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RMI - Rand Merchant Insurance Holdings Limited - Summarised, audited results

Release Date: 14/09/2011 16:00
Code(s): RMI
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RMI - Rand Merchant Insurance Holdings Limited - Summarised, audited results announcement and cash dividend declaration for the period ended 30 June 2011 RAND MERCHANT INSURANCE HOLDINGS LIMITED (formerly Main Street 796 (Proprietary) Limited) (Incorporated in the Republic of South Africa) (Registration number 2010/005770/06) JSE Ordinary share code: RMI ISIN: ZAE000153102 ("RMI Holdings") SUMMARISED, AUDITED RESULTS ANNOUNCEMENT AND CASH DIVIDEND DECLARATION FOR THE PERIOD ENDED 30 JUNE 2011 R0,6 billion or 128,4 cents Normalised earnings R0,6 billion or 56,5 cents Dividend R19,6 billion or 1 318 cents Intrinsic Value Group restructuring Having obtained the requisite shareholder and regulatory approval, RMB Holdings Limited ("RMBH") implemented a far reaching restructuring on 7 March 2011. In the context of Rand Merchant Insurance Holdings Limited ("RMI Holdings"), this included, inter alia, the following steps: the separation of RMBH`s insurance and banking interests, through the transfer of RMBH`s insurance interests to RMI Holdings (then a wholly- owned subsidiary); and the unbundling of RMI Holdings to RMBH`s ordinary shareholders on a one- for-one basis and the separate listing of RMI Holdings on the JSE as an insurance-focused investment entity. After the restructuring and further subsequent acquisitions, the interests of RMI Holdings comprise an investment portfolio of South Africa`s premier insurance brands: 25% of Discovery; 26% of MMI; 90% of OUTsurance; and 76% of RMB-SI. RMI Holdings was incorporated on 24 March 2010. The effective date of the transfer of the investments from RMBH was 1 March 2011. Thus, while this maiden financial report of RMI Holdings covers the fifteen month period to 30 June 2011, it was effectively dormant for the first eleven months of the period and its financial results only include income from the underlying investments for the four months ended on that date. Overview of results Global economic growth started to moderate in the first half of 2011, particularly in highly-indebted, developed economies and sentiment was further dampened by increased concern over the fiscal health of certain peripheral Eurozone nations. Factors that weighed on global economic activity included the devastating Japanese earthquake (resulting in the disruption of global supply chains); political unrest in North Africa and the Middle East; adverse weather conditions; and growing demand from emerging market economies (pushing oil and grain prices upwards). Against this uncertain global economic backdrop, the South African economy continued on its tentative recovery path, registering quarterly growth rates above 2,5% during the financial year. South African consumers, who benefited from low debt service costs and robust real income growth, were the main drivers behind this expansion. In addition, increased global commodity prices provided support to the South African export sector. However, employment growth, demand for credit and investment spending by the private sector remained sluggish. Inflation tracked within the South African Reserve Bank`s ("SARB") target band. Notwithstanding such economic uncertainty, all of the businesses in which RMI Holdings are invested, produced excellent results, with strong positive to exceptional growth being recorded in (unaudited) core or normalised earnings: Discovery +31% to R2 028 million MMI +12% to R2 588 million OUTsurance +39% to R807million RMB-SI >100% to R92 million In this, its maiden financial report, RMI Holdings only accounts for income from its investments for the four months ended 30 June 2011. Consequently, it is not possible to present full year results (or comparatives) at group level. The following outcome arises: R million Cents per
share Attributable earnings 570 115,6c Headline earnings 525 106,4c Normalised earnings 636 128,4c RMI Holdings already held its investments in the underlying entities at the stage that the interim dividends were paid. Accordingly, shareholders receive the benefit of both interim and final dividends for the period. Total ordinary dividends payable to RMI Holdings shareholders for the period ended 30 June 2011 amounts to 56,5 cents per share. The group`s underlying intrinsic value at 30 June 2011 can be compared to its market value as follows: R million Cents
per share Intrinsic value 19 579 1 318c Market Capitalisation 18 348 1 235c Discount (6,3%) Sources of income Predominantly sourced from Southern Africa, RMI Holdings` well-diversified income stream is drawn from the full spectrum of insurance business: Health 13% Life 30% Short term 40% Asset management 2% Income on insurance capital 15% Group borrowings and capital position At the end of June 2011, RMI Holdings` net borrowings at holding company level amounted to some R 0,53 billion. We anticipate that the borrowings which was raised in part to finance the acquisition of our enlarged interest in OUTsurance, can be maintained at this level. The intrinsic value of the RMI Holdings` investment at 30 June 2011 was as follows: R million Market value of interest in: - Discovery 5 707 - MMI 6 654 Directors valuation of interest in: - OUTsurance 7 500 - RMB-SI 254 Total market and directors valuation 20 115 Net borrowings 536 Total Intrinsic Value 19 579 Per RMI Holdings` share (cents) 1 318c At 30 June 2011, RMI Holdings` market capitalisation amounted to R18 348 million or 1 235c per share, representing a 6,3% discount to the group`s underlying intrinsic value. Dividend payment We have continued with our stated practice of paying out to shareholders substantially all dividends received from our underlying investments, after servicing funding and other commitments that we may have at the centre. Consequently, the Board resolved to declare a final dividend of 33,7 cents per share. Such final dividend, together with the interim dividend of 22,8 cents brings the total dividends for the period to 30 June 2011 to 56,5 cents. Such dividend is covered 2,3 times by the normalised earnings 128,4 cents of per share. A shareholder who has retained both his RMBH and RMI Holding shares would have received the following ordinary dividends post the unbundling: 2011 2010 % Interim Final Total Total change
RMBH 42,7 58,3 101,0 124,0 RMI Holdings 22,8 33,7 56,5 - Total 65,5 92,0 157,5 124,0 +27% Industry and regulatory environment The South African insurance market is set to undergo significant regulatory changes in the medium term with considerable policy debate taking place at present. Solvency Assessment and Management ("SAM") will be the new regulatory regime to be adopted by the Financial Services Board ("FSB") from 2014 which will govern the economic capital requirements of the group`s insurance undertakings as well as prescribe certain minimum standards of risk management and governance. Significant effort is being expended throughout the group to ensure that all the companies in which we are invested are adequately prepared to meet the new capital regime. The FSB also plans to introduce a "Treating Customers Fairly" regulatory framework which is aimed at ensuring that customer relationships are managed on an unbiased and reasonable manner. Given the high standards being envisaged by FSB, it can be expected that the industry as a whole will have differing levels of maturity in this regard. The group is in a period of self assessment to ensure that we will be able to move towards the level of outcomes desired. The Department of Health has released a green paper on National Health Insurance providing more information on the scheme which will be phased in over a number of years. While the proposals could have far reaching effects on the health businesses in which we are invested, we remain confident that our businesses will have a continuing role to play in this emerging environment. Our regulatory teams are well positioned to ensure that the group entities will comply with the changing regulations. Our management also engages on the various industry and FSB forums to positively contribute to the outcome of new regulations. Outlook for the coming year Significant disquiet in global markets results in a highly uncertain outlook. We expect that domestic economic conditions will remain subdued in the current financial year. It is evident that the path toward economic recovery will be protracted with the fair likelihood of experiencing further recessionary dips in economic activity along the way. The South African economy has unfortunately not escaped the contagion of slow growth, high unemployment and continued high levels of consumer indebtedness, factors which directly impede on the growth of the industry sectors in which we are invested. However, the quality of our operating franchises and their respective strategies, domestically and outside South Africa, should underpin the group`s ability to provide us, as shareholders, with sustainable superior returns. For and on behalf of the Board GT Ferreira P Cooper Chairman Chief executive officer Sandton 14 September 2011 Dividend declaration Notice is hereby given that a final dividend of 33,7 cents per share was declared on 14 September 2011 in respect of the financial period ended 30 June 2011. Shareholders` attention is drawn to the following important dates: Last day to trade in order to participate in this dividend Friday, 7 October 2011 Shares commence trading "ex dividend" on Monday, 10 October 2011 The record date for the dividend payment will be Friday,14 October 2011 Dividend payment date Monday,17 October 2011 No dematerialisation or rematerialisation of share certificates may be done between Monday, 10 October 2011 and Friday, 14 October 2011 (both days inclusive). By order of the Board A L Maher Company secretary 14 September 2011 Review of Investments Discovery Group The year under review was a seminal one for Discovery - it achieved considerable success in the context of growth, innovation and quality across all areas of its business with all of its businesses performing better than expected. it acquired Standard Life Healthcare, the UK`s fourth largest health insurer and began its integration into PruHealth; it revitalized the Vitality business in the United States; and it entered the South African short term insurance market through Discovery Insure. Discovery`s existing businesses performed well, with a focus on quality that manifested in strong embedded value growth, improved new business margins and positive variance experience. Discovery`s emerging businesses (PruHealth, PruProtect and Discovery Invest) performed better than expected, with all three generating profits. This translated into a financial performance that exceeded expectations, with new business of R7,5 billion while operating profit increased by 32% to R2,8 billion. Normalised headline earnings increased by 31% to R2,0 billion. Embedded value increased by 19% to R26,9 billion. RMI Holdings included R165 million of Discovery`s earnings in its normalised earnings for the four month period. For an in-depth review of Discovery`s performance, RMI Holdings` shareholders are referred to www.discovery.co.za. MMI Holdings MMI`s maiden set of full year results reflect strong new business growth despite the potential distractions of merger integration. The integration, which is progressing well, has created new energy and opportunities. Significant progress has been made with the integration of the group`s business divisions. Synergistic cost savings over time of R500 million per annum have been identified and will be reflected in future years` results. Total new business increased by 15% to R5,8 billion and was accompanied by a strong improvement in new business margins. Embedded value increased to R31 billion, while core headline earnings increased by 12% to R2,6 billion. RMI Holdings included R223 million of MMI`s earnings in its normalised earnings for the four month period. For an in-depth review of MMI`s performance, RMI Holdings` shareholders are referred to www.mmiholdings.com. OUTsurance OUTsurance delivered a pleasing performance for the year under review. Group headline earnings attributable to ordinary shareholders grew by 39% to R806,5 million. The key drivers behind the growth were a favourable claims environment, double digit premium growth and a significant decrease in Youi`s start-up loss. A significant contributor to the earnings performance was the favourable claims environment in South Africa, characterised by benign weather conditions, a decrease in crime-related claims and a strong Rand translating into lower replacement car part prices. The South African short term insurance operation continued to expand market share. The top line growth is satisfactory in light of the relatively weak South African economy, soft new vehicle sales and the ever increasing competitive landscape. During August 2010, OUTsurance Life introduced a fully underwritten product to the South African market. The risk-only product offers high quality death, disability and critical illness benefits directly to the market. OUTsurance believes direct life insurers will continue to penetrate this traditionally broker dominated market by offering less complex products and more competitive premiums on the back of lower acquisition costs. Youi, the start-up venture in Australia, continued to entrench both its brand and its personal lines product offering in the competitive Australian market, where over ninety percent of short term insurance is sold direct. The group`s scientific approach to underwriting and pricing has started to bear fruit, as Youi`s claims ratio continues to trend down to below industry averages. The high frequency of severe natural disasters in Australia is a risk to Youi`s claims experience, which is managed via adequate reinsurance cover. The business continues to track expectations and is expected to achieve break-even during the 2013 financial year. Subsequent to the year end, the company reached an agreement to sell an effective interest of 6,8% in the ordinary share capital of OUTsurance to the management team of OUTsurance for a purchase consideration of R552 million. RMI Holdings will facilitate the transaction by providing term funding to the management group for part of the purchase consideration. This transaction is in the process of being implemented. RMI Holdings included R203 million of OUTsurance`s earnings in its normalised earnings for the four month period. For an in-depth review of OUTsurance`s performance, RMI Holdings` shareholders are referred to www.outsurance.co.za. RMB Structured Insurance In 2011, RMB-SI recovered from the setback that it suffered during 2009/2010 as a result of losing a major retail client and it reported a significant improvement in profits for the year ended 30 June 2011. Shareholder profit after tax for June 2011 amounted to R92,5 million (2010: R12,7 million). The main driver of the improved results was the release of insurance reserves in the offshore business as a result of an overfunded position on a long tail liability policy. Over the last five years, RMB-SI have focused on a diversified business strategy to bolster its retainer base income on the back of the more traditional insurance business. This is beginning to bear fruit and the business mix is trending in the right direction. RMI Holdings included R48 million of RMB-SI`s earnings in its normalised earnings for the four month period. Summarised consolidated income statement For the period ended 30 June 2011 R million Audited Share of after tax results in associate companies 318 Earned premiums net of reinsurance 2 071 Commission and fee income 50 Investment income (58) Income 2 381 Net claims paid (306) Investment contract benefits and insurance provisions (323) Acquisition, marketing and administration expenses (649) Operating profit 1 103 Net finance costs (46) Profit before tax 1 057 Taxation (342) Profit for the period 715 Attributable to: Equity holders of RMI Holdings 570 Non-controlling interests 145 715 Computation of headline earnings For the period ended 30 June 2011 R million Audited Earnings attributable to equity holders 570 Adjustment for: Share of adjustment made by associates: Profit on sale of available-for-sale financial assets (1) Realised profit on intellectual property (15) Realised profit on investment property (29) Headline earnings attributable to equity holders 525 Sources of headline earnings For the period ended 30 June 2011 R million Audited Headline earnings from: MMI Holdings 98 Discovery 173 OUTsurance 207 RMB Structured Insurance 50 528 'Funding costs (3) Headline earnings 525 Computation of earnings per share For the period ended 30 June 2011 R million Audited Earnings attributable to equity holders 570 Headline earnings attributable to equity holders 525 Number of shares in issue (millions) 1 486 Weighted average number of shares in issue (millions) 493 Earnings per share (cents) 115,6 Diluted earnings per share (cents)* 114,2 Headline earnings per share (cents) 106,4 Diluted headline earnings per share (cents)* 105,0 Dividend per share (cents) Interim 22,8 Final 33,7 Total 56,5 Dividend cover (relative to headline earnings) 1,9 * The diluted earnings calculations give cognisance to the adjustments made by Discovery and MMI Holdings in similar calculations. These adjustments have no impact on RMI Holding`s diluted weighted average number of shares. Summarised statement of comprehensive income For the period ended 30 June 2011 R million Audited Profit for the period 715 Other comprehensive income, net of tax Currency translation differences 8 Available-for-sale financial assets (3) Share of other comprehensive income of associates (31) Other comprehensive income for the period (26) Total comprehensive income for the period 689 Total comprehensive income attributable to: Equity holders of RMI Holdings 542 Non-controlling interests 147 689 Summarised consolidated statement of financial position as at 30 June 2011 R million Audited ASSETS Property and equipment 211 Goodwill and other intangible assets 32 Investment in associate companies 9 274 Financial assets 6 287 Receivables and prepayments 886 Reinsurers` share of insurance provision 239 Cash and cash equivalents 2 456 Total assets 19 385 EQUITY Share capital and premium 13 571 Reserves (2 549) Capital and reserves attributable to equity holders of 11 022 the company Non-controlling interests 281 Total equity 11 303 LIABILITIES Financial liabilities 3 338 Insurance contract provisions 4 018 Payables and provisions 726 Total liabilities 8 082 Total equity and liabilities 19 385 Summarised consolidated statement of cash flows For the period ended 30 June 2011 R million Audited Cash available from operating activities 829 Dividends paid (339) Investment activities (4 214) Financing activities 3 625 Net decrease in cash and cash equivalents (99) Unrealised foreign currency translation adjustments 24 Cash and cash equivalents acquired* 2 531 Cash and cash equivalents at the end of the period 2 456 * Cash and cash equivalent acquired relate to cash balances held by subsidiaries acquired. Summarised statement of changes in equity R million Share Treasury Equity Increased capital shares accounted subsidiar and reserve reserves y
premium interest Shares issued 13 657 - - - Recognition of non- - - - - controlling interest Increase in interest - - - (2 657) of subsidiary Total comprehensive - - (31) - income for the year Dividend paid - - - - Income of associated - - 9 - companies retained Reserve movements - - - - relating to subsidiaries Movement in treasury - (86) 1 - shares Reserve movements - - (96) - relating to associates Balance at 30 June 13 657 (86) (117) (2 657) 2011 (audited) R million Non- Retain Total Non- Total distri- ed equity Con- equity butable earnin holder trolling reserve gs s` interest
s funds s Shares issued - - 13 - 13 657 657 Recognition of non- - - - 1 592 1 592 controlling interest Increase in interest - - (2 (1 352) (4 009) of subsidiary 657) Total comprehensive 3 570 542 147 689 income for the year Dividend paid - (339) (339) (104) (443) Income of associated - (9) - - - companies retained Reserve movements 20 (20) - (2) (2) relating to subsidiaries Movement in treasury - - (85) - (85) shares Reserve movements - - (96) - (96) relating to associates Balance at 30 June 23 202 11 022 281 11 303 2011 (audited) Computation of normalised earnings The group believes that normalised earnings more accurately reflects operational performance. Headline earnings are adjusted to take into account non-operational and accounting anomalies. For the period ended 30 June 2011 R million Unaudite d Headline earnings attributable to equity holders 525 RMI Holdings` share of normalised adjustments made by associates: Net realised and fair value losses on excess 19 Basis and other changes and investment variances 47 Amortisation of intangible assets relating to 50 business combinations Other 12 Treasury shares - IFRS 2 share based expenses 1 Normalised earnings after normalised adjustments of 654 associates Adjustment for: Group treasury shares (18) Normalised earnings attributable to equity holders 636 Weighted average number of shares in issue 495 (millions) Normalised earnings per share (cents) 128,4 Diluted normalised earnings per share (cents) 125,6 Dividend cover (relative to normalised earnings) 2,3 Sources of normalised earnings For the period ended 30 June 2011 R million Unaudite d Normalised earnings from: MMI Holdings 223 Discovery 165 OUTsurance 203 RMB Structured Insurance 48 Normalised earnings before funding costs 639 Funding costs (3) Normalised earnings 636 Basis of preparation of results The accompanying summarised results for the period ended 30 June 2011 reflect: the consolidation of the operations of RMI Holdings and its subsidiaries including OUTsurance and RMB-SI; and RMI Holdings` proportionate interest in its associates, MMI Holdings and Discovery, which have been equity accounted.
The financial statements for the period ended 30 June 2011, to which the profit announcement relates, were prepared in accordance with: International Financial Reporting Standards ("IFRS"), including IAS 34: Interim Financial Reporting; the requirements of the South African Companies Act, Act 71 of 2008, as amended; and the Listings Requirements of the JSE Limited ("the JSE"). These financial statements were audited by PricewaterhouseCoopers Inc. A copy of their unqualified audit opinion is available for inspection at RMI Holding`s registered office. *RMI Holdings` effective interest in these group entities is different from the actual holdings as a result of the following consolidation adjustments: treasury shares held by these entities; shares held in them by their staff share incentive trusts; "deemed" treasury shares arising from BEE transactions entered into; and "deemed" treasury shares held in them by policyholders and mutual funds managed by them. At 30 June 2011 the effective interest held as recorded above can be compared to the actual interest of RMI Holdings in the statutory issued share capital of the companies as follows: Effectiv Actual e * Discovery 26,7% 25,0% * OUTsurance 92,8% 90,1% * MMI 26,3% 26,0% * RMB-SI 80,5% 76,4% Rand Merchant Insurance Holdings Limited (formerly Main Street 796 (Proprietary) Limited) ("RMI Holdings") Registration number: 2010/005770/06 JSE ordinary share code: RMI ISIN code: ZAE000153102 Directors: GT Ferreira (Chairman), P Cooper (CEO), LL Dippenaar, JW Dreyer, JJ Durand, PM Goss, PK Harris, TV Mokgatlha, KC Shubane, (Ms) SEN Sebotsa and MH Visser. With the exception of TV Mokgatlha, who was appointed 25 May 2011, all the directors were appointed on 8 December 2010. Secretary: AL Maher Registered office and physical address: 3rd Floor, 2 Merchant Place, Corner of Fredman Drive and Rivonia Road, Sandton, 2196 Postal address: PO Box 786273, Sandton, 2146 Telephone: +27 11 282 1010 Telefax: +27 86 632 0963 Web address: www.rminsurance.co.za Sponsor: (in terms of JSE Limited Listings Requirements) Rand Merchant Bank (a Division of FirstRand Bank Limited) Physical address: 1 Merchant Place, corner of Fredman Drive and Rivonia Road, Sandton, 2196 Transfer secretaries: Computershare Investor Services 2004 (Pty) Limited Physical address: Ground Floor, 70 Marshall Street, Johannesburg, 2001 Postal address: PO Box 61051, Marshalltown, 2107 Telephone: +27 11 370 5000 Telefax: +27 11 688 5221 THE RMI HOLDINGS GROUP AT A GLANCE RMI Holdings is a significant investor in some of Southern Africa`s most prominent insurance groups. Our interests include: Effective interest 26,7%* Discovery Holdings Limited ("Discovery") Discovery services the health care funding and insurance markets in South Africa, the United Kingdom, United States and China. It is a pre-eminent developer of integrated financial services products and operates under the Discovery Health, Discovery Life, Discovery Card, Vitality, PruHealth and PruProtect brand names. Effective interest 26,3%* MMI Holdings Limited ("MMI") MMI was formed from the merger of Metropolitan and Momentum, both sizeable insurance-based financial services players in South Africa and is South Africa`s third largest insurer. The core businesses of MMI are long-term insurance, asset management, investment, health-care administration and employee benefits. Product solutions are provided to all market segments. MMI operates in 12 countries outside of South Africa. It provides for the assurance needs of individuals in the lower, middle and upper income markets, principally under the Momentum and Metropolitan brand names. Effective interest 92,8%* OUTsurance Holdings Limited ("OUTsurance") OUTsurance is a direct personal lines and small business short-term insurer. Pioneers of the OUTbonus concept, it has grown rapidly by applying a scientific approach to risk selection, product design and claims management. Youi, its direct personal lines initiative in Australia, and its South African direct life insurance businesses are still in a start-up phase. Effective interest 80,5%* RMB Structured Insurance Limited ("RMB-SI") RMB-SI holds both short-term and life assurance licenses. It creates bespoke insurance and financial risk solutions for South Africa`s large corporations by using sophisticated risk techniques and innovative financial structures. In addition it part owns a portfolio of underwriting management agencies. www.rminsurance.co.za Date: 14/09/2011 16:00:25 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.

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