Wrap Text
Results for the year ended 31 March 2014
Alexander Forbes Preference Share Investments Limited
Registration number: 2006/031561/06
Share code: AFP
ISIN code: ZAE 000098067
Results for the year ended 31 March 2014
- Headline earnings per linked unit increases by 23% from 169 cents per unit to 208 cents per unit
- Investment income increases by 28% to R526 million
- Equity accounted share of profit of Alexander Forbes Equity Holdings of R105 million improved from a loss
in the prior year of R50 million
- Material transactions at year-end and subsequent to balance sheet date result in delinking of the linked
unit and settlement of the debenture component
REVIEW OF ACTIVITIES
Nature of business
Alexander Forbes Preference Share Investments Limited (AF Pref) was incorporated on 10 October 2006 following
the bid by a private equity consortium to take private the then-listed Alexander Forbes group. The purpose of
the company is to serve as the special purpose vehicle through which certain existing shareholders of
Alexander Forbes Limited could remain invested following the private equity buyout of the group with effect
26 July 2007. The ultimate holding company of the Alexander Forbes group is now Alexander Forbes Equity
Holdings Proprietary Limited (AFEH).
AF Pref issued linked units listed on the JSE Limited and these consisted of preference shares issued by
AF Pref (effectively representing an interest in the ordinary and preference equity of AFEH) and debentures
(effectively representing an interest in the debt instruments issued by subsidiaries of AFEH).
Material transactions on balance sheet date and subsequent events
AFEH underwent a comprehensive capital restructure, which became effective on 31 March 2014, the last day of
its financial year. The capital restructure, amongst other changes, resulted in the repayment of various
debt instruments issued by subsidiaries of the group. Of these debt instruments, AF Pref was the holder of
100% of the Pay-in-Kind Debenture (PIK Debenture) and 26.5% of the High Yield Term Loan and related instruments.
To the extent that these debt instruments were repaid by the AFEH group in cash, AF Pref was in receipt of a
substantial amount of cash on 31 March 2014 and that cash therefore reflects as such on the balance sheet of
AF Pref as at year-end. Shortly after year-end, the cash received was distributed to linked unit holders
amounting to R2.2 billion in settlement of a substantial part of the debenture component of the linked unit.
The remaining outstanding balance of the debenture component of the linked unit was repaid through the issuance
of additional preference shares in AF Pref.
The last day of trade of the AF Pref linked unit was on Friday 4 April 2014 and as of Monday 7 April 2014,
the AF Pref preference shares were listed and traded as a separate instrument and the number of preference
shares in issue increased by an additional 0.37045 preference share for each share already in issue.
The traded share price therefore adjusted for these two events as of 7 April 2014 to reflect the fact that
the debenture component has been settled and the preference shares in issue increased.
The AFEH capital restructure also resulted in the conversion of A Preference Shares issued by AFEH to
ordinary equity. AF Pref owned a proportionate share of A Preference Shares.
As a result of the AFEH capital restructure which became effective 31 March 2014, its capital
structure is significantly simplified and consists mainly of ordinary shares and a small amount of "B"
Preference shares. AF Pref now holds 28.4% of the issued ordinary shares in AFEH only. This also
positions the group appropriately in advance of the anticipated introduction of consolidated supervision
by the regulator. The above changes were more fully explained in the circular issued to shareholders
dated 24 February 2014.
Results of AFEH for the year
This announcement should be read in conjunction with the announcement made available by AFEH, which
provides an overview of the results of the AFEH group and its operations for the year ended 31 March 2014.
In addition to the capital restructure undertaken by AFEH referred to above, the group completed a number of
corporate disposals in line with the previously communicated strategic refocusing of its core operations.
The disposals over the past number of years included its Risk Services business, Alexander Forbes Consultants and
Actuaries in the UK as well LCP Switzerland, the MIS group of companies in the UK and Investment Solutions
UK. The strategic refocus has now largely been brought to conclusion with the disposal of the Guardrisk group of
companies in March 2014.
With regard to the continuing operations, the AFEH group delivered a strong performance with revenue from
continuing operations, net of direct product cost, increasing by 18% to R4.4 billion for the year. Profit from
continuing operations before non-trading items increased by 12% to R1 040 million. This growth in operating
profit is after taking into account the negative impact of the accounting treatment of a long term operating lease
during the transition period, which, if excluded as explained in the previous financial year, results in an adjusted
growth in operating profit before non-trading items of 17% compared to the prior year. After non-trading items,
finance costs and taxation, the loss for the year from continuing operations of R37 million is 63% lower than the
R98 million loss reported in 2013. The profit from discontinued operations of R542 million includes a profit on
sale of disposed entities in the current year amounting to R564 million. The profit attributable to AFEH equity
holders, which includes the profit from discontinued operations and net of non-controlling interests, of R395
million is significantly improved from the attributable loss of R191 million for the previous financial year.
The results for the period should be seen in the context of the interest charge inherent in the funding structure of
R843 million as well as the accounting amortisation of intangible assets by AFEH amounting to R144 million for
the period. The interest charge will rebase at a much lower level following the AFEH capital restructure as
discussed earlier.
Results of AF Pref for the year under review
AF Pref's share of the attributable profit of AFEH, as explained above, amounts to R105 million, which is equity
accounted in the financial statements, and is the main contributor to the results reported by AF Pref for the year.
The company's share of associate earnings for the financial year is correctly calculated at 26.5% as opposed to
the 28.4% post-restructure shareholding referred to above, under "Material transactions on balance sheet date
and subsequent events".
In addition to the equity investment in the equity of AFEH, AF Pref also owned certain debt instruments and
related assets issued by subsidiaries of AFEH as described above. The investment income represents income
earned on these various debt instruments for the entire year as the capital restructure of AFEH only took effect
on 31 March 2014. The investment income is largely offset by interest expense on the debentures issued in turn by AF
Pref and which formed part of the linked unit in issue until shortly after year-end. Investment income for the
period of R526 million is 28% higher than the previous financial year. This increase is attributable to the early
repayment of the underlying investment in the high yield term loan on 31 March 2014 and the related acceleration
of the discount, which was achieved at the inception of the investment. The finance cost paid or payable to
debenture holders (linked unit holders) amounts to R532 million which similarly includes an accelerated
realisation of the discount on issue of these instruments to linked unit holders.
Overall, earnings per linked unit increased by 73% from 150 cents per unit in the previous period to 259 cents
per unit in the current period. Headline earnings per linked unit increased by 23% from 169 cents to 208 cents per
unit. As explained above, subsequent to year-end the linked units have been delinked and each debenture
component has been redeemed.
Further detail of the results of AFEH and its subsidiaries for the year ended 31 March 2014 is contained in the
results announcement made available to AF Pref linked unit holders by AFEH.
As previously announced, the shareholders are advised that AFEH is exploring various strategic options for
maximising shareholder value, which includes a possible listing of AFEH by way of an initial public offering("IPO").
AFEH has recently also received expressions of interest from several parties to acquire the AFEH group. The AFEH
board has mandated the executive to formally explore these expressions of interest whilst still progressing
with the possible IPO. We would like to bring the Preference Shareholders attention to the cautionary announcement
released on SENS on 5 June 2014.
Change in directorate
There has been no change to the board of directors since the publication of our interim results on 2 December
2013.
On behalf of the board of directors:
JRP Doidge TJ Fearnhead
Director Director
Johannesburg Johannesburg
9 June 2014 9 June 2014
STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 March 2014
Rm Notes 2014 2013
Restated
Investment income 2 526 411
Operating expenses (2) (2)
Finance costs 3 (532) (401)
Share of profit/(loss) of associates (net of income tax) 105 (50)
Profit / (loss) before taxation 97 (42)
Income tax expense 4 (16) (3)
Profit / (loss) for the period 81 (45)
Attributable to:
Ordinary equity holders - -
Preference shareholders 81 (45)
81 (45)
Headline earnings/(loss) (cents) 6
- per ordinary share - -
- per preference share (16) -
- per debenture 224 169
- per linked unit 208 169
Basic earnings/(loss) (cents)
- per ordinary share - -
- per preference share 34 (19)
- per debenture 224 169
- per linked unit 258 150
STATEMENT OF OTHER COMPREHENSIVE INCOME
for the year ended 31 March 2014
Rm 2014 2013
Restated
Profit / (loss) for the period 81 (45)
Share of associate other comprehensive income for the period
(net of income tax) 101 43
Total comprehensive income/(loss) for the period 182 (2)
Total comprehensive income/(loss) attributable to:
Ordinary equity holders - -
Preference shareholders 182 (2)
Total comprehensive income/(loss) for the period 182 (2)
STATEMENT OF FINANCIAL POSITION
for the year ended 31 March 2014
Rm Notes 2014 2013 2012
Restated Restated
Assets
Investment in associate 7 1 510 698 705
Financial assets 8 - 2 344 2 050
Other receivables - 1 1
Cash and cash equivalents 2 240 5 6
Total assets 3 750 3 048 2 762
Equity and liabilities
Ordinary shareholders' equity - - -
Preference shareholders' interest – component of linked units 1 037 1 037 1 037
Non-distributable reserve 68 (33) (77)
Accumulated loss (188) (269) (223)
Total equity 917 735 737
Debentures – component of linked units 2 807 2 304 2 019
Deferred tax - 9 6
Taxation payable 26
Total liabilities 2 833 2 313 2 025
Total equity and liabilities 3 750 3 048 2 762
Total equity attributable to ordinary shareholders - - -
Number of ordinary shares in issue ('000) 1 1 1
Net asset value per ordinary share (Rand per share) - - -
Total equity attributable to preference shareholders 917 735 737
Number of preference shares in issue (million) 237 237 237
Net asset value (book value) per preference share (Rand per (a) 3.87 3.10 3.11
share)
Value of debentures attributable to linked unit holders* 2 807 2 304 2 019
Number of debenture units in issue (million)* 237 237 237
Net asset value per debenture (Rand per unit)* (b) 11.84 9.72 8.52
Net asset value (book value) per linked unit (Rand per unit) (a)+(b) 15.71 12.82 11.63
*This amount was settled subsequent to year-end by payment of cash amounting to R9.30 per debenture and
issue of preference shares of 0.3704 shares per debenture.
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2014
Ordinary Prefer- Non-
share- ence distribut-
holders' share- able Accumu- Total
Rm equity holders reserves lated loss equity
At 1 April 2012 - 1 037 (77) (218) 742
Restatement relating to the adoption of IAS 19 Revised
Employee Benefits - - - (3) (3)
Restatement relating to the adoption of IFRS 10
Consolidated Financial Statements - - - (2) (2)
At 1 April 2012 Restated - 1 037 (77) (223) 737
Loss for the period - - - (45) (45)
Other comprehensive income - - 44 (1) 43
Total comprehensive profit/(loss) - - 44 (46) (2)
At 31 March 2013 Restated - 1 037 (33) (269) 735
Loss for the period - - - 81 81
Other comprehensive income - - 101 - 101
Total comprehensive profit/(loss) - - 101 81 182
At 31 March 2014 - 1 037 68 (188) 917
STATEMENT OF CASH FLOWS
for the year ended 31 March 2014
2014 2013
Rm Restated
Cash flow from operating activities
Cash generated/(utilised) by operations for the period (2) (2)
Taxation paid 1 -
Interest on cash balances 1 1
Payment of interest on debentures (29) (116)
Investment income on high yield term loan and relevant assets 29 116
Net cash inflow/(outflow) from operating activities for period - (1)
Cash flow from investing activities 2 235 -
Cash flow from financing activities - -
Net movement in cash and cash equivalents 2 235 (1)
Cash and cash equivalents at beginning of period 5 6
Cash and cash equivalents at end of period 2 240 5
NOTES
for the year ended 31 March 2014
1. Basis of preparation
The summary financial statements are prepared in accordance with the requirements of the JSE Limited Listings
Requirements for provisional reports, and the requirements of the Companies Act applicable to summary
financial statements. The Listings Requirements require provisional reports to be prepared in accordance with the
framework concepts and the measurement and recognition requirements of International Financial Reporting
Standards (IFRS) and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee
to also, as a minimum, contain the information required by IAS 34 Interim Financial Reporting. The accounting
policies applied in the preparation of the financial statements from which the summary financial statements have
been derived are in terms of IFRS and are consistent with those accounting policies applied in the preparation of
the previous annual financial statements with the exception of the changes as detailed in note 10.
This summarised report is extracted from audited information, but is not itself audited. The annual financial
statements were audited by PricewaterhouseCoopers Inc., who expressed an unmodified opinion thereon. The
audited annual financial statements and the auditor's report thereon are available for inspection at the company's
registered office.
These summary consolidated financial statements were compiled under the supervision of Deon Viljoen, CA
(SA), the Group Chief Financial Officer. The directors take full responsibility for the preparation of this report and
that the financial information has been correctly extracted from the underlying annual financial statements.
31 March 31 March
2014 2013
Rm Restated
2. Investment income
Interest and investment income on held-to-maturity financial assets:
- PIK Debentures 336 286
- High Yield term loan 103 107
- Unwind of discount on HY Term loan and related assets 68 -
- Interest income on amendment fee 2 2
- Fair value gain on put and call option 16 15
Interest on cash balances 1 1
526 411
3. Finance costs
Interest cost on financial liability held at amortised cost
(debentures) (532) (401)
4. Income tax expense
South African income tax
Deferred tax - Current year 9.2 (2.9)
Current tax – Current year (25.5) -
(16.3) (2.9)
The deferred tax balance has been released in line with the
settlement of the fair value of the Put and Call option asset.
The standard South African income tax rate for companies is
reconciled to the company's actual tax rate as follows:
Income tax rate for companies 28.0% 28%
Adjusted for the effect of:
Share of net loss of associate (net of income tax) (30.0)% (33.9)%
Exempt income and disallowed expenditures 2.0% 5.9%
Future tax payable at Capital Gains Tax rate 26.2% (6.9)%
Effective tax rate 26.2% (6.9)%
5. Profit /(loss) attributable to equity holders and preference shareholders
The economic rights to return of capital and dividends for equity holders, preference shareholders and
debenture holders are detailed in section 5 of the pre-listing statement issued by AF Pref on 10 July 2007
and in the published annual financial statements.
6. Earnings per share
The preference shareholders have the economic rights to return of capital and dividends and as such
earnings and headline earnings per share are all attributable to preference shareholders and are nil for
ordinary shareholders. Basic and headline earnings per share for ordinary shareholders is therefore zero.
6.1 Basic earnings / (loss) per preference share
Basic earnings / (loss) per share is calculated by dividing the profit / (loss) for the year attributable to
preference shareholders by the weighted average number of preference shares in issue during the year.
6.2 Headline earnings per preference share
Headline earnings per preference share is calculated by excluding all impairment charges and capital
gains and losses from the profit attributable to preference shareholders and dividing the resultant headline
earnings by the weighted average number of preference shares in issue during the year. Headline
earnings are defined in Circular 2/2013 issued by the South African Institute of Chartered Accountants.
6.3 Headline earnings per linked unit
In order to provide a better reflection of the earnings per unit traded on the JSE ("linked unit"), this
measure adds back the investment income earnings of the debentures to the headline earnings. The
earnings per linked unit are then divided by the weighted number of linked units in issue during the year.
6.4 Calculation of earnings per share and per linked unit
Rm 2014 2013
Profit/(loss) for the year (R million) (a) 81 (45)
Earnings attributable to debenture holders (R million) (b) 532 401
Headline adjusting items:
Share of impairment charge and other capital items of
associate (c) (119) 44
Weighted average number of preference shares in issue
(millions) (d) 237 237
Weighted average number of linked units and debentures
in issue (millions) (e) 237 237
Basic earnings / (loss) per preference share (cents) (a)/(d) 34 (19)
Headline loss per preference share (cents) (a+c)/(d) (16) -
Basic earnings per linked unit (cents) (a+b)/(e) 258 150
Headline earnings per linked unit (cents) (a+b+c)/(e) 208 169
7. Investment in associate
Cost 1 644 1 038
Share of cumulative post -acquisition movement in non-distributable
reserves of associate 68 (33)
Share of cumulative post -acquisition losses of associate (202) (307)
Carrying value in balance sheet 1 510 698
An additional investment of R606 million was made on 31 March 2014 as part of the capital restructure of
the underlying associate.
Rm 2014 2013
8. Financial Assets
Opening balance 2 344 2 050
Interest received from HY term loan (29) (116)
Interest accrued 442 395
Unwind of discount on HY term loan and related assets 68 -
Fair value adjustment 16 15
Disposal and redemption of all financial assets (2 841) -
Closing balance - 2 344
Analysed as follows:
High-yield term loan receivable - 364
Put and call option asset - 81
Investment in PIK debentures - 1 899
- 2 344
On 31 March 2014 the company disposed of the HY Term loan and related assets to AFEH. In addition,
the PIK loan was redeemed by a subsidiary of AFEH as part of the capital restructure of AFEH.
The HY term loan and related assets were disposed on loan account to AFEH, this loan account was
settled by way of issue of ordinary shares in AFEH.
The redemption of the PIK loan was received in cash to the value of R2 235 million.
9. Post Balance Sheet Date Event
On 24 March 2014 the Preference shareholders and linked Debenture unit holders resolved to:
- Delink the linked Preference Share and Debenture units
- Amend the Memorandum of Incorporation of AF Preference share Investments Limited
- Amend the Debenture Trust Deed
- Approve the transaction as detailed in the circular dated 24 February 2014
As a result of the amendments above and the related capital restructure in AFEH the following post balance
sheet events have occurred:
- On 7 April 2014, the company issued 87 691 346 shares to the value of R606 million in partial
settlement of the amount payable to debenture holders referred to in note 19.
- In addition, on the 14 April 2014 the company paid cash of R2 201 million to settle the remaining
debentures thereby fully settling the debenture holders whose debenture units are no longer listed
on the JSE.
10. Restatement of comparative information for the impact of new and revised accounting standards on
associate
During the year, the company's associate, Alexander Forbes Equity Holdings (Pty) Ltd, restated its
comparative information for the adoption of IFRS 10 Consolidated Financial Statements, and IAS 19 revised
Employee Benefits. As a result of this restatement, the company has restated its share of equity accounted
earnings from the associate.
The impact of these restatements on the statement of comprehensive income, statement of other
comprehensive income and the statement of financial position on the AF Pref comparative information is set
out in the tables below:
Share of
As previously associate
reported restatement Restated
IMPACT ON STATEMENT OF COMPREHENSIVE
INCOME – MARCH 2013
Investment income 411 411
Operating expenses (2) (2)
Finance costs (401) (401)
Share of net loss of associates (net of income tax) (48) (2) (50)
Loss before taxation (40) (2) (42)
Income tax expense (3) (3)
Loss for the period (43) (2) (45)
Attributable to:
Ordinary equity holders - -
Preference shareholders (43) (2) (45)
(43) (2) (45)
IMPACT ON STATEMENT OF OTHER
COMPREHENSIVE INCOME – MARCH 2013
Loss for the year (43) (2) (45)
Share of associate other comprehensive income for the
year (net of income tax) will be reclassified to profit or loss 44 44
Share of associate other comprehensive income for the
year (net of income tax) will not be reclassified to profit or
Total comprehensive income/(loss) for the year 1 (3) (2)
Total comprehensive (loss)/ income attributable to:
Ordinary equity holders - - -
Preference shareholders 1 (3) (2)
Total comprehensive income/(loss) for the year 1 (3) (2)
Share of
As previously associate
reported restatement Restated
IMPACT ON STATEMENT OF FINANCIAL POSITION –
MARCH 2013
Assets
Investment in associate 706 (8) 698
Financial assets 2 344 - 2 344
Other receivables 1 - 1
Cash and cash equivalents 5 - 5
Total assets 3 056 (8) 3 048
Equity and liabilities
Ordinary shareholders' equity - - -
Preference shareholders' interest – component of linked
units 1 037 - 1 037
Non-distributable reserve (33) - (33)
Accumulated loss (261) (8) (269)
Total equity 743 (8) 735
Debentures – component of linked units 2 304 - 2 304
Deferred tax 9 - 9
Total liabilities 2 313 - 2 313
Total equity and liabilities 3 056 (8) 3 048
Share of
As previously associate
reported restatement Restated
IMPACT ON STATEMENT OF FINANCIAL POSITION –
AT 1 APRIL 2012
Assets
Investment in associate 710 (5) 705
Financial assets 2 050 - 2 050
Other receivables 1 - 1
Cash and cash equivalents 6 - 6
Total assets 2 767 (5) 2 762
Equity and liabilities
Ordinary shareholders' equity - - -
Preference shareholders' interest – component of linked
units 1 037 - 1 037
Non-distributable reserve (77) - (77)
Accumulated loss (218) (5) (223)
Total equity 742 (5) 737
Debentures – component of linked units 2 019 - 2 019
Deferred tax 6 - 6
Total liabilities 2 025 - 2 025
Total equity and liabilities 2 767 (5) 2 762
11. Dividends
In line with the original expectations of the entity, no dividends are proposed in respect of the Preference
shares.
Independent directors: JRP Doidge (Chairman)
TJ Fearnhead
B Harmse
Non-executive director: DM Viljoen
Company secretary and Investor relations: JE Salvado (Ms)
Transfer secretaries: Computershare Investor Services Proprietary Limited
Ground Floor
70 Marshall Street
Johannesburg
PO Box 61051
Marshalltown
2107
Registered office: 3rd Floor
200 On Main
Corner Main and Bowwood Roads
Claremont
7708
Sponsor: Rand Merchant Bank, a division of FirstRand Bank Limited
1 Merchant Place
Corner Fredman Drive and Rivonia Road
Sandton
2196
Alexander Forbes Preference Share Investments Limited
Registration number: 2006/031561/06
Share code: AFP
ISIN code: ZAE 000098067
Website: www.alexanderforbes.co.za
Date issued: 9 June 2014
Date: 09/06/2014 01:15:00 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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