Consolidated Financial Statements and Group Management Report

Transcription

1 Consolidated Financial Statements and Group Management Report 31 December 2013

2 AccessHolding Network and the Aggregate Year-end KPIs Table of Contents AccessHolding Network and the Aggregate Year-end KPIs... 3 Audit Opinion... 5 Consolidated Financial Statements as of December 31, Notes to the Consolidated Financial Statements Group Management Report AccessBank Azerbaijan AccessBank Tajikistan AccessBank Liberia AB Microfinance Bank Nigeria AB Bank Rwanda AB Bank Zambia AccessBank Tanzania AccèsBanque Madagascar AccessHolding Network LFS Advisory Projects AccessHolding in Brief AccessHolding operates a network of microfinance institutions (commercial banks and MFOs) in developing and transition economies with a target group focus on micro, small and medium-sized enterprises. In 2013 the AccessGroup comprised seven member banks five of which are located in Sub-Saharan Africa and the other two in the Southern Caucasus and Central Asia. At the end of December 2013 these banks serviced ca. 800 thousand clients and had more than 4,900 staff members. The aggregate year-end KPIs of the Access Network (as of 31 December 2013) Total assets (EUR) 927 m 639 m 480 m Gross loan portfolio (EUR) 714 m 491 m 352 m No. of loans outstanding 268, , ,902 Portfolio-at-Risk 30 days in % 0.8% 1.0 % 1.0% Total customer deposits (EUR) 333 m 223 m 188 m No. of deposit accounts 798, , ,846 No. of staff 4,925 4,000 3,318 No. of branches

3 Audit Opinion Fiscal Year 2013 (Translation from the German language) We have audited the consolidated financial statements prepared by the Access Microfinance Holding AG, Berlin, comprising the statement of financial position, the income statement, the statement of comprehensive income, the statement of changes in equity, the statement of cash flows and the notes to the consolidated financial statements, together with the group management report for the fiscal year from 1 January to 31 December The preparation of the consolidated financial statements and the group management report in accordance with IFRSs as adopted by the EU, and the additional requirements of German commercial law pursuant to Sec. 315a (1) HGB [ Handelsgesetzbuch : German Commercial Code ] are the responsibility of the parent company s management. Our responsibility is to express an opinion on the consolidated financial statements and on the group management report based on our audit. We conducted our audit of the consolidated financial statements in accordance with Sec. 317 HGB and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consolidated financial statements in accordance with the applicable financial reporting framework and in the group management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the consolidated financial statements and the group management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of those entities included in consolidation, the determination of entities to be included in consolidation, the accounting and consolidation principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements and the group management report. We believe that our audit provides a reasonable basis for our opinion. Our audit has not led to any reservations. In our opinion, based on the findings of our audit, the consolidated financial statements comply with IFRSs as adopted by the EU, the additional requirements of German commercial law pursuant to Sec. 315a (1) HGB and give a true and fair view of the net assets, financial position and results of operations of the Group in accordance with these requirements. The group management report is consistent with the consolidated financial statements and as a whole provides a suitable view of the Group s position and suitably presents the opportunities and risks of future development. Berlin, 11 September 2014 Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft Bühring Wirtschaftsprüfer [German Public Auditor] Lingner-Fink Wirtschaftsprüfer [German Public Auditor] 4 5

4 Consolidated Financial Statements as of December 31, 2013 Access Microfinance Holding AG Consolidated Income Statement For the year ended 31 December 2013 Euro Access Microfinance Holding AG Consolidated Statement of Financial Position For the year ended 31 December 2013 Euro Note * EUR EUR Interest income Interest expense 9 ( ) ( ) Net interest income before provision for impairment losses on interest bearing assets Impairment charge for loan losses 10 ( ) ( ) Net interest income Fee and commission income Fee and commission expense 12 ( ) ( ) Net fee and commission income Net result from foreign exchange operations Net result from financial assets and financial liabilities at fair value through profit or loss 14 ( ) Net result from financial assets available-for-sale 15 ( ) Share of profit or loss from Associates Other income Net non-interest income Net operating income Personnel expenses 17 ( ) ( ) Operating lease expenses ( ) ( ) Depreciation and amortization ( ) ( ) Other administrative expenses 18 ( ) ( ) Total operating expenses ( ) ( ) Profit or loss before tax ( ) Current Income tax expense ( ) ( ) Deferred income tax (expense) Income tax expense 19 ( ) ( ) Profit or loss for the period ( ) Profit or loss attributable to non-controlling interests ( ) Profit (loss) attributable to shareholders ( ) * Certain amounts show n here do not correspond to the 2012 financial statements and reflect adjustments made, refer Note 44 Access Microfinance Holding AG Consolidated Statement of Comprehensive Income For the year ended 31 December 2013 Euro EUR EUR Profit or loss for the period ( ) Other comprehensive income Other comprehensive income to be reclassified to profit or loss in subsequent periods: Currency translation differences on translation of foreign operations ( ) ( ) Other comprehensive income of the year, net of tax ( ) ( ) Total comprehensive income of the year, net of tax ( ) ( ) Total comprehensive income attributable to: Equity holders of the parent entity ( ) Non-controlling interests ( ) ( ) ( ) ( ) Note * EUR EUR ASSETS Cash and cash equivalents Loans and advances to banks Financial assets at fair value through profit or loss Financial instruments available-for-sale Investments in Associates Loans and advances to customers Intangible assets Property, plant and equipment Current income tax asset Deferred income tax asset Other financial assets Other non-financial assets Total assets LIABILITIES Loans from banks and other financial institutions Financial liabilities at fair value through profit or loss Customer accounts Current income tax payable Deferred income tax liability Trade and other payables Other non-financial liabilities Total liabilities EQUITY Share capital Capital reserve IFRS 2 reserve Currency translation reserve 41 ( ) Retained earnings Other reserves Total equity Share of Minority Shareholders Equity attributable to non-controlling interests Total group equity Total liabilities and equity * Certain amounts show n here do not correspond to the 2012 financial statements and reflect adjustments made, refer Note

5 Consolidated Financial Statements as of December 31, 2013 Access Microfinance Holding AG Consolidated Cash Flow Statement For the year ended 31 December 2013 Euro Note * EUR EUR Profit Profit or loss for the period ( )* Income tax expense 19 ( ) ( ) Profit or loss before tax ( ) Adjustments for non cash items: Share of profit or loss from Associates 16 ( ) ( )* Measurement gains and losses financial assets at fair value through profit or loss Impairment charge for loan losses Unrealised (gain)/loss from currency revaluation 13 ( ) ( ) Depreciation and amortisation expense Interest income 8 ( ) ( ) Interest expense Cash flows from operating activities before changes in operating assets and liabilities ( ) ( ) Changes in operating assets and liabilities (Increase)/decrease in operating assets: Loans and advances to banks ( ) Loans and advances to customers ( ) ( ) Other assets ( ) Interest received Increase/(decrease) in operating liabilities Loans from banks and other financial institutions Customer accounts Other liabilities ( ) Interest paid ( ) ( ) Cash inflow/(outflow) from operating activities before taxation Income tax paid ( ) - Net cash inflow/(outflow) from operating activities Cash flow fromfrom investment actitivies Purchase of property, plant and equipment and intangible assets ( ) ( ) Sale of property, plant and equipment Investments in Associates and assets available-for-sale ( ) Investments in AFV instruments ( ) - Acquisition of subsidiaries, net of cash acquired Divdends received Sale of Associates and financial instruments available-for-sale Net cash inflow/(outflow) from investing activities ( ) ( ) Access Microfinance Holding AG Consolidated statement of changes in equity For the year ended 31 December 2013 Euro Payments Subscribed into Currency Other Retained IFRS 2 Total attributable to Total Capital capital Translation Reserves Earnings* reserve equity non-controlling group reserve Differences interests equity EUR EUR EUR EUR EUR EUR EUR EUR EUR Carry Forward as at 01 January Profit or loss for the period Currency translation differences - - ( ) ( ) ( ) ( ) Total comprehensive income ( ) ( ) ( ) Issue of share capital (59.108) Share-based payments Change in non-controlling interests (23.992) ( ) - ( ) Transfers (29.049) ( ) IFRS 1 adjustment (64.183) - (64.183) (63.927) ( ) Balance as at 31 December ( ) * Certain amounts show n here do not correspond to the 2012 financial statements and reflect adjustments made, refer Note 44 For the year ended 31 December 2012 Payments Subscribed into Currency Other Retained IFRS 2 Total attributable to Total Capital capital Translation Reserves Earnings* reserve equity non-controlling group reserve Differences interests equity EUR EUR EUR EUR EUR EUR EUR EUR EUR Carry Forward as at 01 January Profit or loss for the period ( ) - ( ) ( ) ( ) Currency translation differences - - ( ) ( ) ( ) Total comprehensive income ( ) ( ) - ( ) ( ) ( ) Issue of share capital Share-based payments Change in non-controlling interests ( ) - ( ) Other Balance as at 31 December * Certain amounts show n here do not correspond to the 2012 financial statements and reflect adjustments made, refer Note 44 Cash flow from financing actitivies Subscription of capital by non-controlling interests of subsidiaries Proceeds from issuance of ordinary shares Proceeds from payments into capital reserve Net cash inflow/(outflow) from financing activities Effect of changes in foreign exchange rate on cash and cash equivalents ( ) ( ) Total Cash flow ( ) ( ) Cash and cash equivalents, beginning of year/period Cash flow from operating activities Cash flow from investing activities ( ) ( ) Cash flow from financing activities Effects of exchange rate changes ( ) ( ) Cash flow Cash and cash equivalents, end of year/period * Certain amounts show n here do not correspond to the 2012 financial statements and reflect adjustments made, refer Note

6 Notes to the Consolidated Financial Statements 2013 General information Access Microfinance Holding AG ( AccessHolding, Company ), a Joint Stock Company in accordance with the German Joint Stock Company Act, based in Berlin, Germany, was founded on 25 August 2006 and has its registered office at Schönhauser Allee 10-11, Berlin, Germany. The business purpose of AccessHolding, as a commercial microfinance holding company, is to invest in microfinance institutions (MFIs) and to develop these investments through a combination of equity finance, holding services, and management assistance rendered by one of its shareholders and technical partner LFS Financial Systems GmbH (LFS), Berlin, Germany. The consolidated financial statements of AccessHolding for the year ended 31 December 2013 comprise the Company and its subsidiaries (together referred to as the Group and individually as Group entities ) and the Group s interest in associates. The principal accounting policies applied in the preparation of these financial statements are set out below. These consolidated financial statements are presented in Euro (EUR), which is the Company s functional currency. (1) Compliance with International Financial Reporting Standards The consolidated financial statements are prepared according to International Financial Reporting Standards (IFRS) and the International Financial Reporting Interpretation Committee (IFRIC) interpretations as endorsed by the European Union (EU), following sections 315a para 3 in conjunction with section 315a para 1 HGB (German Commercial Code). Recently Adopted Accounting Pronouncements The following new or amended standards and interpretations have become effective for financial years beginning after 1 July 2012: IAS 1 Amendment - Presentation of Items of Other Comprehensive Income (effective date: July 1, 2012). The rules governing the presentation of other comprehensive income were changed to require the separate presentation of components that will be subsequently reclassified to profit or loss ( recycled ) and those that will not be reclassified. The following new standards are effective in periods beginning on or after 1 January 2013: IFRS 13 Fair Value Measurement: IFRS 13 consolidates the existing guidance on fair value measurement in a single standard. It defines fair value, provides guidance on how to determine fair value and specifies the required disclosures on fair value measurement. The change resulted in additional disclosure requirements for the Group. IAS 12 Income Taxes (2010): The IASB has added an exception to the principles in IAS 12: the rebuttable presumption that investment property measured at fair value is recovered entirely by sale. The change has no impact on the measurement of the Group s financial assets and liabilities. IAS 19 Employee Benefits - Revised (2011): The key amendment to the revised standard is the elimination of the option to use the corridor method. In addition, the concept of the expected return on plan assets was abolished. In future, the return on plan assets required to be recognized in profit or loss will be based on the discount rate used to calculate the pension obligations. There will be a changed categorization with regard to termination benefits, particularly to the old age part time obligations. Among other things, the amendment also increases the disclosure requirements for defined benefit plans. The change of IAS 19 has no impact on the financial statements of the Group. Improvements to IFRSs (2011): These improvements to the IFRS standards IFRS 1 First-time Adoption of International Financial Reporting Standards, IAS 1 Presentation of Financial Statements, IAS 16 Property, Plant and Equipment, IAS 32 Financial Instruments: Presentation and IAS 34 Interim Financial Reporting have no impact on the Group s financial statements

7 IFRS 1 First-time Adoption of International Financial Reporting Standards Amendments: The IASB has issues amendments regarding the first-time adoption in countries with hyperinflationary. Additional amendments are related to the timing of IFRS applications. The change has no impact on the measurement of the Group s financial assets and liabilities. IFRS 1 First-time Adoption of International Financial Reporting Standards Amendments: These amendments concern the valuation of government-related liabilities for first-time adoption. The change has no impact on the measurement of the Group s financial assets and liabilities. IFRS 7 Financial Instruments: Disclosures - Amendments (2011): The amendments enhance disclosure requirements regarding the off-setting of financial assets and liabilities. The change resulted in additional disclosure requirements for the Group. New Accounting Pronouncements The following new standards are becoming effective in periods after 31 December 2013: IFRS 9 Financial Instruments: Classification and Measurement - IFRS 9 replaces parts of IAS 39 relating to the classification and measurement of financial assets. Those requirements must be applied starting 1 January At the moment the Group is evaluating the potential impact on the results of the Group s operations. On 28 October 2010 the IASB also issued the requirements under IFRS 9 for financial liability accounting. Given the current structure of the financial statements of the Group this standard will have no material impact on the financial liabilities. IFRS 10 Consolidated Financial Statements (effective date: January 1, 2014). The standard contains a new definition of control that must be used to identify whether investees must be consolidated. As a result, there will be a single consolidation model for all controlled entities. The standard replaces the consolidation guidance in IAS 27 and the rules laid down in SIC 12. The change will have no impact on the measurement of the Group s financial assets and liabilities. IFRS 11 Joint Arrangements (effective date: January 1, 2014). IFRS 11 specifies the accounting treatment for joint arrangements. In addition, the new definition prohibits the use of proportionate consolidation to account for joint ventures. The change has no impact on the measurement of the Group s financial assets and liabilities. IFRS 12 Disclosure of Interests in Other Entities (effective date: January 1, 2014). The new standard contains all disclosure requirements for subsidiaries, joint arrangements, associates and structured entities. IAS 27 Separate Financial Statements - Revised (2011) (effective date: January 1, 2014). The amended version of IAS 27 contains changes resulting from the publication of IFRS 10. The provisions governing accounting for separate financial statements remain part of IAS 27 and have not been amended, in contrast to the other parts of IAS 27, which have been replaced by the new IFRS 10.The new standard is supposed to have influence on disclosures. IAS 28 Investments in Associates and Joint Ventures - Revised (2011) (effective date: January 1, 2014). The revised IAS 28 standard contains changes resulting from the publication of IFRS 11 and IFRS 12. IAS 32 Amendment - Offsetting Financial Assets and Financial Liabilities (effective date: January 1, 2014). The changes clarify the offsetting requirements. Above and beyond this, additional guidance on offsetting financial assets and financial liabilities has been included in the standard. The change will have no significant impact on the measurement or disclosure of the Group s financial assets and liabilities. IAS 36 Impairment of Assets Amendments to IAS 36 Recoverable Amount Disclosure for Non-Financial Assets: The changes clarify disclosure requirements regarding significant goodwill with unlimited useful life. In addition new disclosure requirements were introduced regarding the impairment and the reversal of impairment. The new standard is supposed to have influence on disclosures. IAS 39 Financial Instruments: Amendments to IAS 39: Novation of Derivatives and Continuation of Hedge Accounting: The IASB has issued certain clarifications regarding hedge accounting and the introduction of a central clearing counterparty. The change will have no impact on the measurement of the Group s financial assets and liabilities. IFRIC 21 Levies: this new interpretation deals with levies which are not income tax and when such levies shall be recognized. The change will have no impact on the measurement of the Group s financial assets and liabilities. IFRS 15 Revenue from Contracts with Customers. The standard specifies how and when revenue shall be recognized and requires additional disclosure requirements. The change will have no significant impact on the recognition of revenue within the Group. All other Standards and Interpretations which will be effective after 2014 are not applicable to the Group s operations. Amendments to existing standards and interpretations that are not yet effective have not been the subject of early adoption at AccessHolding. Entities shall apply the new standards, amendments to existing standards and interpretations for annual periods beginning on or after the effective date. In principle, the financial statements have been prepared under the historical cost convention, unless IFRS require recognition and measurement at fair value. Reporting and valuation are undertaken on the assumption that the Company will continue to operate. All estimates and assumptions required for reporting and valuation in conformity with IFRS are best estimates undertaken in accordance with the applicable standards. AccessHolding presents its statement of financial position in order of liquidity. An analysis regarding recovery or settlement within 12 months after the reporting date (current) and more than 12 months after the reporting date (non current) is presented in note 45. The preparation of the financial statements and the valuation of assets and liabilities are to a certain extent based on assumptions and estimates of the management, which may differ from actual value. (2) Compliance with German law Access Microfinance Holding AG is a parent company of subsidiaries. Therefore, AccessHolding has to present the Group s consolidated financial statements according to section 290 HGB (German Commercial Code). For supervisory purposes AccessHolding does not qualify as a bank according to the German Banking Act (KWG) and is therefore not supervised by the Federal Financial Supervisory Authority (BaFin). In conformity with the regulations set forth by the Federal Financial supervisory authority (BaFin), no loans are issued by AccessHolding to counterparties that do not qualify as subsidiaries according to section 1 para. 7 of the German Banking Act (KWG). Access Group s consolidated financial statements have been prepared in accordance with IFRS pursuant to sections 315a para. 3 in conjunction with section 315a para. 1 of the HGB. According to section 315 HGB a management report was prepared. Access Microfinance Holding AG is not a capital market-oriented parent company. The consolidated financial statements of the Group for the financial year 2013 will be approved for issue by the general assembly of shareholders on 16th of September Neither the entity s owners nor others have the power to amend the financial statements after issue. (3) Consolidation Subsidiaries The consolidated financial statements comprise the financial statements of AccessHolding and its subsidiaries as of 31 December Subsidiaries are all companies which are controlled by AccessHolding, i.e. for which AccessHolding 12 13

8 Subsidiaries (con t) can determine the financial and operating policies and is able to exercise control over them in order to benefit from their activities. This is the case for companies in which AccessHolding holds more than 50% of the voting shares. New subsidiaries are fully consolidated from the date when control is transferred to the Group. They are deconsolidated from the date when control ceases. Inter-company transactions, balances and intragroup gains on transactions between group companies are eliminated. Intragroup losses are also eliminated unless the transaction provides evidence of impairment of the asset transferred. The integration of the subsidiaries into the consolidated financial statements is based on consistent accounting and valuation methods for similar transactions and other occurrences under similar circumstances. All subsidiaries have the same balance sheet date (31 December). Associates Associates are entities over which AccessHolding has significant influence but not control. Investments in associates are accounted for by the equity method and are initially recognised at cost. The Group s investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition. The Group s share of its associates post-acquisition profits or losses is recognised in the consolidated income statement; its share of equity movement resulting in neither profit nor loss is recognised in reserves. The cumulative post-acquisition movements in investor s share of net assets of the investee 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. the acquisition date. The group recognises any noncontrolling interest in the acquiree on an acquisition- by-acquisition basis, at the non-controlling interest s proportionate share of the recognised amounts of acquiree s identifiable net assets. If the business combination is achieved in stages, the acquisition date fair value of the acquirer s previously held equity interest in the acquiree is re-measured to fair value at the acquisition date through profit or loss. Goodwill is initially measured as the excess of the aggregate of the consideration transferred and non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss. (4) Accounting Policies Revenue recognition and Interest Income and Expense Interest income and expense for all interest-bearing financial instruments, except for those classified as held for trading or designated as at fair value through profit or loss, are recognised within interest income and interest expense in the income statement using the effective interest method. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. For loans where there is objective evidence that an impairment loss has been incurred, the accrual of interest income is terminated not later than 90 days after the last payment. Payments received in respect of written-off loans are recorded as a reduction of impairment charge for loan losses. Loan related fees Fees and commissions are recognised on an accrual basis when the service has been provided. Loan commitment fees for loans that are likely to be drawn down are deferred (together with related direct costs) and recognised as an adjustment to the effective interest rate on the loan. Intragroup gains on transactions between the Group and its associates are eliminated to the extent of the Group s interest in the associates. Intragroup 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 equity. The classification of entities as Associates is described in note 25. Transactions with non-controlling interests The Group applies a policy of treating transactions with non-controlling interests as transactions with equity owners of the Group. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity. Interests in the equity of subsidiaries not attributable to the parent are reported in consolidated equity as non-controlling interest. Profits or losses attributable to non-controlling interests are reported in the consolidated comprehensive income as profit or loss attributable to noncontrolling interests. Business combinations AccessHolding uses the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred by the acquirer, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at Commission and fees arising from negotiating, or participating in the negotiation of, a transaction for a third party such as the arrangement of the acquisition of shares or other securities or the purchase or sale of businesses are recognised on completion of the underlying transaction. Disclosure of financial assets/liabilities The Group allocates financial assets/liabilities to the following IAS 39 categories: loans and receivables (LaR), financial liabilities at amortised costs (FLAC), financial assets at fair value through profit or loss (FVTPL), financial liabilities at fair value through profit or loss (FVTPL), and available-for-sale financial assets (AfS). Management determines the categorization of its financial instruments at initial recognition. Financial assets are classified as cash and cash equivalents, loans and advances to banks, financial assets at fair value through profit or loss, financial instruments available-for-sale, heldto- maturity investments, loans and advances to customers and other financial assets. Financial liabilities are classified as loans from banks and other financial institutions, financial liabilities at fair value through profit or loss, customer accounts and trade and other payables. Purchases and sales of available-for-sale financial assets are recorded on the trade date. Purchases and sales of financial assets at fair value through profit or loss are also recorded on the trade date. The fair value of each class of financial instrument corresponds to its book value. See also note 47. Cash and cash equivalents Cash and cash equivalents comprise cash at hand and balances with banks with less than three months original maturity. Cash at hand is recognized with its nominal value. Balances with banks are carried at amortised cost in the statement of financial position

9 Financial assets at fair value through profit or loss, financial liabilities at fair value through profit or loss Financial assets and financial liabilities at fair value through profit or loss are non-trading derivatives which are not designated in a qualifying hedge relationship. The Group purchases derivative instruments only for risk management purposes to manage the open currency position. The fair value option is not used by the Group. All changes in its fair value are recognized immediately in profit or loss as a component of net income from other financial instruments at fair value through profit or loss. Loans and advances to banks and customers Loans and advances are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money directly to a debtor with no intention of trading the receivable. Loans and receivables are initially recognised at fair value plus transactions costs; subsequently they are measured at amortised cost using the effective interest method. At each balance sheet date and whenever there is evidence of potential impairment, the Group assesses the value of its loans and receivables. Their carrying amount may be reduced as a consequence through the use of an allowance account. If the amount of the impairment loss decreases, the impairment allowance is reduced accordingly, and the amount of the reduction is recognised in the income statement. The upper limit on the reduction of the impairment is equal to the amortised costs which would have been incurred as of the valuation date if there had not been any impairment. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. Objective evidence that financial assets are impaired can include default or delinquency by a debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, adverse changes in the payment status of borrowers in the Group and economic conditions that correlate with defaults. The group use an allowance account for impairment losses recognized in profit or loss. The carrying amount of the asset is reduced through the use of the allowance account. When there is no realistic prospect of future recovery and all collateral has been realised, loans and the related allowance are written off. If, in a sub-sequent year, the estimated impairment loss increases or decreases of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If a written-off loan is later recovered, the recovery income is credited to the Impairment charge for loan losses. Loans are recognised when the principal is advanced to the borrowers. Loans and receivables are derecognised when the rights to receive cash flows from the financial assets have expired or where the Group has transferred substantially all risks and rewards of ownership. All loans and advances to banks and all loans and advances to customers are classified as loans and receivables. Investments available for sale Available for sale financial assets are those non derivative financial assets that are designated as available for sale or are not classified as (i) loans and receivables, (ii) held-to-maturity investments or (iii) financial assets at fair value through profit or loss. Those financial assets are measured at fair value which equals transaction costs at initial acquisition. Fair values are determined using a valuation technique. Valuation technique used is based on observable current market transactions. Changing one or more of those assumptions to reasonably possible alternative assumptions would not change fair value significantly. Changes in the fair value of available for sale financial assets are recognised in equity/other comprehensive income until the financial assets are either sold or become impaired. Property, plant and equipment Property, plant and equipment is stated at historical cost less accumulated depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Intangible Assets Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised on the basis of the expected useful lives. Goodwill represents the excess of the cost of an acquisition over the fair value of the Group s share of the net identifiable assets of acquired subsidiaries and associates at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of associates is included in investments in associates. Depreciation and impairment of non-financial assets Depreciation on property, plant and equipment and intangible assets (excluding goodwill) is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows: Buildings years Leasehold improvements shorter of lease term or useful life Computers 2 5 years Furniture 5 10 years Motor vehicles 3 5 years Other fixed assets 2 7 years Land is not depreciated. The assets residual carrying values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. Both assets that are subject to depreciation and land are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An asset s carrying amount is written down immediately to its recoverable amount if the asset s carrying amount exceeds its estimated recoverable amount. The recoverable amount is the higher of the asset s fair value less costs to sell and value in use. Gains and losses on disposals are determined by comparing proceeds with carrying amounts. These are included in the income statement. Current and deferred income tax The Group is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining the worldwide provisions for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made. The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised directly in equity. In this case, the tax is also recognised in equity. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company s subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a 16 17

10 Current and deferred income tax (con t) business combination that at the time of the transaction affects neither accounting nor taxable profit nor loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets including carry-forward tax-losses are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences, tax credits or unused tax losses can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Loans from banks and other financial institutions and Customer accounts Liabilities from banks and other financial institutions and Customer accounts are recognised initially at fair value plus transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between proceeds net of transaction costs and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest rate. All financial liabilities are derecognised when they are extinguished that is, when the obligation is discharged, cancelled or expires. Loans from banks and other financial institutions and Customer accounts are categorised as financial liabilities at amortised cost. Borrowing costs are expensed and not capitalized. Other financial assets, other financial liabilities Other financial assets and other financial liabilities are recognised initially at fair value plus transaction costs and subsequently measured at amortised cost. Other financial assets and other financial liabilities generally comprise trade receivables and trade payables. Leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease. The Group leases office premises. Agreements which transfer to the lessee substantially all the risks and rewards incidental to the ownership of assets, but not necessarily a legal title, are classified as finance leases. AccessHolding does not lease assets in finance leases. Government Grants AccessHolding applies the income approach under which a grant is recognised in profit or loss over one or more periods. In most cases the periods over which AccessHolding recognises the costs or expenses related to government grants are readily ascertainable. Thus grants in recognition of specific expenses are recognised in profit or loss in the same period as the relevant expenses. Therefore government grants are neither shown in the statement of financial positions (balance sheet) nor in the income statement (profit/loss). In line with IAS information regarding grants is disclosed in these notes. Share based payments As part of the management service contract, a performance fee is payable to LFS that is contingent on meeting multiple yearly performance targets. The performance bonus amounts to a maximum of 1% per annum of the number of shares of the Company at the end of the respective financial year, depending on how many of the performance targets have been met. The performance claim corresponds to the number of shares, whereas one share represents one EUR. The management service contract stipulates, that LFS may, at its sole discretion, demand that the performance fee claim, or parts of it, is not paid out in cash, but settled through the issuance of newly issued common voting shares of the Company. The issuance of performance shares is ultimately subject to approval by the General Assembly. The Company has no stated policy of settling in cash and has a past practice of settling the payment in equity instruments. Therefore, the fee arrangement is accounted for equity-settled share-based transaction. The cost of equity settled transactions is recognised, together with a corresponding increase in equity, at the time the performance conditions are fulfilled, i.e. on the date on which LFS becomes fully entitled to the award (the vesting date). The fulfilment of the vesting requirements is determined by the Supervisory Board on an annual basis for the preceding financial year. Expense recognized in respect of performance targets not met is reversed. Thus, the cumulative expense recognised for equity-settled transactions at each reporting date reflects the Bank s best estimate of the number of equity instruments that will ultimately vest. The expense is recorded in Other administrative expenses and represents the movement in cumulative expense recognised as at the beginning and end of that period. Restatement of prior year financial statements The Group corrected its accounting policy with regards to the calculation of goodwill in step-up acquisitions. The Group therefore adjusted the comparative figures for 31 December 2011 and 31 December 2012 in accordance with IAS A detailed presentation of these adjustments and their quantitative effect can be found in Note 44. (5) Critical Estimates and Judgements Estimates and judgements are continually evaluated and are based on experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below: Associates Associates are subject to impairment review. The Group records impairment losses on assets in this category when the Group believes that the carrying value may not be recoverable. The determination of the recoverable amount in the impairment assessment requires estimates on market price, prices of comparable businesses or other valuation techniques. Loans and advances to customers and banks Each bank regularly reviews its loan and advances to customers and banks to assess impairment. In determining whether an impairment loss should be recorded in profit or loss for the year. The Group makes judgements as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified for an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group, or national or local economic conditions that correlate with defaults on assets in the group. The Group uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. Fair value of financial instruments Where the fair values of financial assets and financial liabilities recorded on the statement of financial position cannot be derived from active markets, they are determined using a variety of valuation techniques that include the use of mathematical models. The inputs to these models are derived from observable market data where possible, but if this is not available, judgement is required to establish fair values. The judgements include model inputs such as extrapolated interest rate curves and forward rates. The valuation of financial instruments is described in more detail in Note