Wrap Text
Summarised, audited results announcement and cash dividend declaration for year ended 30 June 2014 and board changes
RAND MERCHANT INSURANCE HOLDINGS LIMITED
Registration number: 2010/005770/06
JSE ordinary share code: RMI
ISIN code: ZAE000153102
(RMI)
Summarised, audited results announcement and cash dividend declaration for the year ended 30 June 2014 and board changes
KEY HIGHLIGHTS
Normalised earnings +18% to 203.4 cents
Ordinary dividend +14% to 108.0 cents
Market value +30% to 3 278 cents
Economic environment
The operating environment remained difficult throughout the financial year. This was largely as a consequence of uncertainty in the global macro-economic arena
combined with subdued domestic demand growth and protracted industrial action in the mining sector.
Economic activity in the United States experienced a gradual recovery. This allowed the US Federal Reserve to taper its asset purchases. The expected increase in
US interest rates impacted on foreign capital flows to emerging markets. South Africa, with its large current account deficit, was negatively impacted by the
slow-down in capital flows. This led to the further weakening of the Rand, which translated into higher domestic inflation and triggered the start of a higher
interest rate cycle.
Local operating conditions were economically challenging and highly competitive. Equity markets increased strongly throughout the year, while interest rate
volatility continued. Consumer confidence remained fragile with ongoing labour challenges, unemployment, indebtedness and inflation reducing disposable and
investible income.
While some of these headwinds also affected the rest of the sub-Saharan region, GDP growth in many African countries, however, is proving to be resilient, with
some economies continuing to expand at a brisk pace. In those countries, domestic demand - fuelled by credit growth and investment in infrastructure
development - remained the major catalyst.
Overview of results
Notwithstanding such a challenging background, all of the businesses in which RMI are invested produced satisfying results, with strong growth in normalised
earnings being recorded by Discovery and OUTsurance, driven largely by the performance of their offshore operations.
Normalised earnings
for the year ended 30 June
Restated
2014 2013
R million Audited Audited % change
Discovery 3 457 2 787 24
MMI 3 621 3 241 12
OUTsurance 1 448 1 209 20
RMBSI 101 89 13
As a result, the earnings derived by RMI from its investments in these companies were as follows:
for the year ended 30 June
Restated
2014 2013
R million Audited Audited % change
Normalised earnings from:
Discovery 866 699 24
MMI 899 803 12
OUTsurance 1 219 1 031 18
RMBSI 78 70 11
3 062 2 603 18
Funding and holding company costs (40) (37) (8)
Normalised earnings 3 022 2 566 18
Normalised earnings per share (cents) 203.4 172.6 18
RMI regards normalised earnings as the appropriate basis to evaluate business performance as it eliminates the impact of non-recurring items and accounting
anomalies.
A reconciliation of the adjustments made to derive normalised earnings is presented in the accompanying schedules.
MARKET VALUE OF INVESTMENTS
Both Discovery and MMI benefited from a significant market re-rating during the year to 30 June 2014, with their JSE market capitalisation increasing by 16%
and 18% respectively.
Over the year RMI's market capitalisation increased by 30% to R48.7 billion.
On a "look-through" basis, the market value attributed to RMI's interest in OUTsurance (84.7% held) and RMBSI (78.6% held) increased by 47% to R24.1 billion,
reflecting market recognition of the continued progress made in building out OUTsurance's Australian initiative and the strength of its South African franchise.
as at 30 June
R million 2014 2013 % change
Market value of interest in:
- Discovery 14 383 12 445 16
- MMI 10 302 8 701 18
Market value of listed investments 24 685 21 146 17
Implied market value of unlisted investments 24 075 16 337 47
Gross market value of portfolio 48 760 37 483 30
Net liabilities of the holding company (59) (44) (34)
RMI market capitalisation 48 701 37 439 30
RMI closing share price (cents) 3 278 2 520 30
Dividend payment
The board is of the opinion that RMI is adequately capitalised at this stage and that the company will be able to meet its obligations in the foreseeable future
after payment of the dividend declared below. The board is also of the view that, at present, the level of borrowings that the group carries at the center is
appropriate.
In 2013, RMI indicated to the market that it would consider a more active investment strategy following the appointment of Herman Bosman. In July 2014, an
investment team was appointed to assist with the changed strategy. The board has now also considered the impact of the investment activity on dividend policy.
The stated practice of paying out all dividends received from our underlying investments after servicing any funding commitments largely remains in place. Going
forward, in determining dividends, RMI's debt funding capacity and investment pipeline will be considered. For 2014, the board has decided to retain the special
dividend of R196 million to be received from MMI in October 2014.
FINAL DIVIDEND FOR THE 2014 FINANCIAL YEAR
The board resolved to declare a final dividend of 62.0 cents per ordinary share.
Such final dividend, together with the interim dividend of 46.0 cents per ordinary share, brings the total dividend for the year ended 30 June 2014 to 108.0 cents
per ordinary share (2013: 95.0 cents), a year-on-year increase of 14%.
The total dividend is covered 1.9 times (2013: 1.8 times) by the normalised earnings of 203.4 cents per share.
The apparent divergence in the growth in dividends relative to the growth in underlying earnings can be ascribed to OUTsurance re-investing a larger portion of
its earnings in its Australian and New Zealand growth initiatives.
Shareholders are referred to the dividend declaration forming part of this announcement regarding the applicability of dividend withholding tax to the ordinary
dividend.
Outlook
The South African consumer will be placed under further pressure due to the current interest rate hiking cycle. Growth in insurance new business volumes will
remain largely dependent upon the economic environment, including a recovery in employment and stronger disposable income levels.
All of the groups in which RMI are invested face both opportunities and threats posed by the highly regulated environment in which they operate, including
evolving capital regimes as well as social security reform proposals.
Notwithstanding these challenges, RMI expects to benefit from continued organic growth during the coming year.
Board changes
During the current year the following board appointments were made:
- Mr HL Bosman as executive director/chief executive officer designate (2 April 2014).
- Mr JP Burger as independent non-executive director (30 June 2014).
- Mr P Lagerström as independent non-executive director (30 June 2014).
Mr MM Morobe was appointed as independent non-executive director on 1 August 2014.
We extend a warm welcome to all the new appointees.
Mr TV Mokgatlha resigned as an independent non-executive director on 30 June 2014.
As part of a process to achieve compliance with the various prescriptions regarding board structures and corporate governance, Mr L Crouse resigned as
non-executive director effective 30 June 2014 and was appointed as an alternate to Mr JJ Durand on the same date.
Mr Cooper retires, effective 11 September 2014, as chief executive officer and financial director. He will continue to serve on the board in a non-executive
capacity. We would like to express a word of gratitude to Mr Cooper for the value he has created for the equityholders during his career. We wish him well as he
scales back his corporate involvement.
The board has confirmed Mr Bosman as chief executive officer and financial director of RMI effective 11 September 2014. We wish him well in his career with
RMI and look forward to support him in his strategic initiatives.
For and on behalf of the board
GT Ferreira HL Bosman
Chairman Chief executive officer
Sandton
11 September 2014
CASH DIVIDEND DECLARATION
Final cash dividend
Notice is hereby given that a gross final dividend of 62.0 cents per ordinary share payable out of income reserves was declared on 11 September 2014 in respect
of the year ended 30 June 2014.
The company has utilised Secondary Tax on Companies credits amounting to 0.82996 cents per ordinary share. The balance of the dividend will be subject to
Dividend Withholding Tax at a rate of 15%, which will result in a net dividend of 52.82449 cents per ordinary share for those shareholders who are not exempt.
The company's tax reference number is 9469/826/16/9. Its issued share capital at the declaration date is 1 485 688 346 ordinary shares and 648 001 redeemable
preference shares.
Shareholders' attention is drawn to the following important dates:
- Last day to trade in order to participate in the dividend Friday, 3 October 2014
- Shares commence trading "ex dividend" on Monday, 6 October 2014
- The record date for the dividend payment will be Friday, 10 October 2014
- Dividend payment date Monday, 13 October 2014
No de-materialisation or re-materialisation of share certificates may be done between Monday, 6 October 2014 and Friday, 10 October 2014 (both days inclusive).
By order of the board
JS Human
Company secretary
11 September 2014
REVIEW OF INVESTMENT PERFORMANCE
Discovery
Discovery services the healthcare 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 Insure, Discovery Invest, DiscoveryCard, Vitality, PruHealth,
PruProtect and Ping An Health brand names.
The year to 30 June 2014 was a satisfying period for Discovery:
- New business grew 15% to R12.2 billion;
- Normalised headline earnings increased by 24% to R3.5 billion;
- Embedded value grew 21% to R43.1 billion; while
- Return on capital amounted to 22.9%.
All businesses are competitively positioned in their respective markets.
The healthcare environment remains complex, characterised by an increasing disease burden, a deepening shortage of physicians, continued upward cost pressure
and legislative reform. Against this backdrop, Discovery Health's performance exceeded expectation: operating profit before tax increased 10% to R1 854 million,
after continued efficiencies were passed onto the medical scheme through a planned scale-related discount; new business increased 4% to R5 billion; and lives
under management grew to 2.9 million.
Discovery Life demonstrated exceptional earnings before tax growth of 23% to R2 591 million over the year, driven by new business growth of 6% to R2 013
million, better than expected claims and lapse results, improved renewal efficiencies and disciplined expense control.
The performance of Discovery Invest over the year exceeded expectation. Earnings before tax increased by 50% to R331 million, driven by high growth of
products sold and strong performance of the market. Assets under management increased to R42 billion.
The scale and relevance of Discovery's UK businesses reflect the benefits of a decade of investment. The combined PruHealth and PruProtect businesses grew
earnings before tax by 33% to R628 million; new business grew 35% to R2 129 million and the combined customer base measured almost 800 000 at the end
of the year.
In the year under review, Ping An Health entrenched its position as the top health insurance player in China and more than doubled new business volumes to
R339 million.
Discovery Insure's new business was exceptional, with 73% growth to R632 million. It is now the fastest growing short-term insurer in South Africa.
RMI included R866 million of Discovery's earnings in its normalised earnings (2013: R699 million).
For an in-depth review of Discovery's performance, RMI's shareholders are referred to www.discovery.co.za.
MMI Holdings
South Africa's third largest insurer, MMI, was formed from the merger of Momentum and Metropolitan. The core businesses of MMI are long-term insurance,
asset management, investment, healthcare 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 insurance needs of individuals in the lower, middle and upper income markets, principally under the
Momentum and Metropolitan brand names.
MMI delivered strong financial results for the year under review:
- Embedded value increased to R40 billion, driven by an excellent 19% return on embedded value;
- Diluted core headline earnings of R3.6 billion reflected a 12% increase on the prior year;
- The contribution from operating divisions rose 22% to R3.0 billion; and
- Targeted merger expense savings of R500 million were achieved ahead of time.
MMI invested or committed in excess of R2.5 billion in growth initiatives during the year. Each of its business segments is implementing plans to grow the group
through client-centricity. MMI believes that the group has identified and is implementing innovative strategies to unlock value and generate the required return on
capital for shareholders over time.
RMI included R899 million of MMI's earnings in its normalised earnings (2013: R803 million).
For an in-depth review of MMI's performance, RMI's shareholders are referred to www.mmiholdings.com.
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. Its South African direct life insurance business continues to gain traction.
Youi, the group's direct personal lines initiative in Australia, has achieved scale and is trading profitably. Youi New Zealand was launched in July 2014 and provides
personal lines insurance cover directly to the New Zealand public.
OUTsurance delivered another strong financial and operational performance for the year under review. The group achieved 20% growth in headline earnings to
R1 448 million and a return on equity of 38.4%. The significant driver behind the growth in OUTsurance's earnings is attributed to the profitability of Youi, which
generated R231 million in headline earnings.
OUTsurance achieved 35% growth in the annualised new business written.
- Youi delivered excellent new business growth as the business continues to gain traction and solidify its presence in the Australian market.
- The South African business delivered an encouraging increase in new business written in an environment where premium inflation continues to track below
consumer inflation.
The strong new business volume growth translated into 25% growth in the group's gross written premium income to R10.4 billion.
Since its launch in 2008, Youi has through good operational execution, the creation of a powerful brand and management focus, grown to be a notable and
profitable player in the Australian market. Youi now contributes 39% of the group's turnover and 15% of the group's profits.
RMI included R1 219 million of OUTsurance's earnings in its normalised earnings (2013: R1 031 million).
For an in-depth review of OUTsurance's performance, RMI's shareholders are referred to www.outsurance.co.za.
RMB Structured Insurance
RMBSI holds both short-term and life insurance 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 partly owns a portfolio of underwriting management agencies.
RMBSI continues to focus on a diversified business strategy to bolster its retainer base income on the back of the more traditional insurance business. This
continues to bear fruit and the business mix is trending in the right direction.
Shareholder profit after tax for the year to June 2014 amounted to R101 million (2013: R89 million).
RMI included R78 million of RMBSI's earnings in its normalised earnings (2013: R70 million).
BASIS OF PREPARATION OF RESULTS
The accompanying audited summarised financial results for the year ended 30 June 2014 reflect:
- the consolidation of the operations of Rand Merchant Insurance Holdings Limited (RMI) and its subsidiaries, including OUTsurance Holdings Limited (OUTsurance)
and RMB-SI Investments Proprietary Limited (RMBSI); and
- RMI's proportionate interest in its associates, Discovery Limited (Discovery) and MMI Holdings Limited (MMI), which have been equity accounted.
The annual financial statements for the year ended 30 June 2014, to which this summarised results 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.
Schalk Human CA(SA) prepared these consolidated financial results under the supervision of Peter Cooper CA(SA).
The accounting policies applied are consistent with those applied in the previous financial year, except for:
- the change in accounting policy governing the treatment of deferred acquisition costs for short-term and long-term insurance contracts as set out in the
accompanying schedules; and
- changes required by the mandatory adoption of new and revised IFRS. The adoption of IFRS 10: Consolidated financial statements had resulted in the
consolidation and non-consolidation of certain entities by RMI's associates without any impact on the profit or net asset value of these associates in previous
accounting periods. As a result of this, the restatements made by RMI's associates as required by IFRS 10 had no impact on RMI's results as previously reported.
RMI has included the disclosures required by IAS 34.16A(j) in respect of IFRS 13: Fair value measurement in this results announcement.
The summarised consolidated financial statements for the year ended 30 June 2014 have been audited by PricewaterhouseCoopers Inc., who expressed an
unmodified opinion thereon. Unless the financial information is specifically stated as audited, it should be assumed it is unaudited. The forward looking
information has not been commented or reported on by RMI's auditors.
The auditors' report does not necessarily cover all the information contained in this announcement. Shareholders are therefore advised that in order to obtain a
full understanding of the nature of the auditors' engagement, they should obtain a copy of the auditors' report together with the accompanying financial
statements. RMI’s board of directors take full responsibility for the preparation of this announcement.
The auditors expressed an unmodified opinion dated 11 September 2014 on the financial statements from which these summarised consolidated financial
statements were derived. A copy of the auditors’ report on the summarised consolidated financial statements and of the auditors’ report on the consolidated
financial statements are available for inspection at RMI’s registered office, 3rd Floor, 2 Merchant Place, corner Fredman Drive and Rivonia Road, Sandton, together
with the financial statements identified in the respective auditors’ reports.
EFFECTIVE INTEREST
RMI's effective interest in the group entities is different from the actual holdings as a result of the following consolidation adjustments:
- treasury shares held by the group entities;
- shares held by consolidated share incentive trusts;
- "deemed" treasury shares arising from BEE transactions entered into; and
- "deemed" treasury shares held by policyholders and mutual funds managed by them.
At 30 June 2014 the effective interest held by RMI can be compared to the actual interest in the statutory issued share capital of the companies as follows:
30 June 2014 30 June 2013
Effective Actual Effective Actual
Audited Audited Audited Audited
Discovery 25.8% 25.0% 26.7% 25.0%
MMI 25.2% 25.0% 25.2% 25.0%
OUTsurance 84.7% 83.4% 85.3% 83.4%
RMBSI 78.6% 76.4% 79.1% 76.4%
SUMMARISED CONSOLIDATED INCOME STATEMENT
for the year ended 30 June
Restated
2014 2013 %
R million Audited Audited change
Earned premiums net of reinsurance 10 020 7 869 27
Fee and other income 138 146 (5)
Investment income 625 631 (1)
Profit on sale of subsidiary - 38 (100)
Net fair value gains on financial assets 804 560 44
Income 11 587 9 244 25
Net claims paid (4 938) (3 873) 27
Fair value adjustment to investment contracts and insurance contract provisions (880) (1 010) (13)
Fair value adjustment to financial liabilities (191) (201) (5)
Acquisition, marketing and administration expenses (3 096) (2 367) 31
Profit before finance costs, share of after tax results of associates and taxation 2 482 1 793 38
Finance costs (79) (125) (37)
Share of after tax results of associates 1 776 1 179 51
Profit before taxation 4 179 2 847 47
Taxation (870) (391) >100
Profit for the year 3 309 2 456 35
Attributable to:
Equity holders of RMI 3 053 2 255 35
Non-controlling interests 256 201 27
Profit for the year 3 309 2 456 35
COMPUTATION OF HEADLINE EARNINGS
for the year ended 30 June
Restated
2014 2013 %
R million Audited Audited change
Earnings attributable to equity holders 3 053 2 255 35
Adjustment for:
(Profit)/loss on dilution of shareholding (135) 11
Realised profit on sale of available-for-sale financial assets (49) (1)
Intangible asset impairments 8 1
Loss on disposal of property and equipment 2 -
Profit on sale of subsidiary - (24)
Headline earnings attributable to equity holders 2 879 2 242 28
SOURCES OF HEADLINE EARNINGS
for the year ended 30 June
Restated
2014 2013 %
R million Audited Audited change
Headline earnings from:
- Discovery 802 551 46
- MMI 807 628 29
- OUTsurance 1 229 1 031 19
- RMBSI 81 69 17
2 919 2 279 28
Funding and holding company costs (40) (37) (8)
Headline earnings 2 879 2 242 28
COMPUTATION OF NORMALISED EARNINGS
for the year ended 30 June
Restated
2014 2013 %
R million Audited Audited change
Headline earnings attributable to equity holders 2 879 2 242 28
RMI's share of normalised adjustments made by associates: 189 341
Amortisation of intangible assets relating to business combinations 173 171
Net realised and fair value gains on shareholders' assets (136) (85)
Fair value adjustment to puttable non-controlling interest financial liability 50 33
Corporate restructuring expenses 43 15
Basis and other changes and investment variances 40 92
Finance costs raised on puttable non-controlling interest financial liability 39 41
Non-controlling interest adjustment if no put options (20) (10)
Recapture of reinsurance - 84
Group treasury shares (46) (17)
Normalised earnings attributable to equity holders 3 022 2 566 18
COMPUTATION OF EARNINGS PER SHARE
for the year ended 30 June
Restated
2014 2013 %
R million Audited Audited change
Earnings attributable to equity holders 3 053 2 255 35
Headline earnings attributable to equity holders 2 879 2 242 28
Number of shares in issue (millions) 1 486 1 486 -
Weighted average number of shares in issue (millions) 1 484 1 483 -
Earnings per share (cents) 205.8 152.0 35
Diluted earnings per share (cents) 203.6 151.0 35
Headline earnings per share (cents) 194.0 151.1 28
Diluted headline earnings per share (cents) 191.9 150.1 28
Computation of normalised earnings per share
Weighted average number of shares in issue (millions) 1 486 1 486
Normalised earnings per share (cents) 203.4 172.6 18
Diluted normalised earnings per share (cents) 201.3 171.3 18
Dividend cover (relative to normalised earnings) 1.9 1.8
Dividend per share (cents)
Interim dividend 46.0 40.0 15
Final dividend 62.0 55.0 13
Total dividend 108.0 95.0 14
SUMMARISED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 June
Restated
2014 2013 %
R million Audited Audited change
Profit for the year 3 309 2 456 35
Other comprehensive income for the year
Items that may subsequently be reclassified to income
Currency translation differences 125 71 76
Fair value movement on available-for-sale financial assets 41 19 >100
Deferred taxation relating to fair value movement on avaiable-for-sale financial assets (16) - -
Share of other comprehensive income of associates 108 173 (38)
Items that may subsequently be reclassified to income, after taxation 74 173 (57)
Items that will not be reclassified to income, after taxation 34 - -
Other comprehensive income for the year 258 263 (2)
Total comprehensive income for the year 3 567 2 719 31
Total comprehensive income attributable to:
Equity holders of RMI 3 288 2 505 31
Non-controlling interests 279 214 30
Total comprehensive income for the year 3 567 2 719 31
SUMMARISED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 30 June
Restated Restated
2014 2013 1 July 2012
R million Audited Audited Audited
Assets
Property and equipment 520 460 413
Goodwill and other intangible assets 110 43 50
Investments in associates 11 582 10 442 9 864
Financial assets 6 861 7 781 7 603
Loans and receivables including insurance receivables 3 078 1 668 998
Deferred acquisition cost 357 250 180
Reinsurance contracts 301 275 273
Deferred taxation 232 334 385
Disposal group held for sale - - 211
Cash and cash equivalents 4 725 2 664 2 462
Total assets 27 766 23 917 22 439
Equity
Share capital and premium 13 592 13 632 13 614
Reserves 1 886 95 (316)
Capital and reserves attributable to equity holders of the company 15 478 13 727 13 298
Non-controlling interests 899 614 645
Total equity 16 377 14 341 13 943
Liabilities
Insurance contracts 5 948 4 797 3 669
Share-based payment liability 145 50 -
Financial liabilities 3 704 3 601 3 730
Payables and provisions 1 189 913 700
Deferred taxation 379 176 324
Taxation 24 39 14
Disposal group held for sale - - 59
Total liabilities 11 389 9 576 8 496
Total equity and liabilities 27 766 23 917 22 439
STATEMENT OF CHANGES IN EQUITY
Transac-
Share tions
capital Equity with non- Non-
Audited and accounted controlling Other Retained controlling Total
R million premium reserves interests reserves earnings interests equity
Balance as at 1 July 2012
- As originally stated 13 614 420 (2 071) 88 1 133 626 13 810
- Change in accounting policy - - - 3 111 19 133
Restated balance as at 1 July 2012 13 614 420 (2 071) 91 1 244 645 13 943
Total comprehensive income for the year - 173 - 77 2 255 214 2 719
Dividend paid - - - - (2 154) (189) (2 343)
Income of associates retained - 271 - - (271) - -
Movement in treasury shares 18 21 - - - - 39
Transactions with non-controlling interests - 22 - - - - 22
Profit on preference share buy-back - 28 - - - - 28
Sale of subsidiary - - - (1) - (75) (76)
Share-based payment reserve - - - 1 - - 1
Change from equity-settled to cash-settled scheme - - - (9) (2) (2) (13)
Change in reserves due to a change in holding - - - 13 (13) 21 21
Balance as at 30 June 2013 13 632 935 (2 071) 172 1 059 614 14 341
Total comprehensive income for the year - 108 - 127 3 053 279 3 567
Dividend paid - - - - (1 500) (149) (1 649)
Income of associates retained - 1 043 - - (1 043) - -
BEE cost - 1 - - - - 1
Movement in treasury shares (40) 7 - - - - (33)
Transactions with non-controlling interests - - (5) - - (2) (7)
Issue of share capital to non-controlling interests by a subsidiary - - - - - 122 122
Change in reserves due to a change in holding - - - 44 (44) 35 35
Balance as at 30 June 2014 13 592 2 094 (2 076) 343 1 525 899 16 377
SUMMARISED CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 30 June
2014 2013
R million Audited Audited
Cash available from operating activities 2 214 3 076
Dividends paid (1 500) (2 154)
Investment activities 1 471 351
Financing activities (307) (1 164)
Net increase in cash and cash equivalents 1 878 109
Unrealised foreign currency translation adjustments 183 93
Cash and cash equivalents at the beginning of the year 2 664 2 462
Cash and cash equivalents at the end of the year 4 725 2 664
SEGMENT REPORT
The segmental analysis is based on the management accounts prepared for the group.
RMI
Discovery MMI OUTsurance RMBSI Other(1) group
R million Audited Audited Audited Audited Audited Audited
Year ended 30 June 2014
Operating profit - - 2 080 358 44 2 482
Finance costs - - (1) (15) (63) (79)
Share of after tax results of associates 971 793 10 2 - 1 776
Profit/(loss) before taxation 971 793 2 089 345 (19) 4 179
Taxation - - (623) (244) (3) (870)
Profit/(loss) for the year 971 793 1 466 101 (22) 3 309
Normalised earnings 866 899 1 448 101 (292) 3 022
Assets - - 9 765 5 667 642 16 074
Associates 5 291 6 212 26 53 - 11 582
Intangible assets - - 107 1 2 110
Total assets 5 291 6 212 9 898 5 721 644 27 766
Total liabilities - - 5 445 5 239 705 11 389
Year ended 30 June 2013 - Restated
Operating profit - - 1 814 (36) 15 1 793
Finance costs - - (1) (20) (104) (125)
Share of after tax results of associates 542 628 10 (1) - 1 179
Profit/(loss) before taxation 542 628 1 823 (57) (89) 2 847
Taxation - - (535) 146 (2) (391)
Profit/(loss) for the year 542 628 1 288 89 (91) 2 456
Normalised earnings 699 803 1 209 89 (234) 2 566
Assets - - 7 686 5 111 635 13 432
Associates 4 456 5 935 23 28 - 10 442
Intangible assets - - 39 1 3 43
Total assets 4 456 5 935 7 748 5 140 638 23 917
Total liabilities - - 3 965 4 722 889 9 576
(1) "Other" includes RMI and consolidation entries.
GEOGRAPHICAL SEGMENTS
South New
Africa Australia Zealand UK Total
R million Audited Audited Audited Audited Audited
Year ended 30 June 2014
Profit/(loss) 2 068 357 (22) - 2 403
Share of after tax results of associates 1 656 - - 120 1 776
Profit/(loss) before taxation 3 724 357 (22) 120 4 179
Taxation (766) (104) - - (870)
Profit/(loss) for the year 2 958 253 (22) 120 3 309
Total assets 22 509 4 672 585 - 27 766
Total liabilities 7 760 3 608 21 - 11 389
South
Africa Australia UK Total
R million Audited Audited Audited Audited
Year ended 30 June 2013 - Restated
Profit 1 663 5 - 1 668
Share of after tax results of associates 1 172 - 7 1 179
Profit before taxation 2 835 5 7 2 847
Taxation (389) (2) - (391)
Profit for the year 2 446 3 7 2 456
Total assets 20 929 2 988 - 23 917
Total liabilities 7 566 2 010 - 9 576
FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE
The group's activities expose it to a variety of financial risks. The table below analyses financial instruments carried at fair value by level in the
fair value hierarchy. The different levels are based on the extent that quoted prices are used in the calculation of the fair value of the financial
instruments. These levels are defined as follows:
Level 1 - fair value is based on quoted market prices (unadjusted) in active markets for identical instruments as measured on the reporting date.
Level 2 - fair value is determined through valuation techniques based on observable market inputs. These valuation techniques maximise the use
of observable market data where it is available and rely as little as possible on entity specific estimates.
Level 3 - fair value is determined through valuation techniques which use significant unobservable inputs.
Total
Audited carrying
R million Level 1 Level 2 Level 3 amount
30 June 2014
Financial assets
Equity securities
- available-for-sale 725 - - 725
- at fair value through profit or loss 2 070 34 - 2 104
Debt securities
- available-for-sale - 540 - 540
- at fair value through profit or loss 126 2 855 415 3 396
Derivative asset - 17 - 17
Total financial assets recognised at fair value 2 921 3 446 415 6 782
Financial liabilities
Convertible debentures - 15 - 15
Financial liabilities at fair value through profit or loss - - 105 105
Derivative liability - 20 - 20
Investment contracts 979 402 - 1 381
Total financial liabilities recognised at fair value 979 437 105 1 521
Year ended 30 June
Audited
R million 2014 2013
Reconciliation of movement in level 3 assets
Balance at the beginning of the year 441 477
Amount received in the current year (5) -
Investment income accrued 33 34
Dividends received from the OUTsurance Investment Trust (54) (70)
Balance at the end of the year 415 441
Reconciliation of movement in level 3 liabilities
Balance at the beginning of the year 110 115
Preference dividends charged to the income statement
in respect of profit sharing arrangements 191 201
Preference dividends paid (196) (206)
Balance at the end of the year 105 110
Total
Audited carrying
R million Level 1 Level 2 Level 3 amount
30 June 2013
Financial assets
Equity securities
- available-for-sale 676 - - 676
- at fair value through profit or loss 2 159 74 - 2 233
Debt securities
- available-for-sale - 453 - 453
- at fair value through profit or loss 851 3 039 441 4 331
Derivative asset - 9 - 9
Total financial assets recognised at fair value 3 686 3 575 441 7 702
Financial liabilities
Convertible debentures - 15 - 15
Financial liabilities at fair value through profit or loss - - 110 110
Derivative liability - 11 - 11
Investment contracts 951 407 - 1 358
Total financial liabilities recognised at fair value 951 433 110 1 494
The fair values of the above instruments were determined as follows:
Level 1
The level 1 equity securities comprise listed preference share and ordinary share investments which are listed on a securities exchange. The fair values of these
investments are calculated based on the closing bid prices on the last business day of the reporting period. The ordinary share investments include an investment
in a listed exchange traded fund which tracks the performance of the top forty companies listed on the Johannesburg Securities Exchange. Debt securities
represent South African Government issued interest securities and other listed interest securities on the Bond Exchange of South Africa. The carrying amount
represents the closing bid prices on the last business day of the reporting period. Investment contract liabilities are valued with reference to the fair value of the
underlying assets.
Level 2
The level 2 fair value instruments include unlisted preference shares that are redeemable with a notice period ranging from thirty days to three years. Dividend
yields range from 50.8% to 70% of the prime overdraft rate. The fair value of the preference shares which are redeemable within one year from the reporting
date is deemed to equal the redemption value. The fair value of the preference shares with a maturity date of longer than one year is calculated on a discounted
cash flow basis with the discount rate adjusted for changes in credit risk of the ultimate counterparty, being one of the large South African banks. Due to the
redeemable nature, the preference shares are deemed to be debt securities. The fair values of collective investment scheme investments are determined by the
closing unit price as quoted by the collective investment schemes. The collective investment schemes are not listed. The fair value of money market instruments
and other interest securities are determined based on observable market inputs. The derivative asset and liability are valued with reference to the closing bid price
of the underlying listed equities they relate to. Investment contract liabilities are valued with reference to the fair value of the underlying assets.
Level 3
The level 3 financial asset at fair value through profit or loss represents an investment in the OUTsurance Investment Trust, the value of which is not significantly
sensitive to an increase or decrease in the counterparty credit rating due to the collateralised nature of the transaction. The financial liabilities at fair value through
profit or loss represent profits arising out of the profit sharing arrangements that accrue on a monthly basis and which are distributed as preference dividends on
a six monthly basis.
CHANGE IN ACCOUNTING POLICY
During the year, the group changed its policy in respect of acquisition costs to allow for the deferral thereof on short-term policies with a term greater than a
month and long-term policies.
This change in accounting policy has been accounted for retrospectively and the comparatives have been restated. The effect of the change is as follows:
RESTATEMENTS
for the year ended 30 June 2013
Original Restated
amount amount Difference
R million Audited Audited Audited
Statement of financial position
Assets
Deferred acquisition costs 38 250 212
Deferred taxation 414 334 (80)
Increase in assets 452 584 132
Equity and liabilities
Retained earnings 907 1 059 152
Currency translation reserve 124 134 10
Non-controlling interests 586 614 28
Insurance contracts 4 855 4 797 (58)
Increase in equity and liabilities 6 472 6 604 132
Income statement
Marketing and administration expenses (2 252) (2 201) 51
Transfer to policyholder liabilities under insurance contracts (28) (11) 17
Deferred taxation 93 73 (20)
Increase in profit for the year (2 187) (2 139) 48
Attributable to:
Equity holders of RMI 41
Non-controlling interests 7
Increase in profit for the year 48
RESTATEMENTS
for the year ended 30 June 2012
Original Restated
amount amount Difference
R million Audited Audited Audited
Statement of financial position
Assets
Deferred acquisition costs 32 180 148
Deferred taxation 441 385 (56)
Increase in assets 473 565 92
Equity and liabilities
Retained earnings 1 133 1 244 111
Currency translation reserve 70 73 3
Non-controlling interests 626 645 19
Insurance contracts 3 710 3 669 (41)
Increase in equity and liabilities 5 539 5 631 92
Income statement
Marketing and administration expenses (1 799) (1 668) 131
Transfer to policyholder liabilities under insurance contracts (12) 7 19
Deferred taxation 159 109 (50)
Increase in profit for the year (1 652) (1 552) 100
Attributable to:
Equity holders of RMI 85
Non-controlling interests 15
Increase in profit for the year 100
ADMINISTRATION
RAND MERCHANT INSURANCE HOLDINGS LIMITED
Registration number: 2010/005770/06
JSE ordinary share code: RMI
ISIN code: ZAE000153102
(RMI)
Directors
GT Ferreira (Chairman), HL Bosman (CEO) (appointed 2 April 2014), JP Burger (appointed 30 June 2014), P Cooper, LL Dippenaar, JW Dreyer, JJ Durand, PM Goss,
PK Harris, P Lagerström (appointed 30 June 2014), MM Morobe (appointed 1 August 2014), O Phetwe, (Ms) SEN Sebotsa and KC Shubane.
Alternates: L Crouse and (Ms) A Kekana
Secretary and registered office
JS Human
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 8166
Telefax: +27 11 282 4210
Web address: www.rminsurance.co.za
Sponsor
(in terms of the 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 Proprietary 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
Date: 11/09/2014 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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