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Results and cash dividend announcement for the year ended 31 March 2015
Alexander Forbes Group Holdings Limited
Registration number: 2006/025226/06
Tax reference number: 9404/921/15/8
JSE share code: AFH
ISIN: ZAE000191516
(Incorporated in the Republic of South Africa)
Results and cash dividend announcement for the year ended 31 March 2015
Highlights
- Operating income from continuing operations, net of direct expenses, increases by 12% to R4.9 billion
- Profit from continuing operations before non-trading and capital items increases by 10% to R1.1 billion
- Successful relisting of the group completed and group reorganised for strategic growth
- Well positioned for future regulatory capital changes allowing first proportional dividend declaration
of 12 cents per share
REVIEW OF OPERATIONS
INTRODUCTION
The board of directors is pleased to present the results of the Alexander Forbes group for the year ended 31 March
2015. Although the financial year was marked with significant corporate activity including the listing of the group
on the Johannesburg Stock Exchange Limited (JSE), the operating results remain consistently robust.
The 2014/15 financial year was a year of transition for the group. The listing of the company on the JSE on 24 July
2014 marked the end of a seven-year period of private equity controlled ownership. The strategic repositioning of the
group during this time has resulted in a focused core group of companies that is well positioned to deliver financial
services to a growing and ever more sophisticated market in South Africa and various African countries. The group is
focused on further progressing its clear growth strategies in the core operations and complementary businesses and as
a result, is in the process of reorganising itself internally to align with our strategic intent.
GROUP OVERVIEW OF OPERATIONS
Consolidated operating income net of direct expenses
The group produced operating income net of direct expenses from continuing operations of R4.9 billion for the year
ended 31 March 2015, up 12% on the previous financial year. Operating income net of direct expenses represents gross
revenue net of direct product cost and includes the net result from insurance operations. The weakening rand exchange
rate against the sterling had a positive effect of 2.4% on revenue contribution from the International operations for
the year.
Consolidated trading result
Operating profits from continuing operations, before non-trading and capital items, increased by 10.4% to
R1 137 million compared to the R1 030 million in the previous financial year. Strong performances were reported by the
Investment Solutions, AF Insurance and AfriNet divisions. The strategy to grow the retail (individual client) market segments
throughout the African operations continues to show good progress, with combined net revenue in that client segment increasing
by 12% across the various segments of the group. The larger component of capacity building related to this strategy resides in
the Financial Services division which impacted on their trading result and masks good performances in most areas of that division.
In addition to this capacity building, the group now also accounts for the new share-based long-term incentive scheme which
replaced the previous ownership-based scheme.
Operating expenses attributable to continuing operations (excluding non-trading and capital items) of R3.7 billion
increased by 12% compared to the previous financial year. As previously indicated, the group continues to balance
disciplined cost management in the established business areas with capacity-building in the strategic growth areas,
particularly in support of the group’s expansion in the individual client market and public sector.
The overall group trading margin (excluding the IFRS lease adjustment) on net operating income is 24.3% compared to
the 24.8% for the previous financial year. The disposals of businesses in previous financial years, including Guardrisk
in 2014, resulted in additional shared services cost, previously absorbed by those businesses, having to be absorbed by
the remainder of the group; this, along with capacity building, impacted overall margins.
The accounting treatment of long-term leases, particularly at the Sandton head office, continues to have a negative
impact on trading profit but now has a small positive impact on the year-on-year growth rate, the impact will continue to
be isolated in the segmental results to afford better comparison.
Non-trading and capital items
Non-trading and capital items in the current reporting period include costs associated with the listing transaction.
In addition, incentive costs on the culmination of the exit transaction and which largely related to the seven years of
management investment in the private equity transaction were incurred during the period under review. These and other
listing related costs were disclosed as part of the pro forma adjustments presented in the prelisting documentation and are
explained in detail in that document.
Also included in this line is the ongoing accounting amortisation of intangible assets amounting to R131 million for
the year. The capitalisation of intangible assets and the associated amortisation resulted from the required accounting
treatment at the time of the private equity acquisition of the group in 2007. As the holding company that was established
at the time remains in existence (and is now the listed entity), the amortisation will continue for as long as is
required to amortise the recognised intangible assets to zero. The useful life of the various intangible assets determined
at the time of the exercise varied from eight to 20 years. The amortisation is a non-cash accounting item.
The result from the insurance cell captive is expected to be volatile from one year to the next but should
theoretically trend to neutral over a longer measurement period dependent on claims experience.
Investment income
Investment income includes income of R103 million (2014: R162 million) related to individual policyholder funds in
Investment Solutions that are liable for fund level taxes and for which an equal but opposite amount of taxation is
included in the taxation line. This income and related tax expense should theoretically be excluded when assessing the
group’s own investment income which largely relates to return on assets backing regulatory capital adequacy requirements.
Excluding the policyholder income, the group’s investment income amounts to R123 million for the current financial year
(2014: R71 million).
Finance costs
The significant changes to the group’s capital structure which became effective on 31 March 2014, the last day of the
previous financial year, are reflected in the income statement below profit from operations. When comparing to the prior
year, it should therefore be borne in mind that the comparative period includes interest paid on the previously leveraged
capital structure. Finance costs for the period amount to R119 million compared to the R843 million of the previous year.
Accounting for Alexander Forbes shares held in policyholder investment portfolios
In terms of IFRS as presently constituted, any Alexander Forbes shares acquired by underlying asset managers and held
by the group’s multi-manager investment subsidiary for policyholders are required to be accounted for in Alexander
Forbes’ consolidated financial statements as treasury shares and any fair value gains or losses made on such shares are not
recognised in the income statement. Refer to note 12.
This accounting treatment results in fair value movements in respect of linked investment policy assets and
liabilities that would normally be offset (and economically should be offset), not being matched in the income statement.
The resultant mismatch between the asset and liability movement, does not reflect the economic substance of the transactions.
The result of this mismatch is that an accounting expense or gain will be reported in Alexander Forbes’ consolidated
income statement, whereas no actual economic loss or gain will ever be realised by the group. As a result, a mismatch of
R26 million in the 2015 financial year arising from the revaluation of linked liabilities for the increase in Alexander
Forbes’ share price since listing that is not offset by the increase in value of linked assets is separately disclosed on
the face of the income statement.
Profit before and after tax
After non-trading items, finance charges and the effect of the policyholder investments treated as treasury shares
explained above, the group’s profit before taxation from continuing operations of R866 million, is a significant increase
from the R317 million of the previous financial year.
The effective tax rate compared to profit before tax appears high as a result of taxation payable on behalf of
policyholders being included in this amount (refer to the investment income discussion as well as note 7), resulting in an
after tax profit of R505 million compared to an after tax loss of R167 million in the previous year.
The absolute value of and growth in profit after tax should be viewed in the context of the leveraged capital
structure of the group that was in place until 31 March 2014.
Financial position and capital requirements
The financial position of the group remains strong and all regulated entities within the group comply with current
solvency, liquidity and regulatory capital adequacy requirements.
As previously reported, the group continues to position itself for the pending introduction of Solvency Assessment and
Management (SAM) consolidated supervision by the SA regulators. National Treasury withdrew the Insurance Law Amendment
Bill and indicated the incorporation of consolidated supervision requirements in the second draft of the Financial
Sector Regulation Bill. Based on representation made by the FSB, the effective date of implementation of the formal
framework for group-wide supervision is now expected to be 1 January 2016.
At 31 March 2015, under current regulatory measures, the group has a regulatory capital surplus of R147 million. Using
the standard measures and latest interpretations under the Solvency Assessment and Management (SAM), the theoretical
consolidated supervision regulatory capital position is estimated to be a surplus of approximately R100 million at 31
March 2015. The group will continue to closely monitor the future capital requirements based on developments from the
regulator and manage compliance with these regulations with the group’s stated intent to distribute excess reserves to
shareholders. Investment Solutions, continues the work on establishing internal models for risk-based capital adequacy
assessment as envisaged under SAM. The surplus estimation above does not include any benefit that may be achieved from
Investment Solutions or the group using an approved internal model for capital determination.
DIVISIONAL REVIEW OF OPERATIONS
i) SA Financial Services
Operating income net of direct expenses for the year ended 31 March 2015 increased by 9% to R1 852 million compared to
the previous year and profit from operations increased by 2% to R386 million. The growth in profit from operations was
muted by a conscious decision to invest in the growth strategies, specifically in the retail part of the business where
it strengthened its distribution. In addition the division continued its investment in technology in the linked
investment service provider (AFICA) and also experienced the second round impact of a significant repricing exercise on
AFICA to increase value to clients in line with stated strategies. The impact of these conscious decisions has been over
R50 million over a two-year period and had an impact of muting the profit from operations in the current year by 4% but
positions the business well for future growth. The retail growth investments have yielded an additional R850 million of
assets. In addition, the introduction of the new share-based long-term incentive plans for staff has impacted the
year-on-year increase in profit from operations by 3%.
The institutional business continued to show solid growth in revenue of 8% with 268 new client wins during the year.
The timing of client wins impacts on revenue earned during the financial year, with a significant part of the annualised
revenues relating to these successes carried over to the next period. Client retention remained high across all
institutional clients. A pleasing year-on-year growth in profit from operations was experienced within the Consultants
and Actuaries, Insurance Consulting, AF Life (group risk) and the mainstream Health Consulting units. The number of active
member records administered within the institutional businesses exceeded one million as at 31 March 2015, a 2% growth on the
comparable number as at 31 March 2014 in an environment of little or no employment creation.
The flagship umbrella retirement fund, the Alexander Forbes Retirement Fund (AFRF), remains one of the largest of its
kind in the market measured by assets. Total umbrella fund assets under management were R66.8 billion at 31 March 2015,
a growth of 17% compared to prior year. The number of active member records administered by the institutional umbrella
funds increased by 6% on the comparable number in the prior year to close at 278 960 members at 31 March 2015. The number
of participating employers in these umbrella funds increased by 11% year on year to 1 144.
SA Financial Services (AFFS) continued to strengthen the technical teams in areas such as AF Life and Insurance
Consulting; the latter now has reach in South Africa as well as several countries in the rest of Africa. AF Life gross
premium income totalled R374 million for the year ended 31 March 2015, a decrease of 10%, largely as a result of a business
decision not to match a competitor quote on a significant client.
Revenue from public sector clients increased by 12% to exceed R200 million for the year ended 31 March 2015 and showed
good progress in building the brand within the sector strengthening strategic networks and relationships.
Disappointing results were experienced within Health Management Solutions, part of the Health business, where a
significant contract did not realise the anticipated benefits, and within AF Life Retail where policy sales did not match
expectations in the year under review. The combined impact of these disappointments was R35 million relative to original
expectations, also muting the growth in profit from operations by 4% in the 2015 year.
Continued focus on the retail opportunity showed pleasing results, with the retail assets under advisement growing by
17% from 31 March 2014 to total R56.9 billion at 31 March 2015. Of this net growth of R8.4 billion, R3.4 billion was due
to market appreciation with new business assets written growing by 14% compared to the prior year and totalling over R8
billion for the 2015 financial year. Importantly, in respect of members exiting funds administered by AFFS, an increase
in the capture of assets by Financial Planning Consultants division was achieved. The individual client base to whom
administration services and advice is provided grew in number by 8% since March 2014.
ii) Investment Solutions South Africa
Operating income net of direct expenses increased by 12% to R806 million for the year ended 31 March 2015. Profit from
operations grew by 13% to R407 million, driven by growth in equity markets and improved asset accumulation. Closing
assets under management and administration increased by 13% to R322 billion as at 31 March 2015 compared to the prior year
end, of which R265 billion are assets under management. Average assets under management increased by 13% compared to the
previous financial year. Investment Solutions continues to achieve strong growth in assets under administration on the
investment platform, albeit that this business line operates at lower margins.
Of the growth in assets for the period, R33 billion was attributable to market appreciation. New business flows of
R6 billion have been on an upward trend during the period, although the ongoing benefit payments to fund members remain
relatively high compared to ongoing contributions into funds. The net negative ongoing cash flows of R3 billion reflect
the underlying cash negative trend in the South African retirement fund space due to low preservation rates. The division
will continue to focus on improving the wider asset accumulation strategies in line with the group’s long-term growth
plan.
In the half-year results, shareholders were notified that approximately R25 billion of assets that were being managed
under a reinsurance contract on behalf of another insurer, would likely be transitioned from a management contract to an
administration-only arrangement. The transition was made in December 2014 and will remain in place for at least the
following six months. The insurance agreement has been built up over a number of years and was priced at the lower end of
the fee scale given the relative size of the assets. However, the margins earned on the administration arrangement will
be lower than that earned on the reinsurance agreement.
During the period under review the capital markets remained volatile, but generally buoyant. Most portfolios continued
to deliver risk-adjusted returns which were ahead of peers and benchmark. On a three-year rolling basis to 31 March
2015, 71% of funds were performing ahead of benchmark. Continuous focus is placed on improving operational integrity and
deepening expertise across the business in order to continue to serve clients better and add value towards their
retirement savings and wealth creation while managing the risk of unusual and challenging economic environments.
iii) Alexander Forbes Insurance (AF Insurance)
Gross written premium increased by 10% to R1 341 million in a highly competitive market (excluding premiums under
administration of R215 million). Operating income, net of direct expenses, increased by 16% to R407 million for the year
ended 31 March 2015. Profit from operations grew by 19% to R105 million. Alexander Forbes Insurance continued the trend of
strong growth during the year. Gains from Business Insurance (launched April 2012) continued with gross earned premium
increasing by 65% for the year to R43 million.
It is widely reported that short-term insurers faced tough business conditions in recent years. These included
exceptionally high weather related claims, a weakening rand, inflation and financial strain on consumers. Alexander Forbes
Insurance initiated a number of underwriting and claims procurement interventions aimed at reducing loss ratios in the
business; a number of these have yielded positive results, assisting with a 13% reduction in the loss ratio compared to the
prior financial year.
iv) AfriNet (covering all operations in Africa outside of South Africa)
Operating income net of direct expenses increased by 17% to R291 million for the year ended 31 March 2015 and profit
from operations attributed to continuing operations increased by 25% to R60 million. During the current year the
operating margin improved 1.5% for the AfriNet division to 21%. This very pleasing result was driven by strong organic
growth across both the retail and institutional businesses in the rest of Africa.
Retail proved to be a strong performer increasing its net operating income contribution to 13% on the back of very
successful and growing distribution base in Kenya, Botswana and Namibia.
New business volumes in the institutional business were up 25% year on year. This was driven by continued focus on
deeper client engagement and delivering tailored solutions via the multi-carrier model (combined actuarial/consulting and
administration services).
The group remains committed to following pensions reform in sub-Saharan Africa and is well positioned to benefit from
the increased private sector participation in the long-term savings environments. The rest of the continent also
provides good opportunity for the insurance consulting centre of expertise which is housed in AFFS.
v) International Financial Services
The continuing operations of the International Financial Services business comprise the consulting actuarial business
of Lane Clarke & Peacock (LCP), with operations in the United Kingdom, Ireland and the Netherlands, as well as Alexander
Forbes Channel Islands.
Income from operations net of direct product costs increased by 4% to £84.2 million for the year ended 31 March 2015
and profit from operations was marginally ahead of prior year at £12.4 million. Revenue growth across the United Kingdom
and European operations continued to grow in real terms albeit that clients continue to manage their expenditure
resulting in pressure on charge-out rates. The operations continue to win new business and capitalise on the demand for
trustee and employer, actuarial consulting and investment advice as well as de-risking solutions. The level profit from
operations reflects the property cost increase associated with the move of premises in London.
These operations continue to provide the group with a rand hedge. The 7% growth in profit from operations of R219 million
for the year ended 31 March 2015, resulted from a 9% deterioration in the average sterling exchange rate during the year.
DISCONTINUED OPERATIONS
In addition to the discontinuance of LCP Belgium reported in the previous year, which is still in process, the board
has approved a strategic decision to dispose of the Alexander Forbes Compensation Technologies business. The process for
the disposal of this business is underway. As a result of this decision, the operating results of the division have been
reclassified to discontinued operations and the carrying value of goodwill allocated to this cash generating unit has
been impaired. The results of discontinued operations are further detailed in note 8. The business contributed R9 million
of operating profit in the previous financial year. Although the core operations improved during the current year, a
recent joint venture contract with a statutory body significantly underperformed when compared to the original commercial
guidelines indicated in the associated tender.
DIVIDENDS
A dividend declaration has been considered taking into account the group’s current and projected regulatory position
during the transitional period to the new regulatory framework as well as the highly cash generative nature of the group.
The strategy to build a significant retail business will demand additional capital investment, however, this is
expected to be provided for through ongoing earnings.
Notice is hereby given that the directors have declared a gross cash dividend of 12 cents (10.20 cents net of dividend
withholding tax) per ordinary share for the year ended 31 March 2015.
The dividend has been declared from income reserves and no secondary tax on companies’ credit has been used. A
dividend withholding tax of 15% will be applicable to all shareholders who are not exempt. The issued number of shares at the
date of declaration is 1 302 356 263.
The salient dates for the dividend will be as follows:
Last day of trade to receive a dividend 26 June 2015
Shares commence trading “ex” dividend 29 June 2015
Record date 3 July 2015
Payment date 6 July 2015
Share certificates may not be dematerialised or rematerialised between Monday, 29 June 2015 and Friday, 3 July 2015,
both days inclusive.
PROSPECTS
During the year the group invested significant time and effort into refining its new five year ambition. The strategic
intent around which the group will be organised and measured includes:
growing the core institutional business with a high degree of discipline (employee benefits | investment)
leveraging the core business to achieve higher growth (retail | public sector | Africa beyond South Africa)
developing the groups complementary businesses (motor and household insurance | life)
striving for excellence (service and operational excellence and technology enablement)
creating dedicated internal capacity for further innovation.
Management remain committed to continue with and to accelerate the strategic growth initiatives whilst ensuring that
the core business remains strong and continues to grow. In order to achieve the above, the group is reorganising
internally to align with its client segmentation and created, amongst others, an Institution Cluster and Retail Cluster to
integrate its value proposition to these segments. When analysing along these clusters, the solid growth in the institutional
and capacity investment in retail is clearly visible. This new segmentation is introduced in the analyst presentation
available on the group website.
EVENT SUBSEQUENT TO THE BALANCE SHEET DATE
At a specially convened meeting of the Alexander Forbes Group Holdings Limited shareholders on 1 June 2015, the
shareholders voted in favour of the implementation of an Employee Share Option Plan (BEE ESOP transaction). The
details of the BEE ESOP transaction were circulated to shareholders on 4 May 2015 and include:
a specific issue by the company of 39 070 700 shares for cash to the ESOP Trust at 1 cent per share;
financial assistance provided by the company to the ESOP Trust for the purpose of acquiring the shares; and
approval of the specific agreements relating to the BEE ESOP transaction including the repurchase of and call options
on the shares in terms of the Relationship Agreement.
CHANGE IN DIRECTORATE
As a result of the listing in July 2014 and the exit of the private equity shareholders, the following changes have
been made to the board of directors: Messrs AC de Beer (alternate), JC Douin (alternate), D Govender, L Hall-Kimm, NC
Kolbe, JS Mosondo (alternate), D Ngobeni, A Roux, JA van Wyk and N Waithaka (alternate) have resigned from the board
effective 24 July 2014.
Messrs DJ Anderson and WS O’Regan were appointed to the board on 10 October 2014 and 31 July 2014, respectively.
Subsequent to the financial year end on 21 April 2015, Mr RM Kgosana joined the board. The management and current board
members would again like to take this opportunity to thank the outgoing board members for their invaluable contribution to
the group and welcome the new board members to this new era for Alexander Forbes.
On behalf of the board of directors:
MS Moloko E Chr Kieswetter
Chairman Group chief executive
Johannesburg
8 June 2015
SUMMARY CONSOLIDATED INCOME STATEMENT
for the year ended 31 March 2015
2015 2014
Rm Notes
Continuing operations
Fee and commission income 3 5 268 4 718
Net income from insurance operations 4 498 417
Direct expenses attributable to fee and commission income (915) (797)
Operating income net of direct expenses 4 851 4 338
Operating expenses (3 714) (3 308)
Profit from operations before non-trading and capital items 1 137 1 030
Non-trading and capital items 5 (355) (105)
Operating profit 782 925
Investment income 226 233
Finance costs 6 (119) (843)
Reported loss arising from accounting for policyholder
investments in treasury shares (26) -
Share of net profit of associates (net of income tax) 3 2
Profit before taxation 866 317
Income tax expense 7 (361) (484)
Profit/(loss) for the year from continuing operations 505 (167)
(Loss)/profit on discontinued operations 8 (145) 546
(net of income tax)
Profit for the year 360 379
Profit attributable to:
Equity holders 253 269
Non-controlling interest 107 110
360 379
Basic earnings per share (cents) 9 20.5 78.0
Headline earnings/(loss) per share (cents) 9 31.9 (52.5)
Diluted earnings per share (cents) 9 20.2 78.0*
Weighted average number of shares in issue (million) 9 1 237 345
*The group had no dilutionary shares in the prior year.
SUMMARY CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 March 2015
2015 2014
Rm
Profit for the year 360 379
Foreign currency translation differences of foreign
operations 26 329
Foreign currency translation reserve of disposed
operations recycled to profit or loss - 82
Changes in fair value of cash flow hedges - (1)
Portion of cash flow hedge recycled to profit or loss - 20
Other - (5)
Other comprehensive income for the year (net of income
tax) that will be reclassified to profit and loss 26 425
Remeasurement of post-employment benefit obligations (4) 4
Other comprehensive (loss)/income for the year (net of
income tax) that will not be reclassified to profit or loss (4) 4
Total comprehensive income for the year 382 808
Total comprehensive income attributable to:
Equity holders 272 654
Non-controlling interest 110 154
Total comprehensive income for the year 382 808
SUMMARY CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at 31 March 2015
2015 2014
Notes
Assets
Financial assets held under multi-manager investment contracts 12 262 004 253 747
Financial assets of insurance and cell-captive facilities 358 315
Property and equipment 331 335
Purchased and developed computer software 84 80
Goodwill 3 899 3 985
Intangible assets 764 886
Investment in associates 9 6
Deferred tax assets 149 117
Financial assets 419 409
Insurance receivables 820 814
Trade and other receivables 782 873
Cash and cash equivalents 4 350 3 907
Assets of disposal group classified as held for sale 8 178 91
Total assets 274 147 265 565
Equity and liabilities
Share capital 6 192 5 819
Treasury shares (166) (405)
Accumulated loss (640) (889)
Other reserves (36) 102
Equity holders’ funds 5 350 4 627
Non-controlling interest 190 210
Total equity 5 540 4 837
Financial liabilities held under multi-manager investment contracts 12 262 172 253 747
Liabilities of insurance and cell-captive facilities 358 315
Borrowings 13 1 000 1 652
Employee benefits 177 168
Deferred tax liabilities 323 432
Provisions 317 284
Finance lease liability 86 90
Operating lease liability 207 119
Deferred income 25 25
Insurance payables 2 536 2 270
Trade and other payables 1 334 1 591
Liabilities of disposal group classified as held for sale 8 72 35
Total liabilities 268 607 260 728
Total equity and liabilities 274 147 265 565
Total equity per above 5 540 4 837
Number of shares in issue (net of treasury shares) (millions) 1 282 1 155
Net asset value per ordinary share (cents) 432 419
SUMMARY CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31 March 2015
2015 2014
Rm
Cash flows from operating activities
Cash generated from operations 1 214 1 281
Net finance costs paid (15) (2 059)
Movement in working capital (171) 75
Taxation paid (524) (387)
Operating cash flows from continuing operations 504 (1 090)
Operating cash flows relating to insurance and policyholder contracts 274 588
Cash flows from policyholder investment contracts (2 901) (5 054)
Cash flows from operating activities - discontinued operations 3 199
Net cash outflow from operating activities (2 120) (5 357)
Cash flows from investing activities
Net proceeds from sale of subsidiaries and associates (2) 1 236
Net proceeds/(investments) in financial assets 29 (14)
Capital expenditure incurred on property, equipment and computer software (110) (208)
Proceeds from sale of property, equipment and computer software 1 6
Cash flows from investing activities - discontinued operations - 22
Net cash (outflow)/inflow from investing activities (82) 1 042
Cash flows from financing activities
Issue of shares (net of SPV treasury shares) 316 1 903
Redemption of B preference shares (178) -
Purchase of treasury shares (24) -
Net movement in borrowings (250) 1 640
Repayment of borrowings in terms of debt restructure - (4 095)
Payments made to non-controlling interests (130) (126)
Net cash outflow from financing activities (266) (678)
Decrease in cash and cash equivalents (2 468) (4 993)
Cash and cash equivalents at beginning of year 12 129 16 975
Exchange gain on foreign cash and cash equivalents 13 147
Cash and cash equivalents at end of year 9 674 12 129
Analysed as follows:
Cash and cash equivalents of disposal groups held for sale 27 24
Cash and cash equivalents of continuing operations 4 350 3 907
Cash held under multi-manager investment and insurance contracts 5 297 8 198
9 674 12 129
GROUP STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2015
Total
Accum- equity Non-
Share Treasury Other ulated holders’ controlling Total
capital shares reserves loss funds interest equity
Rm
At 31 March 2013 3 261 (21) (8) (1 162) 2 070 194 2 264
Profit for the year - - - 269 269 110 379
Other comprehensive income - - 381 4 385 44 429
Total comprehensive income - - 381 273 654 154 808
Issue of share 2 558 - - - 2 558 - 2 558
Movement in treasury shares - (384) - - (384) - (384)
Redemption of Pikco preference shares - - (271) (271) - (271)
Other movements in non-controlling interest* - - - - - (138) (138)
At 31 March 2014 5 819 (405) 102 (889) 4 627 210 4 837
Profit for the year - - - 253 253 107 360
Other comprehensive income - - 23 (4) 19 3 22
Total comprehensive income - - 23 249 272 110 382
Issue of shares 316 - - - 316 - 316
Movement in treasury shares - 239 - - 239 35 274
Issue of shares to management 57 - - - 57 - 57
Movement in share-based payment reserve - - 17 - 17 - 17
Redemption of B preference shares - - (178) - (178) - (178)
Other movements in non-controlling interest* - - - - - (165) (165)
At 31 March 2015 6 192 (166) (36) (640) 5 350 190 5 540
*This amount includes distributions made to non-controlling interests as well as changes due to acquisitions and disposals of equity
held by non-controlling interests.
GROUP SEGMENTAL INCOME AND PROFIT ANALYSIS
for the year ended 31 March 2015
Operating income net Profit from operations before
of direct expenses non-trading and capital items
2015 % 2014 2015 % 2014
Rm
Africa continuing operations
SA Financial Services 1 852 9 1 700 386 2 377
Investment Solutions 806 12 717 407 13 360
AF Insurance 407 16 350 105 19 88
AfriNet 291 17 249 60 25 48
Total Africa continuing operations 3 356 11 3 016 958 10 873
Total international (GBPm) 84 4 81 12 - 12
International financial services 1 495 13 1 322 219 7 204
Total continuing operations - excluding property lease 4 851 12 4 338 1 177 9 1 077
Accounting for the property lease - - (40) (15) (47)
Total continuing operations - including property lease 4 851 12 4 338 1 137 10 1 030
Depreciation and amortisation Assets
2015 % 2014 2015 % 2014
Rm
Africa
SA Financial Services 13 10 69 655 63 063
Investment Solutions 4 3 262 269 253 872
AF Insurance 4 3 618 592
AfriNet 3 3 3 962 3 188
Total Africa 24 26 19 336 504 5 320 715
Total international (GBPm) 1 1 75 73
International financial services 16 23 13 1 343 (3) 1 388
Unallocated:
Corporate services 46 48 1 038 986
Discontinued operations 1 20 178 91
Goodwill - - 3 899 3 985
Consolidation elimination* - - (68 815) (61 600)
Total group 87 (13) 100 274 147 3 265 565
*This amount relates mainly to assets invested by group companies with Investment Solutions.
**The prior year comparative figures in the table above have been restated following the discontinuance of AFCT. In
certain instances, shared service costs previously allocated to discontinued operations that will continue subsequent
to the disposal have been reallocated to the remaining continuing operations and comparative numbers restated
accordingly.
Notes
for the year ended 31 March 2015
1. Basis of preparation
The summary consolidated 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 and to also, as a
minimum, contain the information required by IAS 34 Interim Financial Reporting. The accounting policies applied in
the preparation of the consolidated annual financial statements from which the summary consolidated financial
statements have been derived are in terms of IFRS and are consistent with those accounting policies applied in the
preparation of the previous consolidated annual financial statements.
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 audit report
does not necessarily report on all of the information contained in this report. Shareholders are therefore advised that,
in order to obtain a full understanding of the nature of the information that has been audited, they should obtain a
copy of the auditor’s report together with the accompanying audited consolidated annual financial statements, both of
which 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.
2015 2014
Rm
2. Exchange rates
The income statements and balance sheets of
significant foreign subsidiaries have been
translated to rand as follows:
Weighted average R:GBP rate 17.8 16.4
Closing R:GBP rate 17.9 17.5
3. Fee and commission income
Brokerage fees and commission income 26 25
Fee income from consulting and administration services 3 525 3 176
Fee income from investment management activities 1 670 1 499
Other income 47 18
Fee and commission income 5 268 4 718
4. Net income from insurance operations
Insurance premium earned 1 909 1 806
Less: amount ceded to reinsurers (1 114) (1 085)
Investment income from insurance operations 11 10
Less: insurance claims and withdrawals (1 326) (1 302)
Plus: insurance claims and benefits covered by reinsurance contracts 1 018 988
Net income from insurance operations 498 417
2015 2014
Rm
5. Non-trading and capital items
Non-trading:
Professional indemnity insurance cell captive result (23) 64
Amortisation of intangible assets arising from business combination (131) (141)
Corporate transaction and listing costs (50) (60)
Historic transaction incentive costs (99) -
Contractual payment to AF Management Trust resulting from the
capital restructure (58) -
Other non-trading items 6 32
Total non-trading and capital items (355) (105)
6. Finance costs
Finance costs derived from financial liabilities classified and
carried at amortised costs:
Interest on borrowings (102) (740)
Amortisation of debt raising fees capitalised to borrowings - (14)
Other interest (17) (29)
(119) (783)
Finance cost derived from financial liabilities designated as
fair value through profit or loss:
Fair value adjustment on put and call option - (60)
Total finance costs (119) (843)
7. Income tax expense
South African income tax
Current tax (280) (295)
Current year (266) (232)
Prior year (14) (63)
Deferred tax 77 7
Current year 71 58
Prior year 6 (51)
Foreign income tax
Current tax (48) (35)
Current year (45) (35)
Prior year (3) -
Deferred tax (2) 4
Current year (1) 2
Prior year (5) -
Change in rate 4 2
Foreign withholding tax (5) (3)
Tax attributable to policyholders (103) (162)
Current tax - current year (139) (76)
Deferred tax - current year 36 (86)
Total tax expense (361) (484)
7. Income tax expense continued
Tax settlement relating to 31 March 2014
On 9 June 2014, the group published its annual financial statements for the year ended 31 March 2014. A SENS
announcement was subsequently issued on 20 June 2014 stating that an in-principle agreement had been reached with
the South African Revenue Service relating to tax deductions for interest expenses incurred by the group between
2007 and 2014 (SARS settlement). The formal settlement agreement was entered into on 1 July 2014. Accordingly, when
the group released its pre-listing statements on 7 July 2014 in preparation for the listing of the group’s shares in
the JSE Limited, the consolidated financial statements for the group contained in the pre-listing statement (PLS)
reflected the effects of the SARS settlement as an adjusting event, which occurred after the date the group
published its annual financial statements, but before the date of finalisation of the consolidated statements
contained in the PLS. The financial information presented in the PLS is available on the group’s website. The
comparative results presented for 31 March 2014 in these interim results reflect the effects of the SARS settlement
as presented in the PLS financial statements.
8. Discontinued operations
In line with the requirements of IFRS 5, businesses that are considered discontinued are disclosed separately with
comparative information for the consolidated income statement being restated. Assets and liabilities held at the end
of the period in respect of discontinued operations, where the disposal process is ongoing, have been reclassified as
assets and liabilities of disposal groups classified as held for sale. The segmental results have been re-presented to
show the effects of discontinued operations.
In the prior year, the group discontinued and disposed of the Guardrisk group of companies, Euroguard in Gibraltar and
the Swiss operations of LCP. The UK based Trustee Services business, which was discontinued in the prior year, was disposed
in the first quarter of the current financial year. LCP Belgium continues to be held in discontinuance and is expected to
be disposed in the first half of the 2015/16 financial year. In March 2015 the board of directors approved a management
proposal to dispose of the Alexander Forbes Compensation Technology business (AFCT). For the purposes of financial reporting,
the results of this business are now classified as discontinued operations until the date of their disposal.
2015 2014
Rm
Assets and liabilities of disposal groups classified
as held for sale
Long-term assets 24 27
Goodwill - 21
Deferred tax asset 6 -
Financial assets 1 -
Trade and other receivables 21 9
Other current assets 99 10
Cash and cash equivalents 27 24
Total assets 178 91
Deferred tax liability 29 -
Provisions - non-current 18 -
Insurance related payables - 6
Trade and other payables 25 29
Total liabilities 72 35
2015 2014
Rm
8. Discontinued operations continued
Summary income statement from discontinued operations
Operating income net of direct expenses 103 671
Operating expenses (134) (504)
Operating profit before non-trading and capital items (31) 167
Non-trading and capital items* (105) (125)
Net investment income (1) -
Share of (losses)/profits from associates (2) 3
Profit before tax (139) 45
Taxation 9 (63)
Net loss for the year (130) (18)
(Loss)/profit on disposals (15) 564
(145) 546
*Included in non-trading and capital items is an impairment of goodwill (R95 million) and
intangible assets (R7 million), both relating to Alexander Forbes Compensation Technologies.
The comparative includes an impairment of goodwill (R114 million) relating to Guardrisk.
9. Calculation of headline loss per share
9.1 Basic earnings per ordinary share
Basic earnings per share is calculated by dividing the profit/(loss) for the year attributable to equity
holders by the weighted average number of ordinary shares in issue during the year.
9.2 Headline earnings per ordinary share
Headline earnings/(loss) per share is calculated by excluding all non-trading and capital gains and losses
from the earnings/(loss) attributable to ordinary shareholders and dividing the resultant headline earnings/
(loss) by the weighted average number of ordinary shares in issue during the year. Headline earnings/(loss)
are defined in circular 2/2013 issued by the SAICA.
9.3 Diluted earnings per ordinary share
Diluted earnings per ordinary share is calculated by adjusting the profit attributable to equity holders for
any changes in income or expense that would result from the conversion of dilutive potential ordinary shares,
and dividing the result by the weighted average number of ordinary shares increased by the weighted average
number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive
potential ordinary shares.
2015 2014
Rm
9. Calculation of headline loss per share continued
9.4 Number of shares
Weighted average number of shares (millions) 1 286 377
Treasury shares (millions) (49) (32)
Weighted average number of shares in issue (millions) 1 237 345
Dilutive shares 14 -
Diluted weighted average number of shares (millions) 1 251 345
Actual number of shares (millions) 1 302 1 251
Treasury shares (millions) (20) (96)
Actual number of shares in issue (millions) 1 282 1 155
9.5 Calculation of headline loss
Profit attributable to equity holders (IAS 33 Earnings) 253 269
Adjusting items
- Loss/(profit) on sale of subsidiaries 23 (564)
- Impairment losses and other capital items 118 114
Headline profit/(loss) for the year 394 (181)
Basic earnings per share (cents) 20.5 78.0
Headline profit/(loss) per share (cents) 31.9 (52.5)
9.6 Diluted earnings per share
Diluted basic earnings per share (cents) 20.2 -
Diluted headline earnings per share (cents) 31.5 -
The group has implemented certain share schemes during the listing process that may result in dilution on
both earnings per share and headline earnings per share at the future date of vesting. The dilutive effect
is largely conditional on performance during the period for each award. The above dilutive effect is
calculated based on the performance of the company for the current year in relation to the performance
criteria.
2015 2014
Rm
10. Capital expenditure for the year 110 208
Capital expenditure was funded from internal cash resources
11. Operating lease commitments
Due within one year 211 164
Thereafter 2 177 2 316
Total operating lease commitments 2 388 2 480
12. Financial assets held under multi-manager investment contracts
The policyholder assets held by the group’s multi-manager investment subsidiaries, Investment Solutions in South Africa
and Namibia are recognised on balance sheet in terms of IFRS. These assets are directly matched by linked obligations to
policyholders.
As a result of the group listing in July 2014, the investments by underlying asset managers in the listed shares of the
group are recognised as treasury shares and all fair value adjustments recognised on these treasury shares are reversed,
while the corresponding fair value adjustment on the liability continues to be recognised in the income statement. The
resultant loss for the period of R26 million has been disclosed separately on the face of the statement of comprehensive
income. This treatment also impacts the number of shares in issue, the impact of which is disclosed in note 10.
Below is a reconciliation of the assets held under multi-manager investment contracts with the linked liabilities under
such contracts:
2015 2014
Rm
Total assets held under multi-manager investment contracts
(per statement of financial position) 262 004 253 747
Reversal of adjustment made under IFRS:
Alexander Forbes shares held as policyholder assets and
reclassified in the group statement of financial position as treasury shares 142 -
Financial effect of accounting for policyholder investments as treasury shares 26 -
Total financial assets held for policyholders under multi-manager investment contracts 262 172 253 747
2015 2014
Rm
13. Borrowings
Revolving credit facility 1 000 -
Term loan - 1 250
SPV preference shares (refer below) - 386
Total interest-bearing borrowings 1 000 1 636
Equity holder’s loan - 16
1 000 1 652
On 31 March 2015, the terms of the term loan facility of R1.25 billion were renegotiated to a revolving credit facility
of R1 billion. The revolving credit facility bears interest at JIBAR plus 1.25% per annum compounded quarterly. The
interest is payable quarterly while the capital is repayable annually together with any unpaid interest on 31 March 2016.
The facility is renewable annually for a 12-month period.
In order to facilitate participation in the capital restructure in the prior year, two special purpose vehicles (SPVs) were
established to follow the rights on behalf of the Management Share Trust and the BEE consortium. The SPVs issued preference
shares to a major bank and used the funds received to purchase ordinary shares in the company. Certain guarantees were provided
by a subsidiary of the company which results in the SPVs being consolidated and the shares purchased being treated as treasury
shares. The preference shares were fully redeemed when the company was listed. The preference shares paid quarterly dividends
at a dividend rate of 75% of the South African prime rate with the first payment made on 31 May 2014.
Corporate information
Alexander Forbes Group Holdings Limited
Registration number: 2006/025226/06
(Incorporated in the Republic of South Africa)
Independent directors
MD Collier, D Konar, RM Kgosana, HP Meyer, B Petersen
Non-executive directors
MS Moloko (Chairman), DJ Anderson, WS O’Regan
Executive directors
E Chr Kieswetter (Group Chief Executive),
DM Viljoen (Group Chief Financial Officer)
Company secretary
JE Salvado
Investor relations
MK Dippenaar
Registered office
Alexander Forbes, 115 West Street, Sandown, Sandton, 2196
Transfer secretaries
Computershare Investor Services Proprietary Limited
Ground Floor, 70 Marshall Street, Johannesburg
PO Box 61051, Marshalltown, 2107
Sponsor
Rand Merchant Bank (A division of FirstRand Bank Limited)
1 Merchant Place, corner Fredman Drive and Rivonia Road, Sandton, 2196
Website
www.alexanderforbes.co.za
Date of issue: 8 June 2015
Date: 08/06/2015 08:00:00 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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