periods commencing on or after 1 May 2006 The Interpretation addresses the accounting for share-based payment transactions in which some or all of goods or services received cannot be specifically identified. IFRIC 9 Reassessment of Embedded Derivatives Annual periods commencing on or after 1 June 2006 The Interpretation requires that a reassessment of whether embedded derivative should be separated from the underlying host contract should be made only when there are changes to the contract. IFRIC 10 Interim Financial Reporting and Impairment Annual periods commencing on or after 1 November 2006 The Interpretation prohibits the reversal of an impairment loss recognised in a previous interim period in respect of goodwill, an investment in an equity instrument or a financial asset carried at cost. The potential financial impact on the group of the interpretations is expected not to be material. 67
  • 68. ABC Holdings Limited Company income statement for the year ended 31 December 2006 Historical Cost 2006 2005 Notes BWP ’000s BWP ’000s Interest and similar income 15,432 2,344 Interest expense and similar charges (15,618) (12,598) Net interest loss before impairment 1 (186) (10,254) Impairment of loans and advances 2 (1,638) - Net interest loss after impairment (1,824) (10,254) Non interest revenue 3 14,260 16,643 Total operating income 12,436 6,389 Operating expenditure 4 (25,135) (5,395) Loss/Profit before taxation (12,699) 994 Taxation 5 2,841 (1,787) Loss for the year (9,858) (793) Attributable to: Equity holders of parent (9,858) (793) Company balance sheet as at 31 December 2006 Historical Cost 2006 2005 Assets Notes BWP ’000s BWP ’000s Cash and cash equivalents 6 9,216 - Derivative assets held for risk management 7 170,089 - Loans and advances to customers 8 57,753 - Intercompany balances 9 194,408 49,420 Other assets 10 577 929 Investments 11 23,770 729 Deferred tax asset 17 - 97 Loans to subsidiary companies 13 37,046 - Investments in subsidiary companies 12 443,983 362,512 Total assets 936,842 413,687 Derivative liabilities held for risk management 7 170,505 - Borrowed funds 14 433,863 - Intercompany balances 9 44,298 40,336 Preference share liability 15 - 115,056 Other liabilities 16 11,600 7,287 Deferred tax liability 17 2,097 - Total liabilities 662,363 162,679 SHAREHOLDERS’ EQUITY Share capital and premium 18 270,189 226,898 Foreign currency translation reserve (9,851) (7,599) Retained earnings 14,141 31,709 Total shareholders’ equity 274,479 251,008 Total shareholders’ equity and liabilities 936,842 413,687 68
  • 69. ABC Holdings Limited Statement of changes in shareholders equity for the year ended 31 December 2006 Foreign Currency Share Share Translation Retained Capital Premium Reserve Earnings Total HISTORICAL COST BWP ’000s BWP ’000s BWP ’000s BWP ’000s BWP ’000s Balance at 1 January 2005 5,672 221,226 23,407 32,502 282,807 Loss for the year (793) (793) Foreign currency translation effects (31,006) (31,006) Balance at 31 December 2005 5,672 221,226 (7,599) 31,709 251,008 Loss for the year (9,858) (9,858) Shares issued 956 42,335 43,291 Foreign currency translation effects (2,252) (2,252) Waiver of loan to subsidiary company (7,710) (7,710) Balance at 31 December 2006 6,628 263,561 (9,851) 14,141 274,479 Company cashflow statement for the year ended 31 December 2006 Historical Cost 2006 2005 Notes BWP ’000s BWP ’000s CASH FLOWS FROM OPERATING ACTIVITIES (Loss)/profit before taxation (12,699) 994 Adjusted for: Impairment of loans and advances (net of recoveries) 1,638 - Net cash (outflow)/inflow from operating activities before changes in operating assets and 11,061 994 liabilities Changes in derivative assets held for risk management (170,089) - Changes in loans and advances (59,391) - Changes in other assets 352 1,291 Changes in investment securities (23,041) (163) Changes in derivative liabilities held for risk management 170,505 - Changes in intercompany balances (148,736) (4,522) Changes in other liabilities 4,313 (183) Net cash utilised in operating activities (237,148) (2,583) CASH FLOWS FROM INVESTING ACTIVITIES Changes in loans to subsidiaries (37,046) - Investment in subsidiaries (81,472) - Net cash utilised in investing activities (118,518) - CASH FLOWS FROM FINANCING ACTIVITIES Changes in borrowed funds 433,863 - Repayment of preference share liability (115,056) - Issue of new ordinary shares 43,291 - Net cash from financing activities 362,098 - Net increase/(decrease) in cash and cash equivalents 6,432 (2,583) Cash and cash equivalents at the beginning of the year - 2,524 Exchange adjustment on opening balance 2,784 59 Cash and cash equivalents at the end of the year 6 9,216 - 69
  • 70. ABC Holdings Limited Notes to the company financial statements for the year ended 31 December 2006 Historical Cost 2006 2005 BWP ’000s BWP ’000s 1. NET INTEREST INCOME Interest and similar income Cash and cash equivalents 2,683 377 Loans and advances 10,617 1,967 Investments 112 - Derivative assets held for risk management 2,020 - 15,432 2,344 Interest expense Borrowed funds 5,321 2,763 Preference shares 5,767 9,835 Derivative liabilities held for risk management 4,530 - 15,618 12,598 Net Interest Income (186) (10,254) 2. IMPAIRMENT OF LOANS AND ADVANCES Specific impairments 12,105 - Recoveries (10,467) - 1,638 - 3. NON INTEREST REVENUE Fees and commission receivable 7,355 3,668 Currency revaluations 1,005 560 Dividends 5,900 12,415 14,260 16,643 4. OPERATING EXPENDITURE Administrative expenses 13,988 2,954 Staff costs 10,156 592 Auditors’ remuneration 294 621 Directors’ remuneration 697 1,228 25,135 5,395 5. TAXATION Current taxation Withholding tax on dividend - 1,735 Deferred taxation (2,841) 52 Current year (2,841) 1,787 6. CASH AND CASH EQUIVALENTS Balances with banks 9,216 - 70
  • 71. ABC Holdings Limited Notes to the company financial statements for the year ended 31 December 2006 Historical Cost 2006 2005 BWP ’000s BWP ’000s 7. DERIVATIVES HELD FOR RISK MANAGEMENT 7.1 Derivative assets held for risk management Cross-currency swap 170,089 - Maturity analysis Less than 1 year 12,206 - 1 - 2 years 10,637 - 2 - 3 years 11,016 - 3 - 4 years 11,409 - 4 - 5 years 11,815 - More than 5 years 113,006 - 170,089 - 7.2 Derivative liabilities held for risk management Cross-currency swap 170,505 - Maturity analysis Less than 1 year 13,005 - 1 - 2 years 10,738 - 2 - 3 years 11,119 - 3 - 4 years 11,518 - 4 - 5 years 11,929 - More than 5 years 112,196 - 170,505 - Net derivatives held for risk management Cashflow hedges of foreign currency borrowed funds (1,402) - Net investment hedges 986 - (416) - Cashflow hedges of foreign currency borrowed funds The group uses cross-currency swaps to hedge the foreign currency risk arising from its borrowings in foreign currencies. The cash flows on the cross-currency swaps substantially match the cash flow profile of the borrowings. Net investment hedges The Group uses cross-currency interest rate swaps to hedge the foreign currency translation risk on net investment in foreign subsidiaries. 71
  • 72. ABC Holdings Limited Notes to the company financial statements for the year ended 31 December 2006 (continued) Historical Cost 2006 2005 BWP ’000s BWP ’000s 8. LOANS AND ADVANCES TO CUSTOMERS Corporate and trade finance 72,036 - Less: Impairment of loans and advances (14,283) - Net loans and advances 57,753 - MATURITY ANALYSIS On demand to one month 2,030 - One month to three months - - Three months to one year 55,723 - 57,753 - IMPAIRMENT OF LOANS AND ADVANCES Balance at beginning of the year - - Impairment of loans and advances 12,105 - Specific impairments 12,105 - Exchange adjustment 2,178 - Balance at the end of the year 14,283 - 9. INTERCOMPANY BALANCES 9.1 Balances due from: African Banking Corporation Botswana Limited 187,736 17,436 African Banking Corporation Mozambique Sarl 94 - African Banking Corporation Tanzania Limited 541 27 African Banking Corporation Zambia Limited 57 4,068 African Banking Corporation Zimbabwe Limited 5,852 11,111 ABC South Africa and other non-bank subsidiaries 128 16,778 194,408 49,420 9.2 Balances due to: African Banking Corporation (International) Limited 8,933 8,135 EDFUND S.A. 35,365 32,201 44,298 40,336 10. OTHER ASSETS Accounts receivable and prepayments 577 929 11. INVESTMENTS Government bonds 23,770 729 Portfolio analysis Fair value through profit and loss 23,770 729 - at cost 23,690 729 - fair value adjustment 80 729 23,770 729 72
  • 73. ABC Holdings Limited Notes to the company financial statements for the year ended 31 December 2006 Ownership of ordinary Carrying value on a 12. INVESTMENT IN SUBSIDIARIES AND ASSOCIATES Nature of business shares historical cost basis 2006 2005 2006 2005 % % BWP ’000s BWP ’000s BOTSWANA African Banking Corporation of Botswana Limited Registered Bank 100 100 52,241 39,494 African Banking Corporation International Limited Registered Bank 100 100 10,779 10,779 MOZAMBIQUE African Banking Corporation Mozambique Sarl Registered Bank 100 100 47,752 28,391 SOUTH AFRICA Fastpulse Trading 327 (Pty) Limited ABC South Africa Management 100 100 - - Services TANZANIA African Banking Corporation Tanzania Limited Registered Bank 74 74 71,792 45,977 Tanzania Development Finance Company Limited Financial Services 68 68 14,059 14,059 UNITED KINGDOM Iroko Securities Financial Services 63 63 - - Iroko Financial Products Limited Financial Services 63 63 11,816 11,816 ZAMBIA African Banking Corporation Zambia Limited Registered Bank 100 100 40,974 17,426 Microfin Africa Zambia Limited Microfinance 100 100 921 921 ZIMBABWE African Banking Corporation Holdings (Zimbabwe) Limited Registered Bank 100 100 144,690 144,690 Discount house, Stockbroking and Asset Management Leasing LUXEMBOURG EDFUND S.A. Management 100 100 48,959 48,959 Services 443,983 362,512 73
  • 74. ABC Holdings Limited Notes to the company financial statements for the year ended 31 December 2006 (continued) Historical Cost 2006 2005 BWP ’000s BWP ’000s 13. LOANS TO SUBSIDIARY COMPANIES African Banking Corporation of Botswana Limited 31,000 - Microfin Africa Zambia Limited 6,046 - 37,046 - The loan to African Banking Corporation of Botswana is denominated in Botswana Pula and attracts interest at 12.5% per annum payable semi annually on 31 March and 30 September. The loan is redeemable on 30 September 2020. The loan to Microfin Africa Zambia Limited is denominated in US dollar and attracts interest at 10% per annum payable semi annually on 30 June and 31 December. The loan is redeemable on 31 December 2011. 14. BORROWED FUNDS National Development Bank of Botswana Limited (NDB) 121,018 - BIFM Capital Investment Fund One (Pty) Limited 248,383 - Other borowings 64,462 - 433,863 - Maturity analysis On demand to one month 562 - One month to three months - - Three months to one year 72,449 - Over one year 360,852 - 433,863 - National Development Bank of Botswana Limited The loan from National Development Bank of Botswana Limited is denominated in Japanese Yen and attracts interest at a fixed rate of 3.53%. Principal and interest is payable semi annually on 15 June and 15 December. The loan matures on 15 December 2016. BIFM Capital Investment Fund One (Pty) Limited The loan from BIFM Capital Investment Fund One (Pty) Limited is denominated in Botswana Pula and attracts interest of 11.63% per annum payable semi annually. The redemption dates are as follows: 30 September 2017 - P62 500 000 30 September 2018 - P62 500 000 30 September 2019 - P62 500 000 30 September 2020 - P62 500 000 Other borrowings Other borrowings ralate to medium to long-term funding from international financial insitutions for onward lending to ABC clients. 74
  • 75. ABC Holdings Limited Notes to the company financial statements for the year ended 31 December 2006 Historical Cost 2006 2005 BWP ’000s BWP ’000s 15. PREFERENCE SHARES LIABILITY 15.1 Authorised 50 shares of USD 1 million (BWP 5.5 million) each 275,000 275,000 15.2 Issued and fully paid 19 shares of USD 1 million (BWP 5.5 million) each - 104,104 Transaction costs - (3,121) Net preference share liability at date of issue - 100,983 Accrued interest - 10,460 Foreign currency translation gain - 3,613 Amount classified as debt - 115,056 The preference share agreement was terminated by mutual agreement on 31 May 2006 and in terms of the agreement the preference shareholders converted 30% of their redeemable amounting to USD 5.7 million. The balance of USD 13.3 million was repaid during the year. 16. OTHER LIABILITIES Accrued expenses 11,600 7,287 Accrued expenses include other performance benefits accruals. Other liabilities are due and payable within twelve months. 17. DEFERRED TAXATION Balance at the beginning of the year (97) (119) Exchange adjustment (647) 74 Income statement charge (note 5) 2,841 (52) Balance at the end of the year 2,097 (97) Tax effects of temporary differences: Accounting Accruals 5,367 - Tax losses (3,270) (97) 2,097 (97) Disclosed as follows: Deferred tax asset - (97) Deferred tax liability 2,097 - 2,097 (97) 18. SHARE CAPITAL AND PREMIUM 18.1 Authorised 150 000 000 shares of BWP 0.05 each 7,500 7,500 18.2 Issued and fully paid 132 568 680 (2005: 113 449 724) shares of BWP 0.05 each 6,628 5,672 Share premium 263,561 221,226 270,189 226,898 The holders of ordinary shares are entitled to receive a dividend as declared from time to time and are entitled to one vote per share at the meetings of the company. The unissued ordinary shares are under control of the directors. 75
  • 76. Zimbabwe 76
  • 77. ABC Holdings Limited Analysis of Shareholders % of total % of total RANGES Holders Holder’s Shares Shares 0 - 50,000 3,027 96.03% 4,635,898 3.50% 50,001 - 100,000 40 1.27% 2,900,734 2.19% 100,001 - 500,000 46 1.46% 9,269,947 6.99% 500,001 - 1,000,000 8 0.25% 5,604,443 4.23% 1,000,001 - 10,000,000 30 0.95% 94,292,162 71.12% Above 10,000,000 1 0.04% 15,865,496 11.97% 3,152 100.00% 132,568,680 100.00% ABC TOP 10 SHAREHOLDERS AS AT 31 DECEMBER 2006 Number of Percentage NAME Shares Holdings Old Mutual Life Association of Zimbabwe Limited 15,865,496 11.97% Stanbic Nominees Botswana (Pty) Ltd in respect of: BIFM and Botswana Public Officers Pension Fund 9,056,051 6.83% Barclays Bank Nominees (Pty) Ltd in respect of Zephyr Fund Managers 8,498,942 6.41% HIB Holdings (Pvt) Ltd in respect of OM Chidawu and DT Munatsi 7,785,797 5.87% Waughco Nominees (Pvt) Ltd in respect of ABC Zimbabawe Staff Shares 5,732,064 4.32% Broadway Investments (Pvt) Ltd in respect of OM Chidawu and DT Munatsi 5,319,868 4.01% Swiss Confederation 4,446,000 3.35% Kingdom Nominees (Pvt) Limited 4,210,507 3.18% Dresdner Bank Luxembourg 4,184,714 3.17% Total top 10 shareholders 65,099,439 49.11% Other shareholders 67,469,241 50.89% Total shares in issue 132,568,680 100.00% 77
  • 78. Notice to Shareholders NOTICE TO SHAREHOLDERS NOTICE IS HEREBY GIVEN that the Eighth Annual General Meeting of members of ABC Holdings Limited will be held in the Boardroom of ABC Holdings Limited, Tholo Park, Plot 50669, Fairground Office Park, Gaborone, Botswana on Tuesday 29th May 2007 at 08h00, or so soon thereafter as the matter may be heard, for the following purpose:- ORDINARY BUSINESS: To consider and adopt the following Resolutions: Resolution 1: To receive and consider the annual financial statements for the year ended 31 December 2006 including Chairman’s statement, Directors’ and Auditors’ report. Resolution 2: To approve the remuneration of Directors for the year ended 31 December 2006. Resolution 3: To elect Directors in place of those retiring in accordance with the provisions of S67 of the Company’s Articles of Association. In this regard Messrs Munatsi, Wasmus and Mothibatsela, Directors of the Company who retire by rotation in accordance with Article 67 of the Articles of Association of the Company and who being available and eligible, offer themselves for re-election. Resolution 4: To approve the remuneration of the Auditors for the year ended 31 December 2006. Resolution 5: To appoint Auditors for the ensuing year. Resolution 6: To ratify the appointment of Mrs. Doreen Khama as a Director of the Company. Resolution 7: To ratify the appointment of Mr. John Moses as a Director of the Company. Registered Office: ABC House, Tholo Park, Plot 50669 By order of the Board Fairgrounds Office Park, private Bag 00303 M de Klerk Gaborone, Botswana. Secretary to the Board 6th March 2007 Biographies of directors standing for re-election at the Biographies of Directors being confirmed at the Annual Annual General Meeting. General Meeting. D.T. Munatsi D. Khama. Douglas Munatsi was born in Zimbabwe in 1962. He has been Chief Executive Doreen Khama was born in Botswana in 1949. Mrs Khama is the Honorary Consul Officer of the ABC Holdings Group since its formation in 2000. Prior to the for Austria in Botswana, is a practicing lawyer by profession, the founder and establishment of African Banking Corporation, Douglas founded Heritage senior partner of a legal firm that has been in operation for more than 20 years. Investment Bank (HIB), which quickly established a reputation for successful Doreen Khama Attorneys has offered legal advice to companies such as Damp introduction of innovative capital market products and became one of the leading Holding AB Sweden, Admiral Leisure World Limited Austria and South Africa, merchant banks in Zimbabwe. Following the merger of HIB and First Merchant LID Limited Russia and Israel, as well as Equity Diamond Cutting Works (Pty) Bank in 1997, Douglas became Managing Director of the merged bank, which Ltd in South Africa. She is an active business individual nationally, regionally and retained the First Merchant Bank name. Prior to establishing HIB, Douglas Munatsi internationally, and has been able to execute several business developments and was an executive in the Southern Africa regional mission of the International maintain a high standing of professional prominence through her affiliations in Finance Corporation (IFC). Douglas Munatsi holds a Bachelor of Business Studies Greece, Italy and England. She serves as a director and board member for several degree from the University of Zimbabwe and a Master of Business Administration industrial organisations and some financial institutions. (Finance) from the American University, Washington D.C. He is also an Associate of the Institute of Bankers of Zimbabwe. J. Moses John Moses was born in South Africa in 1945. He has a distinguished career in H. Wasmus banking, commencing with First National Bank in 1975, where he rose through Hans Wasmus was born in Holland in 1941. He holds a diploma in accountancy the ranks and retired as Chairman of Regional Banking in 1999. He was a council from the Netherlands Institute for Chartered Accountants and a Diploma in member of the South African Institute of bankers retiring in 2000. He remains a economics. He was employed by FMO, the Netherlands-based development fellow of this institution. finance institution for 25 years until 2002. Initially as Regional Manager for Africa and thereafter as CFO. During this period he was seconded to Inde Bank Malawi Any member wishing to nominate a person to be considered for election as Directors as senior adviser. He is still a senior adviser to FMO and is a non-executive director of the Company, in place of those retiring, should submit a written nomination, of several companies. proposed by that member and seconded by another member, containing the written consent of the nominee to be appointed a director, and the curriculum vitae of the T.S Mothibatsela Nominee, to the Registered Office of the Company at least 10 days prior to the date Tshipa Mothibatsela was born in South Africa in 1948. He holds a Bachelor of of the Annual General Meeting. Engineering in Mining from the University of Zambia and a Masters in Engineering from Pennsylvania State University in the USA. Tshipa completed a Management Development Programme with Anglo American Corporation and went on to establish his own company, TTCS in Botswana. Tshipa is Chief Executive Officer and Director of Mothibatsela and Associates Consulting Engineers, a company which he founded. 78
  • 79. ABC HOLDINGS LIMITED Incorporated in the Republic of Botswana on the 1st December 1999 Registration number: 99/4865 Form of Proxy For use at the Eighth Annual General Meeting of Shareholders of ABC Holdings Limited to be held at 08h00 on Tuesday 29th May 2007 at the registered office of the Company ABC House, Tholo Park, Plot 50669, Fairground Office Park, Private Bag 00303, Gaborone, Botswana. PLEASE READ THE NOTES HERETO BEFORE COMPLETING THIS FORM I/We ___________________________________________________________________________________ (NAME (S) IN BLOCK LETTERS) being the holder of shares in ABC Holdings Limited do hereby appoint (see Note 1): 1. ____________________________________________________ or failing him/her; 2. ____________________________________________________ or failing him/her; 3. the chairman of the Annual General Meeting as my/our proxy to act for me/us at the Annual General Meeting, for the purpose of considering and, if deemed fit, passing, with or without modification, the resolutions to be proposed thereat and at each adjournment thereof, and to vote for and/or against the resolutions and/or abstain from voting in respect of the ordinary shares registered in my /our name/s (in accordance with the following instructions: Number of ordinary shares For Against Abstain Ordinary Resolution 1 Ordinary Resolution 2 Ordinary Resolution 3 Ordinary Resolution 4 Ordinary Resolution 5 Ordinary Resolution 6 Ordinary Resolution 7 SIGNED AT _____________________________________________________ ON __________________________________________________2007 SIGNATURE _______________________________________________________________________________________________________________ ASSISTED BY (if applicable) _________________________________________________________________________________________________ Each ordinary shareholder is entitled to appoint one or more proxies (who need not be a member of the Company) to attend, speak and vote in place of that ordinary shareholder at the Annual General Meeting. A proxy need not be a member of the Company. 79
  • 80. Notes 1. A shareholder may insert the name of a proxy or the names of two alternative proxies of the shareholder’s choice in the space provided, with or without deleting “the Chairman of the Annual General Meeting”, but such deletion must be initialed by the shareholder. The person whose name appears first on the form of proxy and whose name has not been deleted shall be entitled to act as proxy to the exclusion of those whose names follow. 2. The authority of a person signing proxy under a power of attorney or on behalf of a company must be attached to the proxy unless that authority has already been recorded by the Company Secretary or waived by the Chairman of the Annual General Meeting. 3. Forms of proxy must be lodged at or posted to be received at the registered office of the Company, ABC House, Tholo Park, Plot 50669, Fairground Office Park, Gaborone, Private Bag 00303, Gaborone not less than 24 hours before the time of the meeting. 4. The completion and lodging of this form of proxy shall not preclude the relevant shareholder from attending the Annual General Meeting and speaking and voting in person thereat to the exclusion of any proxy appointed in terms thereof should the shareholder wish to do so. 5. The Chairman of the Annual General Meeting may accept a proxy form which is completed and/or received other than in accordance with these instructions, provided that he is satisfied as to the manner in which a shareholder wishes to vote. 6. Any alteration or correction to this form must be initialed by the signatory/signatories 80