Royal Exchange Plc (RC: 6752) Unaudited Financial Statements For the Period ended 30 September 2017

Transcription

1 (RC: 6752) Unaudited Financial Statements For the Period ended 30 September 2017

2 Table of Contents Corporate information 1 Result at a glance 2 Consolidated Statements of Financial Position 3 Consolidated Statement of Profit or Loss and Other Comprehensive Income 4 Statement of Changes in Equity 5-6 Consolidated Statements of Cashflows 7 Notes to the financial statements 8-39

3 CORPORATE INFORMATION Directors: Chairman Non-Executive Directors: Group Managing Director Company Secretary Registered Office Auditors Bankers: Registrars Kenneth Ezenwani Odogwu Chief Anthony Ikemefuna Idigbe (SAN) Mr. Daniel Maegerle Chief Uwadi Okpa-Obaji Alhaji Ahmed Rufai Mohammed Alhaji Rabiu Muhammad Gwarzo, OON Mr. Adeyinka Ojora Alhaji Auwalu Muktari Ms. Sheila Ezeuko 31, Marina, Lagos KPMG Professional Services Access Bank Diamond Bank Plc Ecobank FCMB Plc First Bank of Nigeria Ltd FSDH Merchant Bank Limited Guaranty Trust Bank Plc Heritage Bank Stanbic IBTC Bank Plc Keystone Bank Skye Bank Plc Royal Exchange Microfinance Bank Sterling Bank Plc UBA UBN Plc Wema Bank Plc Zenith Bank Cardinal Stone Registrars Limited, 358, Herbert Macauley Street, Yaba, Lagos. RC No 6752

4 ROYAL EXCHANGE PLC RESULTS AT A GLANCE FOR THE PERIOD ENDED SEPTEMBER 30, Sep Sep-16 % EARNED INCOME 11,513,171 10,075, PROFIT BEFOR TAX 343, , PROFIT AFTER TAX 240, , SHARE CAPITAL 2,572,685 2,572,685 SHAREHOLDERS' FUND 6,618,928 7,597,374 EARNINGS PER SHARE (NAIRA) - BASIC 5 4 STOCK EXCHANGE QUOTATION (NAIRA)

5 Consolidated Statements of Financial Position For the Period ended Unaudited Audited Unaudited Audited Group Group Company Company In thousands of Naira Note ASSETS Cash and cash equivalents 5 2,926,439 11,105, , ,279 Loans and advances to customers 6 1,125, , Advances under finance lease 7 185, , Investment securities 8 5,618,955 5,632,949 74,162 82,644 Investment in subsidiaries ,489,990 8,689,990 Trade receivables , , Reinsurance assets 11 3,508,276 2,660, Deferred acqusition cost , , Other receivables and prepayments , , , ,967 Investment in associates , , Investment properties 15 5,419,858 5,419, Property and equipment 17 2,164,499 2,283, ,377 90,195 Intangible assets 18 24,077 33, Employees retirement benefit asset (Net) 19(a) 234, , Statutory deposits , , Deferred tax assets , , Assets classified as held for sale 16 1,173, ,639 Deposit for shares 500,000 Total assets 25,000,215 31,676,729 9,904,416 9,810,075 LIABILITIES Borrowings 29 1,684,554 2,585,324 1,555,664 2,482,327 Deferred Income , , Trade payables ,325 8,355, Other liabilities 24 1,679,526 1,616,032 2,258, ,200 Depositors' funds 25 1,316,675 1,203, Insurance contract Liabilities 26 11,903,253 10,158, Investment contract Liabilities , , Current income tax liabilities 28(b) 571, , , ,109 Employees benefit liability 19 33,855 39, Deferred tax liabilities , , Total liabilities 18,381,287 25,296,593 4,070,064 3,658,519 EQUITY Share capital 30 2,572,685 2,572,685 2,572,685 2,572,685 Share premium 31 2,690,936 2,690,936 2,690,936 2,690,936 Contingency reserve 32 2,013,002 1,728, Treasury shares 33 (500,000) (500,000) - - Retained earnings 34 (658,824) (647,828) 568, ,114 Other component of equity 35( c ) 501, ,491 1,821 1,821 Total equity 6,618,928 6,380,136 5,834,352 6,151,556 Total equity & liabilities 25,000,215 31,676,729 9,904,416 9,810,075 The Financial Statements was approved by the board of directors on 18 October 2017 and signed on its behalf by: Auwalu Muktari Group Managing Director (FRC/2013/IODN/ ) Francis Okoli Chief Financial Officer (FRC/2013/ICAN/ ) The statement of significant accounting policies and the accompanying notes form an integral part of these financial statements.

6 Consolidated Statement of Profit or Loss and Other Comprehensive Income For the Period ended In thousands of Naira Group Group Company Company Note Q3'17 30-Sep-17 Q3'16 30-Sep-16 Q3'17 30-Sep-17 Q3'16 30-Sep-16 Y-T-D Y-T-D Gross premium written: 2,009,544 11,379,796 2,387,294 10,821, Unearned premium (1,487,671) (1,018,919) 541,220 (1,433,331) - - Gross premium income 521,873 10,360,878 2,928,514 9,388, Reinsurance expenses 36 (2,135,264) (4,677,572) (1,110,345) (3,232,714) - - Net premium income (1,613,391) 5,683,306 1,818,169 6,155, Fees and commission income , ,520 91, , Net underwriting income (1,419,160) 6,277,826 1,910,115 6,512, Insurance claims and benefits incurred 38 (1,409,728) (3,930,127) (923,370) (3,552,115) - - Insurance claims and benefits incurred - recoverable from reinsurers ,258 1,184, ,266 1,028, Net claims expenses (984,470) (2,745,702) (576,104) (2,523,340) - - Changes in insurance contract liabilities Underwriting expenses 40 (619,411) (2,098,891) (675,309) (2,008,919) - - Total underwriting expenses (1,603,881) (4,844,593) (1,251,413) (4,532,259) - - Underwriting profit (3,023,041) 1,433, ,702 1,980, Net Interest Income 41 (182,318) (49,564) 73, ,105 (212,791) (212,791) - - Investment and other income ,227 1,144,073 72, ,896 (4,928) Net fair value gain or loss on financial assets 43 (23,483) 103,040 (126,109) (113,668) (1,302) 6, Charge/write-back of impairment allowance 44 18,682 (191,367) (36,417) (68,710) Other operating income 45 73, , , ,329 67, ,898 45, ,709 Net Income (2,891,886) 2,585, ,528 2,667,046 (151,558) (8,452) 45, ,709 Foreign exchange gains/(losses) 46 - (18,722) 7, Management expenses 47 (132,347) (2,223,425) (782,715) (2,393,030) 33,916 (305,632) (119,826) (428,389) Total expenses (132,347) (2,242,147) (775,605) (2,392,451) 33,916 (305,632) (119,826) (428,389) Profit/(Loss) before tax 44, ,379 22, ,595 (117,642) (314,084) (74,080) (265,680) - Minimum tax Income taxes 28(a) (7,335) (103,014) (7,336) (80,534) - - Profit/(Loss) after taxation 37, ,365 15, ,061 (117,642) (314,084) (74,080) (265,680) Other comprehensive income, net of tax Items that will never be reclassified subsequently to profit or loss: Revaluation surplus on PPE Net actuarial gains/(losses) of defined benefit obligations Tax effects on other comprehensive income Items that are or may be reclassified subsequently to profit or loss: Changes in fair value of AFS investments Total other comprehensive income, net of tax Total comprehensive income for the period 37, ,365 15, ,061 (117,642) (314,084) (74,080) (265,680) Total comprehensive income attributable to shareholders Earnings per share - Basic and diluted (kobo) (2.3) (6) (1) (5) The statement of significant accounting policies and the accompanying notes form an integral part of these financial statements.

7 Statement of Changes in Equity As at Group In thousands of Naira Other component of equity Share Capital Share Premium Contingency Reserve Retained Earnings Treasury Shares Regulatory risk reserve Actuarial Gain/Loss Reserve Fair value reserve Other Component of Equity (Total) Total Equity As at 1 January ,572,685 2,690,936 1,728,852 (647,828) (500,000) 494, ,016 (77,771) 535,491 6,380,136 Prior year adjustment (135,759) 134, ,184 (1,575) Profit for the year , ,365 Transfer to contingency reserve ,150 (284,150) Transfer to regulatory reserve ,548 - (168,548) - - (168,548) - Other comprehensive income: Changes in fair value of AFS investments Revaluation surplus on PPE Net actuarial gains/losses Tax Effects on other comprehensive income Total comprehensive income Transactions within equity: Dividend paid As at 2,572,685 2,690,936 2,013,002 (658,824) (500,000) 459, ,016 (77,771) 501,127 6,618, ,572,685 2,690,936 2,013,002 (658,824) (500,000) 459, ,016 (77,771) 501,127 6,618,926 Statement of Changes in Equity As at 30th September 2016 Group In thousands of Naira Other component of equity Share Capital Share Premium Contingency Reserve Retained Earnings Treasury Shares Regulatory risk reserve Actuarial Gain/Loss Reserve Fair value reserve Other Component of Equity (Total) Total Equity As at 1 January ,572,685 2,690,936 1,422, ,374 (500,000) 298,229 41,753 65, ,322 7,426,236 - Profit for the year Transfer to contingency reserve Transfer to regulatory reserve Other comprehensive income: Changes in fair value of AFS investments Revaluation surplus on PPE Net actuarial gains/losses Tax Effects on other comprehensive income Total comprehensive income Transactions within equity: Dividend paid As at 30 September ,572,685 2,690,936 1,422, ,374 (500,000) 298,229 41,753 65, ,622 7,426, ,572,685 2,690,936 1,422, ,374 (500,000) 298,229 41,753 65, ,622 7,426,536

8 Statement of Changes in Equity As at Company Other Component of Equity In thousands of Naira Share Capital Share Premium Retained Earnings Actuarial Gain/Loss Reserve Other Component of Equity (Total) Equity attributable to Parent's Shareholders Non-controlling Interests Total Equity As at 1 January ,572,685 2,690, ,114 1,821 1,821 6,151,556-6,151,556 - Adjustment (3,120) (3,122) (3,120) Profit for the year Net actuarial gains/losses - - (314,084) - - (314,084) - (314,084) Total comprehensive income Transactions within equity: Dividend paid As at 2,572,685 2,690, ,910 1,821 1,821 5,834,350-5,834, ,572,685 2,690, ,910 1,821 1,821 5,834,350-5,834,350 Statement of Changes in Equity As at 30th September 2016 Company Other Component of Equity In thousands of Naira Share Capital Share Premium Retained Earnings Actuarial Gain/Loss Reserve Other Component of Equity (Total) Equity attributable to Parent's Shareholders Non-controlling Interests Total Equity As at 1 January 2016 Profit for the year Net actuarial gains/losses Total comprehensive income Transactions within equity: Dividend paid As at 30 September ,572,685 2,690,936 1,316, ,580,118-6,580, (265,680) - - (265,680) - (265,680) ,572,685 2,690,936 1,050, ,314,438-6,314, ,572,685 2,690,936 1,050, ,314,438-6,314,438

9 Consolidated Statements of Cashflows For the Period ended In thousands of Naira Group Group Company Company Notes Profit for the year 240, ,725 (314,084) (265,680) Add: Minimum tax Add: Income tax 28(a) 103,014 87, Profit before taxes 343, ,595 (314,084) (265,680) Adjustments for: Charge/(write-back) of impairment allowance ,367 68,710 - Depreciation on property and equipment 17(a) 196, ,329 21,380 10,155 Amortization of intangible assets 18 9,253 10,609 Profit on disposal of property and equipment ,318 Profit/(Loss) on disposal of Investment property - - Dividend income on equity investments (AFS &FVTPL) 42 (518) - Rental income 45 (72,350) (38,700) - Interest income 41 (299,264) (214,105) - Interest expense on borrowings ,828 - Foreign exchange (loss)/gains 46 (18,722) (579) Fair value gain/(loss) on FVTPL investment securities 43 (103,040) (25,334) - Fair value gain/(loss) on FVTPL investment properties , ,525 (292,704) (250,207) Changes in working capital: Loans and advances to customers (304,644) 261, Advance under finance lease (20,951) (25,506) - - Trade receivables (23,903) (164,951) - - Re-insurance asset (847,750) (1,028,669) - - Deferred acquisition cost (14,116) 6, Other receivables and prepayment (459,383) (1,535,019) 200,286 (16,597) Deferred income (32,051) 63, Trade and other payables (7,927,779) (5,265,480) - - Other liabilities 51,722 (280,558) 1,325, ,284 Depositors' funds 113,219 59, Investment contract liabilities (69,259) 10, Changes in unearned premium Changes in provision for outstanding claims 1,744,973 1,995,428 Changes in employee retirement benefits 19 (5,414) (526,138) - - (7,198,912) (6,160,170) 1,232, ,480 Income tax paid 28(b) (68,835) (68,867) - - Contribution to employees retirement benefits (30,396) Employee benefits paid Interest expense paid - Net cash provided by operating activities (7,267,747) (6,229,037) 1,232, ,084 Cash flows from investing activities: Notes Purchases of property and equipment 17(a) (94,863) (329,884) (31,563) (54,645) Purchase of intangible assets 18 (10,237) (7,577) - - Proceed from disposal of investment properties - 135, Proceed from disposal of property and equipment 17(a) 18,741 96, Proceed from redemption/disposal of investment securities 237, Additional investment in associates Additional investment in subsidiary (300,000) (300,000) - Purchase of investment securities (13,994) (44,388) 8,482 - Deposit for shares - - Dividend received ,194 - Rent received 45 72,350 38, Net interest received , , Dividend received from associate Share of loss/(profit) of associate Net cash provided by investing activities (28,221) 362,169 (323,081) (54,645) Cash flows from financing activities: Repayment of borrowings (900,770) (19,904) (926,663) (19,904) Proceeds from new borrowings Unclaimed dividend received 13,030 13,030 Net used in financing activities (887,740) (19,904) (913,633) (19,904) Cash and cash equivalent at beginning of year 11,091,425 7,035, , ,452 Effect of exchange rate flunctuations on cash and cash equivalents 18, Net increase in cash and cash equivalent (8,183,708) (5,886,772) (3,954) 47,536 Cash and cash equivalent at end of year 5 2,926,439 1,149, , ,988

10 Group information and statement of accounting policies 1 Reporting Entity The Company was incorporated as Royal Exchange Assurance (Nigeria) Plc, a private limited liability Company on 29 December It was converted to a public limited Company on 15 July 1989 and then listed on the Nigerian Stock Exchange on 3 December On 28 July 2008, the Company changed its name to Royal Exchange Plc and transferred its life and general insurance businesses to newly incorporated subsidiaries, Royal Exchange General Insurance Company Limited and Royal Exchange Prudential Life Plc respectively. The Group currently comprises Royal Exchange Plc (Parent Entity), Royal Exchange General Insurance Company Limited, Royal Exchange Prudential Life Assurance Plc, Royal Exchange Finance and Asset Management Ltd, Royal Exchange Micro-Finance Bank Limited and Royal Exchange Healthcare Limited. The principal activities of the Group are general and health insurance, life assurance, asset management, credit financing and microfinance banking. The financial statements of the Group are as at and for the period ended 30 September, The registered office address of the Group is New Africa House, 31, Marina, Lagos, Nigeria. 2 Basis of preparation (a) Statement of compliance with International Financial Reporting Standards These financial statements for the period ended 30 September 2017 have been prepared in accordance with, and comply with the, International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). The financial statements comply with the Companies and Allied Matters Act of Nigeria, the Financial Reporting Council of Nigeria Act 2011, the Insurance Act of Nigeria and National Insurance Commission of Nigeria ("NAICOM") circulars. The financial statements include the statement of financial position, statement of profit or loss and other comprehensive income, the statement of cash flows, the statement of changes in equity and the notes to the account. (b) Functional and presentation currency The financial statement is presented in Naira, which is the Group's functional currency. Financial information presented in Naira has been rounded to the nearest thousands except where otherwise indicated. (c) Basis of measurement These consolidated and seperate financial statements have been prepared on a historical cost basis except for the following items: (i) Carried at fair value: financial instruments at fair value through profit or loss; available-for-sale investment securities; investment properties; plan assets for defined benefits obligations (ii) Carried at amortised cost: loans and receivables; held to maturity financial instruments; financial liabilities at amortised cost; (iii) Carried at a different measurement basis Retirement benefit obligations are measured in terms of the projected unit credit method; Insurance contract liabilities are measured using a gross premium valuation approach for indivdual and group life risk business while discounted cashflows approach are used for measuring annuity and the risk reserve for individual deposit based businesses. (d) Reporting period The financial statements have been prepared for a 9 month period. (e) Use of estimates and judgment In preparing these financial statements in conformity with the International Financial Reporting Standard (IFRS) which requires the use of certain critical accounting estimates, management has made judgements, estimates and assumptions that affect the application of the Group s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively. Information about significant areas of estimation uncertainties and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are disclosed in Note 4. (f) Changes in accounting policies The accounting policies adopted in the preparation of the Group's financial statements are consistent with those followed in the preparation of the financial statements for the period ended 30 September 2017, except for changes/amendments highlighted below: Standards, amendments and interpretations effective during the reporting period Amendments to IAS 1, 16, 27-28, 38, 41 and IFRS 10-12, which became effective in the reporting period from 1st January 2016 do not have any material impact on the accounting policies, financial position or performance of the Group.

11 (g) (i) Effective for the financial year commencing 1 January 2017 (a) Standards, amendments and interpretations issued but not yet effective A number of new standards and amendments to standards are effective for annual periods beginning after 1 January 2017, and have not been applied in preparing these financial statements. The Group does not plan to adopt these standards early. Disclosure Initiative (Amendments to IAS 7) The amendments provide for disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flow and non-cash changes. This includes providing a reconciliation between the opening and closing balances arising from financing activities. The Company will adopt the amendments for the year ending 31 December (b) Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to IAS 12) The amendments provide additional guidance on the existence of deductible temporary differences, which depend solely on a comparison of the carrying amount of an asset and its tax base at the end of the reporting period, and is not affected by possible future changes in the carrying amount or expected manner of recovery of the asset. The amendments also provide additional guidance on the methods used to calculate future taxable profit to establish whether a deferred tax asset can be recognised. Guidance is provided where an entity may assume that it will recover an asset for more than its carrying amount, provided that there is sufficient evidence that it is probable that the entity will achieve this. Guidance is provided for deductible temporary differences related to unrealised losses are not assessed separately for recognition. These are assessed on a combined basis, unless a tax law restricts the use of losses to deductions against income of a specific type. The amendment is not expected to have any significant impact on the financial statements of the Company. The Company will adopt the amendments for the year ending 31 December (ii) Effective for the financial year commencing 1 January 2018 (a) IFRS 15 Revenue from contracts with customers This standard replaces IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfer of Assets from Customers and SIC-31 Revenue-Barter of Transactions involving Advertising Services. The standard contains a single model that applies to contracts with customers and two approaches to recognising revenue at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognised. This new standard will most likely have a significant impact on the Group, which will include a possible change in the timing of when revenue is recognised and the amount of revenue recognised. The Group is currently in the process of performing more detailed assessment of the impact of this standard on the Group. The standard is effective for annual periods beginning on or after 1 January 2018, with early adoption permitted.the Group will adopt the amendments for the year ending 31 December (b) IFRS 9 Financial Instruments On 24 July 2014, the IASB issued the final IFRS 9 Financial Instruments Standard, which replaces earlier versions of IFRS 9 and completes the IASB's project to replace IAS 39 Financial Instruments: Recognition and Measurement. This standard will have a significant impact on the Group, which will include changes in the measurement bases of the Group's financial assets to amortised cost, fair value through other comprehensive income or fair value through profit or loss. Even though these measurement categories are similar to IAS 39, the criteria for classification into these categories are significantly different. In addition, the IFRS 9 impairment model has been changed from an "incurred loss" model from IAS 39 to an "expected credit loss" model which is expected to increase the provision of bad debts recognised in the Group. The Group is currently in the process of performing more detailed assessment of the impact of this standard on the Group The standard is effective for annual periods beginning on or after 1 January 2018 with retrospective application, early adoption is permitted.. The Group will adopt the amendments for the year ending 31 December 2018 (c.) IFRS 9 Financial Instruments with IFRS 4 Insurance contracts The differing effective dates of IFRS 9 FinancialInstruments and the new insurance contractsstandard could have a significant impact oninsurers. In response to concerns regarding temporary accounting mismatches and volatility, and increased costs and complexity, the IASB has issued amendments to IFRS 4 Insurance Contracts. The amendments reduce the impacts, butcompanies need to carefully consider their IFRS 9 implementation approach to decide if and how to use them. The two optional solutions raise some considerations which require detailed analysis and management judgement. The optional solutions are: i Temporary exemption from IFRS 9 Some Companies will be permitted to continue toapply IAS 39 Financial Instruments: Recognitionand Measurement. To qualify for this exemption the Company s activities need to be predominantly connected with insurance. ii Overlay Approach This solution provides an overlay approach to alleviate temporary accounting mismatches and volatility. For designated financial assets, a company is permitted to reclassify between profit or loss and other comprehensive income (OCI), the difference between the amounts recognised in profit or loss under IFRS 9 and those that would have been reported under IAS 39. The Group will adopt the amendments for the year ending 31 December 2018.

12 (d) Foreign currency transactions and advance consideration (IFRIC 22) The amendments provide guidance on the transaction date to be used in determining the exchange rate for translation of foreign currency transactions involving an advance payment or receipt. The amendments clarifies that the transaction date is the date on which the Company initially recognises the prepayment or deferred income arising from the advance consideration. For transactions involving multiple payments or receipts, each payment or receipt gives rise to a separate transaction date. The interpretation applies when a Company: pays or receives consideration in a foreign currency; and recognises a non-monetary asset or liability eg. non-refundable advance consideration before recognising the related item. The Group will adopt the amendments for the year ending 31 December (e) IAS 40 Transfer of Investment property The IASB has amended the requirementsof IAS 40 Investment Property on when acompany should transfer a property to, or from,investment property. The amendments state that a transfer is made when and only when there is a change in use i.e. an asset ceases to meet the definition of investment property and there is evidence of a change in use. A change in management intention alone does not support a transfer. (iii) (a) A company has a choice on transition to apply: i. The prospective approach Apply the amendments to transfers that occur after the date of initial application and also reassess the classification of property assets held at that date; or ii The retrospective approach:- apply the amendments retrospectively, but only if it does not involve the use of hindsight. The Group will adopt the amendmentsfor the year ending 31 December Effective for the financial year commencing 1 January 2019 IFRS 16 Leases This standard replaces IAS 17 Leases IFRS 16 replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer('lessee') and the supplier ( lessor ). IFRS 16 eliminates the classification of leases as operating leases or finance leases as required by IAS 17 and introduces a single lessee accounting model. Applying that model, a lessee is required to recognise: a. assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value; and b. depreciation of lease assets separately from interest on lease liabilities in the profit or loss. For the lessor, IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. The Group is yet to carry out an assessment to determine the impact that the initial application of IFRS 16 could have on its business; however, the Group will adopt the standard for the year ending 31 December Summary of Significant Accounting Policies Except for the changes explained in Note 2(f) above, the Group consistently applied the following accounting policies to the periods presented in the financial statements (a) Basis of consolidation (i) Business Combination The Group applies IFRS 3 Business Combinations in accounting for business combinations. Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on bargain purchase is recognised in profit or loss immediately. The Group measures goodwill at the acquisition date as the total of: - the fair value of the consideration transferred, which is generally measured at fair value; plus - the recognized amount of any non-controlling interests in the acquiree; plus if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree; less -the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed. Subsequent to initial recognition, goodwill is measured at cost less accumulated impairment losses.the consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss. Transactions costs related to the acquisition, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred. Any contingent consideration payable is measured at fair value at the acquisition date. If the contingent consideration is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognised in profit or loss.

13 When share-based payment awards (replacement awards) are required to be exchanged for awards held by the acquiree s employees(acquiree s awards) and relate to past services, then all or a portion of the amount of the acquirer s replacement awards is included in measuring the consideration transferred in the business combination. This determination is based on the market-based value of the replacement awards compared with the market-based value of the acquiree s awards and the extent to which the replacement awards relate to pre-combination service. (ii) Non-controllling interest Non controlling interest are measured at their proportionate share of the acquiree's identifiable net assets at the acquisition date. Changes in the Groups's interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. (iii) Subsidiaries Subsidiaries are investees controlled by the Group. The Group controls an investee if it is exposed to, or has rights to, variable returns from its involvement with investee and has the ability to affect those returns through its power over the investee. The Group financial statements incorporates the assets, liabilities and results of; Royal Exchange General Insurance Company Limited, Royal Exchange Prudential Life Plc, Royal Exchange Microfinance Bank, Royal Exchange Healthcare Limited and Royal Exchange Finance and Asset Management Limited. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. (iv) Associates Associates are those entities in which the Group has significant influence, but not control or joint control, over the financial and operating policies. Investments in associates are accounted for using the equity method of accounting. They are initially recognised at cost, which includes transaction costs. The Group s investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition. Subsequent to initial recognition, the Group s share of its associates post-acquisition profits or losses is recognised in the consolidated profit or loss; its share of post-acquisition movements is recognised in other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. Intra-group gains on transactions between the Group and its associates are eliminated to the extent of the Group s interest in the associates. Intra-group losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. For preparation of consolidated financial statements, equal accounting policies for similar transactions and other events in similar circumstances are used. Dilution gains and losses in associates are recognised in the consolidated profit or loss. (v) Loss of control When the Group loses control over a subsidiary, the Group derecognizes the assets and liabilities of the subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. Any interest retained in the former subsidiary is measured at fair value when control is lost. (vi) Transaction eliminated on consolidation Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealized gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group s interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment. (b) Foreign currency transactions Transactions in foreign currencies are translated into the functional currency of the Group at the exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rate at the reporting date. Nonmonetary assets and liabilities that are measured at fair value in a foreign currency are translated into the functional currency at the exchange rate when the fair value was determined. Non-monetary items that are measured based on historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Foreign currency differences are generally recognised in profit or loss. However, foreign currency differences arising from the translation of the following items are recognised in OCI: available-for-sale equity investments (except on impairment, in which case foreign currency differences that have been recognised in OCI are reclassified to profit or loss). (c) Cash and Cash Equivalents Cash comprises cash in hand, and demand deposits. Cash equivalents are short-term highly liquid investments that are readily convertible to known amounts of cash and are subject to insignificant risk of changes in their fair value. Cash equivalents comprise investments with original maturities of three months or less and used by the Group to manage its short - term commitments. Subsequent to initial recognition, cash and cash equivalents are carried at amortised cost in the statement of financial position.for the purpose of the statement of cash flows, cash and cash equivalents are net of outstanding overdrafts. (d) Financial Instruments The classification of the Group s financial instruments depends on the nature and purpose of the instruments and are determined at the time of initial recognition.

14 (i) Classification of Financial Assets The financial assets have been recognised in the statement of financial position and measured in accordance with their assigned classifications. The Group classifies its financial assets into the following categories: financial assets at fair value through profit or loss (FVTPL), Available-for-sale' (AFS) financial assets, Held to maturity and Loans and receivables Financial Assets at Fair Value through Profit or Loss (FVTPL) Financial instruments are classified at FVTPL when the financial instrument is either held for trading or it is designated as at FVTPL. Financial instruments at FVTPL are stated at fair value. Available-for-sale Finanacial assets (AFS) Available-for-sale financial instruments are non-derivatives that are either designated as AFS or are not classified as: (a) loans and receivables; (b) held-to-maturity investments; or (c) financial assets at fair value through profit or loss. Listed redeemable notes held by the Group that are traded in an active market are classified as AFS and are stated at fair value at the end of each reporting period. The Group also has investments in unlisted shares that are not traded in an active market but that are also classified as AFS financial assets. Held to maturity Held-to-maturity financial assets are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group has the positive intent and ability to hold to maturity, and which are not designated as at fair value through profit or loss or as available-for-sale. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are measured at amortized cost using the effective interest method, less any impairment. (ii) Classification of Financial Liabilities A financial liability is classified as at fair value through profit or loss if it is classified as held-for-trading or is designated as such on initial recognition. Directly attributable transaction costs are recognised in profit or loss as incurred. Financial liabilities at fair value through profit or loss are measured at fair value and changes therein, including any interest expense, are recognised in profit or loss. Other financial liabilities are initially measured at fair value less any directly attributable transaction costs. Financial liabilities have been recognised in the statement of financial position and measured in accordance with their assigned classifications. (iii) (iv) Initial recognition and measurement All financial instruments are initially recognized at fair value, which includes directly attributable transaction costs for financial instruments that are not classified as fair value through profit and loss. For financial instruments held at fair value through profit or loss (FVTPL), the transaction costs are immediately expensed in the profit or loss. Subsequent measurement Subsequent to intial recognition, financial assets are measured either at fair value or amortised cost, depending on their categorization: Financial Assets at Fair Value through Profit or Loss (FVTPL) Financial assets at FVTPL are stated at fair value. Any gains or losses arising on re-measurement are recognized in the statement of profit or loss in the period in which they arise. The net gain or loss recognized in the statement of profit or loss incorporates anydividend or interest earned on the financial asset and is included in the investment income' line item in the Group's profit or loss statement.

15 Available-for-sale financial assets (AFS) Available-for-sale financial assets are carried at fair value, with the exception of investments in equity instruments where fair value cannot be reliably determined, which are carried at cost. The fair values for quoted instruments are determined by reference to regulated exchange quoted ruling prices. If quoted market prices are not available, reference is also made to readily and regularly available broker or dealer price quotations. The fair values of unquoted equities and other instruments for which there is no active market, are established using valuation techniques. These include the use of recent arm s length transactions, reference to the current market value of other instruments that are substantially the same and discounted cash flow analysis. Where the fair value of financial assets is determined using discounted cash flow techniques, estimated future cash flows are based on management s best estimates and the discount rate used is a market related rate for a similar instrument. Available for sale equity instruments for which fair value cannot be reliably determined are carried at cost less impairment allowance, if any. Impairment losses are recognised in profit or loss and reflected in an allowance account in the statement of financial position. Changes in the fair value of available-for-sale financial assets are recognized in the statement of other comprehensive income as a separate component of equity under the heading of Fair value reserves. When an AFS instrument carried at fair value is disposed of, the cumulative gain or loss previously accumulated in the Fair value reserve is reclassified to profit or loss and gains or losses on disposal recognised. Dividends on AFS equity instruments are recognized in profit or loss as investment and other Income when the Group's right to receive the dividends is established. Interest income recognized on available for sale instruments are recognized in profit or loss as net interest income as it accrues and is calculated by using the effective interest rate method. Loans and receivables Loans and receivables on the statement of financial position comprise cash and cash equivalent, loans and advances to customers, advances under finance lease, trade receivables, other receivables and statutory deposits. Loans and receivables, after initial measurement, are measured at amortized cost, using the effective interest rate method less any impairment (if any). Amortized cost is calculated bytaking into account anydiscount or premium on acquisition and fee or costs that are an integral part of the effective interest rate. Loans granted at below market rates are fair valued by reference to expected future cash flows and current market interest rates for instruments in a comparable or similar risk class and the difference between the historical cost and fair value is accounted for as employee benefits under staff costs. Interest on loans and receivables are included in profit or loss When the asset is impaired, impairment losses are recognised in profit or loss and reflected in an allowance account against loans and receivables. Interest on the impaired assets continues to be recognised through the unwinding of the discount. If an event occurring after the impairment was recognised causes the amount of impairment loss to decrease, then the decrease in impairment loss is reversed through profit or loss. Held to maturity Held-to-maturity investments are carried at amortised cost using the effective interest method, less any impairment losses. A sale or reclassification of a more than insignificant amount of held-to-maturity investments would result in the reclassification of all held-to-maturity investments as available-for-sale, and would prevent the Group from classifying investment securities as held-to-maturity for the current and the following two financial years. However, sales and reclassification in any of the following circumstances would not trigger a reclassification: sales or reclassifications that are so close to maturity that changes in the market rate of interest would not have a significant effect on the financial asset's fair value; sales or reclassifications after the Group has collected substantially all of the asset's original principal; and sales or reclassifications that are attributable to non-recurring isolated events beyond the Group's control that could not have been reasonably anticipated. Trade receivables Trade receivables arising under insurance contracts are recognized when due. These include premium due from agents, brokers, co-assurers and insurance contract holders for which credit notes issued are within 31days, in conformity with the NO PREMIUM NO COVER policy. Trade receivables are stated at cost less impairment. Financial liabilities Subsequent to initial recognition, other financial liabilities are measured at amortised cost. Trade payables are recognized when due. These include amounts due to agents, reinsurers, co-assurers and insurance contract holders. Trade payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method. (v) Fair value measurement Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at that date. The fair value of an asset or liability reflects its non-performance risk. When available, the Group measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. If there is no quoted price in an active market, then the Group uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction.

16 The best evidence of the fair value of a financial instrument at initial recognition is normally the transaction price - i.e. the fair value of the consideration given or received. If the Group determines that the fair value at initial recognition differs from the transaction price and the fair value is evidenced neither by a quoted price in an active market for an identical asset or liability nor based on a valuation technique that uses only data from observable markets, then the financial instrument is initially measured at fair value, adjusted to defer the difference between the fair value at initial recognition and the transaction price. Subsequently, that difference is recognised in profit or loss on an appropriate basis over the life of the instrument but no later than when the valuation is wholly supported by observable market data or the transaction is closed out. If an asset or liability measured at fair value has a bid price and an ask price, then the Group measures the assets and long positions at a bid price and liabilities and short positions at an ask price. The fair value of a non-interest bearing liability is its discounted repayment amount. If the due date is less than one year, discounting is omitted. Portfolios of financial assets and financial liabilities that are exposed to market risk and credit risk that are managed by the Group on the basis of a price that would be received to sell a net long position (or paid to transfer a net short position) for a particular risk exposure. Those portfolio-level adjustments are allocated to the individual assets and liabilities on the basis of the relative risk adjustment of each of the individual instruments in the portfolio. The Group recognises transfers between levels of the fair value heirachy as of the end of the reporting period during which the change has occurred. (vi) Impairment of financial assets The Group assesses its financial assets, other than those at fair value through profit or loss, for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected. For Available-for-sale (AFS) equity investments, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment. Objective evidence that a financial asset or group of financial assets is impairment could include: Significant financial difficulty of the issuer or counter party; Breach of contract, such as a default or delinquency in interest or principal payments; It becoming probable that the borrower will enter bankruptcy or other financial re-organization; The disappearance of an active market for that financial asset because of financial difficulties. Loans and receivables and held to maturity For loans and receivables and held to maturity instruments, the amount of the impairment loss recognized is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the financial asset's original effective interest rate. If in a subsequent period the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized. When the asset is impaired, impairment losses are recognised in profit or loss and reflected in an allowance account against loans and receivables and held to maturity instruments. Interest on the impaired assets continues to be recognised through the unwinding of the discount. If the amount of impairment loss subsequently decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, then the previously recognised impairment loss is reversed through profit or loss. Available-for-sale financial assets (AFS) Impairment losses on available-for-sale financial assets are recognised by reclassifying the losses accumulated in the fair value reserve to profit or loss. The amount reclassified is the difference between the acquisition cost (net of any principal repayment and amortisation) and the current fair value, less any impairment loss previously recognised in profit or loss. If the fair value of an impaired available-for-sale debt security subsequently increases and the increase can be related objectively to an event occurring after the impairment loss was recognised, then the impairment loss is reversed through profit or loss. Trade receivables An impairment is established when there is objective evidence that, as a result of one or more events that occurred after the initial recognition, the estimated future cash flows have been impaired. The carrying amount of the financial asset is reduced by the impairment loss through the use of an allowance account and recognized as impairment loss in income statement. The Group s allowance for impairment is based on incurred loss model for each customer. The probability of default and the age of the debts are also taken into account in arriving at the impairment amount. When a trade receivable is considered uncollectible, it is written off against the impairment allowance account. (vii) De-recognition of financial assets The Group derecognizes a financial asset only when the contractual rights to the cash flows from the asset expires, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognizes its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, The Group continues to recognize the financial asset and financial liability separately. On de-recognition of a financial asset in its entirety, the difference between the asset's carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income and accumulated in equity is recognized in profit or loss.