Wrap Text
Summarised audited results announcement and cash dividend declaration for the year ended 30 June 2016
RAND MERCHANT INVESTMENT HOLDINGS LIMITED (previously Rand Merchant Insurance Holdings Limited) (RMI)
Registration number: 2010/005770/06
JSE ordinary share code: RMI
ISIN code: ZAE000210688
Summarised audited results announcement and cash dividend declaration for the year ended 30 June 2016
Key highlights for the year ended 30 June 2016
Normalised earnings - from continuing operations +8% to 225.0 cents
Normalised earnings - from continuing and discontinued operations +6% to 225.3 cents
Ordinary dividend +2% to 118.0 cents
Overview of results
Introduction
Rand Merchant Investment Holdings Limited (RMI) (formerly Rand Merchant Insurance Holdings Limited) is an investment holding company with an
investment team of experienced, alternative thinking, financial services specialists who actively partner smart and industry-changing people by being a
shareholder of influence.
RMI's investments include Discovery Limited (Discovery), MMI Holdings Limited (MMI), OUTsurance Holdings Limited (OUTsurance), RMB-SI Investments
Proprietary Limited (RMB Structured Insurance), RMI Investment Managers Group Proprietary Limited (RMI Investment Managers) and Merchant Capital
Advisory Services Proprietary Limited (Merchant Capital). On 23 August 2016, RMI announced the sale of its investment in RMB Structured Insurance,
excluding the stake in Truffle Capital Proprietary Limited (Truffle), subject to regulatory approval. The results of RMB Structured Insurance, excluding Truffle,
are disclosed as a discontinued operation in the RMI group results.
Economic environment
The economic environment for the year under review remained challenging and was characterised by:
- a sharper deterioration in South Africa's GDP than expected, together with downward revisions to forecasts as a result of slowdowns in mining activity
and the retail sector;
- headline inflation exceeding the Reserve Bank's upper band, stemming from food and fuel increases placing pressure on disposable income;
- a 4% increase in the local equity market;
- contractions in local employment data with continued softening in household credit growth;
- a significant decrease in new vehicle sales and a weaker and more volatile currency;
- the South African government avoiding a sovereign rating downgrade in June 2016;
- increased USD oil and gold prices, partially offset by USD weakness towards the latter half of the financial year; and
- the outcome of the Brexit referendum, which resulted in significant global economic uncertainty.
Real growth in South Africa is contingent on both local and global factors with risk on the downside. The economy remains vulnerable to a more
aggressive rate hike approach from the central bank if capital inflows slow down further or reverse.
Summary of results
As indicated to the market during the group's interim results in March 2016, the disposable income of South African consumers remains under pressure
due to the rising inflation and interest rate cycles and muted GDP growth. In this difficult economic and business environment, and including the impact
of continued investment in strategic growth initiatives across the RMI portfolio, the group delivered an 8% increase in normalised earnings from continuing
operations for the year ended 30 June 2016.
Discovery's 7% increase in normalised earnings was driven by the performance of its three established South African businesses; Discovery Health (up 12%),
Discovery Life (up 14%) and Discovery Invest (up 22%), as well as VitalityLife in the UK (up 25%). However, in line with Discovery's investment for growth
strategy, overall earnings growth was strained by a 73% increase in investments in new initiatives (13% of earnings), including a continued roll-out of the
Vitality shared-value insurance model across several markets and investments into Discovery Insure and the banking initiative.
MMI recorded a disappointing 16% decrease in normalised earnings, mainly as a result of significantly lower underwriting profits, muted equity investment
growth affecting asset-based fees and discretionary margin releases, as well as operational challenges in certain non-life businesses. Offsetting some of
these challenges, MMI maintained flat expense growth while continuing to make progress in a number of strategic initiatives. Despite the decline in
earnings, new business volumes remained buoyant and the return on embedded value was satisfactory at 12.8%.
Normalised earnings from OUTsurance increased by a better than expected 43%. This performance can be attributed to the significant improvement in
the contribution from the Youi group and pleasing results from the South African operations. The prior year's results for Youi were negatively impacted by
numerous weather-related catastrophes in Australia. Gross written premiums for the OUTsurance group increased by 18% to R14.8 billion, the claims ratio
decreased from 55.5% to 54.4% and the cost to income ratio decreased from 28.2% to 26.2%. OUTsurance achieved a 38.4% return on equity.
RMI Investment Managers completed its first year of operations. The financial performance of the business remains on track, with the operational
performance ahead of plan. This included the appointment of a distribution and operations team, obtaining the required corporate structure and
regulatory approvals, the creation of an asset management operating platform and the establishment of Royal Investment Managers (Royal) with Royal
Bafokeng Holdings (RBH). The affiliate asset managers that RMI Investment Managers has invested in, performed in line with expectations, including a
strong period of investment performance across most of the affiliates over the last six months.
Merchant Capital, in which the group purchased a 25.1% shareholding in September 2015, continued its strong operational performance, as well as
investing in its core operations and product development.
Normalised earnings from RMB Structured Insurance, excluding Truffle, decreased by 90% to R8 million.
The total normalised earnings of RMI's investee companies for the year under review are listed in the table below:
For the year ended
30 June
2016 2015 %
R million Audited Audited change
Continuing operations
Discovery 4 312 4 027 7
MMI 3 206 3 836 (16)
OUTsurance 1 985 1 388 43
Other(1) (11) 1 >(100)
Discontinued operation
RMB Structured Insurance (excluding Truffle) 8 81 (90)
(1) "Other" includes RMI Investment Managers, Truffle and Merchant Capital.
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.
The consolidated group normalised earnings for the year ended 30 June 2016 from continuing and discontinued operations amounted to R3.3 billion, an
increase of 6% on the comparative year. The table below provides a breakdown of this number:
For the year ended
30 June
2016 2015 %
R million Audited Audited change
Continuing operations 3 342 3 097 8
Discovery 1 079 1 012 7
MMI 805 956 (16)
OUTsurance 1 664 1 166 43
Other(1) (11) 1 >(100)
Funding and holding company costs (195) (38) >(100)
Discontinued operation
RMB Structured Insurance (excluding Truffle) 6 63 (90)
NORMALISED EARNINGS 3 348 3 160 6
Normalised earnings per share (cents) (continuing operations) 225.0 208.4 8
Normalised earnings per share (cents) (continuing and discontinued operations) 225.3 212.7 6
(1) "Other" includes RMI Investment Managers, Truffle and Merchant Capital.
The funding and holding company costs include the funding and operational expenses carried at the RMI corporate centre. This includes the investment
in AlphaCode. Funding costs increased due to the additional R1.25 billion in cumulative, redeemable preference shares issued to fund the additional
shares taken up in Discovery as part of its rights issue offer in March 2015. The comparative number also included the underwriting income of R44 million
after taxation that RMI earned for underwriting the Discovery rights issue offer.
Value of investments
During the 2016 financial year, RMI's share price decreased by 3%, compared to a 6% decrease in the life insurance index and a 6% increase in the
non-life insurance index. RMI has delivered total annual compounded return to shareholders of 33.1% since its listing in March 2011.
The individual investment performances during the 2016 financial year are outlined below:
- Discovery's share price decreased by 3%.
- MMI's share price decreased by 25%, with a dividend yield of 6.8% (based on an assumed share price of R23). RMI acquired an additional 8.1 million
MMI shares in the 2016 financial year.
- On a "look-through" basis, based on share prices as at 30 June 2016, the value attributed to RMI's unlisted investments increased by 6% to R33.8 billion.
These unlisted investments include OUTsurance (83.6% held) and RMB Structured Insurance (75.5% held), as well as new investments made during the
year under review in RMI Investment Managers (100% held) and Merchant Capital (25.1% held).
The values of RMI's investments are summarised in the table below:
For the year ended
30 June
%
R million 2016 2015 change
Market value of interest in:
- Discovery 19 838 20 481 (3)
- MMI 9 080 11 849 (23)
Market value of listed investments 28 918 32 330 (11)
Implied market value of unlisted investments 33 779 31 875 6
Gross market value of portfolio 62 697 64 205 (2)
Net liabilities of holding company (1 487) (1 108) 34
RMI MARKET CAPITALISATION 61 210 63 097 (3)
RMI closing share price (cents) 4 120 4 247 (3)
The movement in the net liabilities of the holding company was mainly due to the acquisition of additional MMI shares, the capitalisation of RMI
Investment Managers and the acquisition of the 25.1% stake in Merchant Capital.
Final dividend payment
The policy of paying out all dividends received from underlying investments after servicing any funding commitments at holding company level and
considering RMI's debt capacity and investment pipeline remains in place.
The board is of the opinion that RMI is adequately capitalised and that the company will be able to meet its obligations in the foreseeable future after
payment of the final dividend declared below.
The board resolved to declare a final dividend of 65.0 cents (2015: 64.0 cents) per ordinary share. The total dividend for the year of 118.0 cents (2015:
116.0 cents) per ordinary share is covered 1.9 times (2015: 1.8 times) by the normalised earnings of 225.3 cents (212.7 cents) per share.
Shareholders are referred to the dividend declaration forming part of this announcement regarding the applicability of Dividend Withholding Tax to the
ordinary dividend.
Strategy and outlook
Existing portfolio
South Africa is experiencing a tough macro-economic environment, characterised by high inflation and weak growth. Consumers are impacted by a
rising interest rate cycle and increased pressure on disposable income. Capital markets remain volatile, responding to the dynamics of economic and
social uncertainty. Against the background of an increasingly complex regulatory environment, local growth in new business volumes and profit at RMI's
existing investments is expected to be affected.
In parallel to the South African market, the international markets in which RMI's portfolio companies operate are also expected to face growth and
stability issues. The June 2016 UK referendum has negatively impacted GDP forecasts, with increased uncertainty leading to capital flight. However, given
the low base of market shares in these international markets, growth will pivot on product traction rather than the general economic conditions.
Against this demanding backdrop, RMI believes that its investee companies have appropriate strategies in place to continue producing resilient
operational performances.
Discovery remains committed to core strategic plans which focus on distribution, innovation and operational efficiency. Discovery's primary operating
performance, product and market diversification, coupled with market expansion and investment into new initiatives provide the impetus to create
sustainable long-term growth.
MMI is focusing on efficiencies, growth initiatives and client centricity. The MMI board believes that growth in new business volumes and profits will,
however, be impacted by many factors in the South African economy including challenging markets, the level of unemployment and disposable income.
OUTsurance expects reasonable premium growth from a higher base over the next financial year for the Australasian operations. The incremental scale of
the Australasian business is expected to drive further cost efficiencies. The management team will focus on growing Youi New Zealand into a profitable
insurance business which can deliver on its potential as a growth driver for the group. The South African business is exploring diversification of revenue
streams by introducing complementary products and will expand its commercial insurance sales footprint. OUTsurance continues to monitor the use of
new technology, including the launch of a value-adding telematics product.
Youi has been subject to recent negative media reports in both New Zealand and Australia in respect of unauthorised sales practices. Although these
incidents relate to a very small proportion of overall quotes and sales, OUTsurance does not condone this behaviour, which is contrary to the values and
culture of the group. Strong disciplinary action was instituted against the employees involved, including a number of dismissals. Remedial action was taken
to prevent and identify any remaining unacceptable sales practices. These preventative measures have been highly effective and no client was
financially disadvantaged by any of these practices.
RMI Investment Managers continues to expand its portfolio of affiliate asset managers as it seeks to identify, partner and grow world-class asset managers.
In addition to the acquisition of a 30% equity stake in Sentio Capital, an active equities and absolute return manager, announced during the RMI interim
results in March 2016, RMI Investment Managers successfully concluded two more acquisitions. The acquisition of RMB Structured Insurance's 22.4% equity
stake in Truffle is currently subject to the finalisation of terms. Truffle is an active equity and multi-asset boutique asset manager with a strong long-term
performance track record, managing R20 billion of client assets.
In addition, in September 2016, RMI Investment Managers acquired a 25% equity stake in Polar Star Management (Polar Star). Polar Star is a commodity
arbitrage hedge fund, managing R4 billion of client assets with an excellent long-term performance track record in excess of 20% per annum since
inception in 2010. Polar Star's unique skills and investment strategy are important and complementary diversifiers to RMI Investment Managers' existing
long only affiliates that are more exposed to the returns of the equity market. This will bring the number of affiliates to six active managers, one passive
manager and one alternative manager. The investments in affiliates that were announced as part of the 30 June 2015 results include Coreshares, a smart
beta and passive ETF and index fund manager; Northstar Asset Management, an active equity and multi-asset manager; Perpetua Investment Managers,
a value equity and multi-asset manager; Tantalum Capital, a multi-strategy hedge fund and absolute return-focused active asset manager and RMI
Specialist Managers, currently a fixed income, credit and money market active manager which launched its first three unit trust funds in April 2016. The
combined assets under management (AUM) of these affiliates are over R50 billion (R65 billion including Royal affiliates), spread across a diversified range
of asset classes, investment styles and clients.
Other important developments include the appointment of the RMI Investment Managers team, a high calibre team of six distribution and operations
employees focused on partnering and growing the affiliates. The team has been active in raising the profile of RMI Investment Managers and its affiliates.
RMI Investment Managers and RBH have established Royal under the leadership of Kabelo Rikhotso. Royal's aim is to build an affiliate asset management
business that will play a significant role in the transformation of the South African asset management sector by acquiring minority stakes in independent
asset managers that require a black partner with knowledge and experience in the asset management industry. Royal has signed heads of agreement
during August 2016 to acquire a 25% equity stake in Sesfikile Capital, a highly-rated active listed property manager with AUM of R16 billion.
Merchant Capital's short-term strategy entails solidifying the South African core business and operating platform. The business continues to launch new
products and partnerships to further differentiate the product and grow the client base.
A review of RMB Structured Insurance was performed within the context of a changing regulatory and operating environment and the evolving strategic
objectives of RMB Structured Insurance. RMI believes that the business would be more optimally positioned within a large insurance group. To this end, RMI
reached an agreement on the sale of its shareholding in RMB Structured Insurance to Santam post the financial year-end. The sale agreement excludes a
22.4% interest in Truffle, which will be sold to RMI Investment Managers. The sale is subject to regulatory approvals and was concluded on market-related
terms.
New investments
As previously outlined to the market, in addition to its active involvement in the existing portfolio, RMI plans to expand, diversify and modernise its
investment portfolio through opportunities across a wide spectrum of scale and lifecycles of financial services businesses.
Traditional financial services
RMI is evaluating the addition of a significant "traditional" financial services business to the existing portfolio. The investment team continues to investigate
potential investment opportunities, both locally and globally, that conform to RMI's investment philosophy and generate superior returns for shareholders.
There were no impending investments at year-end.
Next-generation financial services
With the rise of financial technology (fintech) in South Africa, a number of investors and players have positioned themselves in the market to support and
fund entrepreneurs. RMI's next-generation business platform, AlphaCode, continues to progress on its strategy of identifying, partnering and growing
extraordinary next-generation financial services entrepreneurs. AlphaCode currently has 53 businesses as members operating across the financial services
spectrum, with many exploiting leading-edge technology to transform the delivery of financial services. Merchant Capital is a diamond member, which is
the highest membership, with five more businesses on platinum membership. These businesses have close working relationships with the RMI investment
team.
AlphaCode is committed to building the broader entrepreneurial sector by supporting high-impact black entrepreneurs, providing mentorship, free office
space and support facilities and actively engaging with higher learning institutions and entrepreneurial industry organisations and lobby groups.
AlphaCode has become an innovation hub for the RMI portfolio companies and has created value by facilitating and hosting projects and proof of
concepts between its members and RMI's portfolio companies. RMI has also built a strong pipeline of potential investment opportunities from the member
base, with the goal remaining to build a diversified portfolio of superior entrepreneur-led, early-stage fintech businesses that have achieved market
traction and are poised for rapid growth.
For and on behalf of the board.
GT Ferreira HL Bosman
Chairman Chief executive
Sandton
12 September 2016
Cash dividend declaration
Final cash dividend
Notice is hereby given that a gross final dividend of 65.0 cents per ordinary share payable out of income reserves was declared on 12 September 2016 in
respect of the year ended 30 June 2016.
The dividend will be subject to Dividend Withholding Tax at a rate of 15%, which will result in a net dividend of 55.25 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, 648 001 cumulative,
redeemable par value preference shares and 1 650 000 cumulative, redeemable no par value preference shares.
Shareholders' attention is drawn to the following important dates:
Last day to trade in order to participate in the dividend Tuesday, 4 October 2016
Shares commence trading "ex dividend" on Wednesday, 5 October 2016
The record date for the dividend payment will be Friday, 7 October 2016
Dividend payment date Monday, 10 October 2016
No de-materialisation or re-materialisation of share certificates may be done between Wednesday, 5 October 2016 and Friday, 7 October 2016 (both
days inclusive).
By order of the board.
JS Human
Company secretary
Sandton
12 September 2016
Review of investment performance
Discovery
Discovery services the healthcare funding and insurance markets in South Africa, the United Kingdom, China, Singapore, Australia and the United States. It
is a pre-eminent developer of integrated financial services products and operates under the Discovery Health, Discovery Life, Discovery Insure, Discovery
Invest, Discovery Vitality, VitalityHealth, VitalityLife and Ping An Health brand names.
Discovery's earnings and headline earnings attributable to ordinary shareholders for the prior year ended 30 June 2015 included a fair value profit of
R1 661 million on the reversal of a put option liability when it acquired the remaining 25% shareholdings in Prudential Health Holdings and The Vitality Group
LLC. This resulted in Discovery's earnings and headline earnings attributable to ordinary shareholders decreasing by 33% and 31% respectively for the year
under review. However, normalised earnings increased by 7% as this fair value profit is excluded from normalised earnings.
Discovery's financial highlights include:
- New business, excluding the Bankmed take-on, grew by 22% to R16.2 billion;
- Normalised earnings increased by 7% to R4.3 billion, with diluted normalised earnings per share increasing by 1%;
- Gross inflows under management increased by 20% to R45.4 billion;
- Embedded value grew by 2% to R53.1 billion; and
- The total dividend for the year increased by 1% to 175.5 cents per share.
RMI included R1 079 million of Discovery's earnings in its normalised earnings (2015: R1 012 million).
For a detailed review of Discovery's performance, RMI's shareholders are referred to www.discovery.co.za.
MMI Holdings
MMI is a South African financial services group that provides life insurance, employee benefits, investments and savings, healthcare solutions and
short-term insurance to individual clients, small and medium businesses, large companies, organisations and public enterprises in South Africa, the rest of
Africa and selected international countries. It covers the lower, middle and upper income markets, principally under the Momentum and Metropolitan
brand names.
MMI's financial performance for the year under review is summarised below:
- The new business present value of premiums increased by 35% to R68.2 billion and the new business annualised premium equivalent increased by 22%
to R8.1 billion;
- The value of new business decreased by 11% to R850 million, with the new business margin reducing to 1.2%. It should be noted that the value of new
business would have increased by 13% had the discount rate and expense allocation basis remained unchanged;
- The embedded value increased by 7% to R43 billion, reflecting a 12.8% return on embedded value;
- Diluted normalised earnings decreased by 16% to R3.2 billion, mainly as a result of lower underwriting profit across the group and subdued investment
markets;
- Diluted earnings and headline earnings decreased by 25% and 27% respectively due to the negative impact of the increased allowance for group
expenses in the actuarial liabilities and increased impairments of intangible assets;
- Overall earnings growth was restricted by investments into new initiatives that are being pursued in line with the group's strategy of growth, client-
centricity and excellence;
- MMI achieved total expense savings of R104 million in the 2016 financial year, with a reduction in annual expenses of R750 million targeted for 2019; and
- The total dividend for the year increased by 1% to 157 cents per share.
MMI reported a strong capital buffer of R4 billion as at 30 June 2016, after allowing for economic capital requirements, strategic growth initiatives and the
final dividend. Taking into account the focus on growth, changing regulations including Solvency Assessment and Management (SAM) and the difficult
economic outlook, MMI is satisfied that its present capital level is appropriate.
RMI included R805 million of MMI's earnings in its normalised earnings (2015: R956 million).
For a detailed review of MMI's performance, RMI's shareholders are referred to www.mmiholdings.co.za.
OUTsurance
OUTsurance provides short and long-term insurance products in South Africa, and short-term insurance products in Australia, New Zealand and Namibia,
with a client-centric ethos of providing value for money insurance solutions backed by awesome client service.
Youi New Zealand was launched in August 2014 as an extension of Youi's Australian operation. It provides personal lines insurance cover directly to the
New Zealand public.
The OUTsurance group delivered an excellent operational and financial performance for the year under review:
- Group normalised earnings increased by 43% to R1 985 million, driven mainly by a significant improvement in Youi's profitability and pleasing results from
the South African operations;
- Gross premium revenue grew by 18% to R14.8 billion, of which the Australasian operations contributed half;
- The OUTsurance group recorded growth in annualised new business volumes of 3% to R4 billion;
- The claims ratio decreased from 55.5% to 54.4% due to a significant improvement in the claims ratio of Youi Australia, where large weather-related
catastrophe claims were included in the comparative number;
- The cost to income ratio decreased from 28.2% to 26.2% in line with efficiency gains across most operations, most notably Youi Australia; and
- The total dividend for the year increased by 18% to 36.0 cents per share.
OUTsurance's South African short-term operations recorded a claims ratio of 51.5%, up from 50.5% in the prior year, but still remained below the long-term
target range. The cost to income ratio improved from 19.7% to 18.9% as a result of below-inflation growth in marketing and operational expenditure.
OUTsurance Life generated normalised earnings of R60 million for the year under review, compared to R38 million in the comparative year. Earnings
growth was driven by a 24% increase in gross written premiums to R392 million, higher investment income and expense efficiencies. The embedded value
increased by 25% to R682 million.
Youi Australia generated normalised earnings of R497 million for the year under review, compared to R51 million in the comparative year. Youi's profitability
benefited from reduced weather-related claims and a reduction in the cost to income ratio from 36.3% to 30.9% due to the enhanced scale of the
business together with cost containment and the realisation of operational efficiencies. Gross written premiums increased by 30% to R7 billion.
Youi New Zealand generated a start-up loss of R107 million for the year. Although new business volumes have slowed due to a highly competitive
environment, this business continues to gain traction in the New Zealand personal lines market. Gross written premiums increased by 89% to R308 million.
The majority of the OUTsurance group's assets are invested in cash or near cash instruments. During the year under review, the equity exposure on the
South African balance sheet was increased to take advantage of the diversification benefits available under the new SAM regime, which is expected to
become effective in 2017. Based on the current calibration and interpretation of the standard formula, the introduction of SAM is expected to improve
the capital adequacy ratios of OUTsurance and OUTsurance Life.
Youi has been subject to recent negative media reports in both New Zealand and Australia. In New Zealand, this negative coverage follows an
investigation by the New Zealand Commerce Commission (NZCC) into unauthorised sales practices identified at Youi. The management team
cooperated fully with the regulatory authorities during this investigation, which revealed that a small minority of Youi's employees breached internal
policies and procedures by activating policies without the consent of clients. These unacceptable sales represent an extremely small number of quotes
and sales performed over the period in question. Although such incidents are isolated, management does not condone this behaviour which is contrary
to the values and culture of the group. Strong disciplinary action was instituted against the individuals who chose not to adhere to operational
procedures which resulted in a number of dismissals. OUTsurance's management team has taken appropriate remedial action to prevent and identify
any remaining unacceptable sales activity across all group operations. These preventative measures have been highly effective.
Youi New Zealand pleaded guilty to the charges instituted by the NZCC to expedite proceedings. The sanction against Youi will be finally instituted at a
court hearing in October 2016. This sanction is expected to be in the form of a monetary fine. Youi New Zealand has provided for the best estimate of the
fine in its June 2016 results.
Youi Australia has experienced similar sales breaches as the two businesses share a common call centre infrastructure. In the case of Youi Australia, the
number of unacceptable sales registered were isolated and once again represented an extremely small proportion of total quotes and sales. The
required preventative and disciplinary actions have been instituted as in the case of the New Zealand operation. These matters have been discussed with
the regulatory authorities and management continues its constructive dialogue with the regulators.
The negative media articles in the Australian and New Zealand media allege that Youi missold policies to thousands of clients. In the context of
unacceptable sales representing a very small proportion of total sales and quotes, the factual inaccuracy of these articles is unfortunate.
Youi takes full responsibility and unreservedly apologises to the affected clients, whilst ensuring that no client is financially disadvantaged.
The OUTsurance group has built a strong consumer reputation over many years by instilling a culture which promotes the highest standards of fair
customer treatment. The group wishes to stress its zero tolerance approach to any compliance breaches or behaviour which is inconsistent with its culture
and risks damage to its reputation. The management team and 1 700 Youi employees will work tirelessly to regain the lost trust and to ensure the best
customer outcomes are achieved at all times.
RMI included R1 664 million of OUTsurance's earnings in its normalised earnings (2015: R1 166 million).
For a detailed review of OUTsurance's performance, RMI's shareholders are referred to www.outsurance.co.za.
Discontinued operation
RMB Structured Insurance 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.
Normalised earnings for RMB Structured Insurance, excluding the equity accounted earnings from its stake in Truffle, amounted to R8 million (2015: R81
million). The decrease is mainly attributable to a decrease in structured underwriting income, an increase in management expenses due to the start-up of
the Risk Finance and Credit Insurance Solutions divisions and expenses incurred on the sale transaction, as well as some once-off income items included
in the comparative earnings. RMI included R6 million of RMB Structured Insurance's earnings under discontinued operations (2015: R63 million).
Basis of preparation of results
These summarised, audited financial results for the year ended 30 June 2016 have been prepared in accordance with:
- International Financial Reporting Standards (IFRS), including IAS 34: Interim financial reporting;
- the requirements of the Companies Act, Act 71 of 2008, as amended;
- the SAICA Financial Reporting Guide as issued by the Accounting Practices Committee;
- the Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council; and
- the Listings Requirements of the JSE Limited.
The accounting policies applied are consistent with those applied in the previous financial year, except for changes required by the mandatory adoption
of new and revised IFRS. None of the new accounting standards becoming effective in the current financial year had a significant impact on the group's
results.
Schalk Human (MCom(Acc), CA(SA)) prepared these consolidated financial results under the supervision of Herman Bosman (LLM, CFA). The board of
directors takes full responsibility for the preparation of this announcement and for correctly extracting the financial information for inclusion in the
announcement.
The summarised annual consolidated financial statements for the year ended 30 June 2016 have been audited by PricewaterhouseCoopers Inc.,
who expressed an unmodified opinion thereon.
The auditor also expressed an unmodified opinion on the annual consolidated financial statements from which the summarised annual consolidated
financial statements were derived. Unless the financial information is specifically stated as audited, it should be assumed it is unaudited.
A copy of the auditor's reports on the annual consolidated financial statements and summarised annual 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 annual
consolidated financial statements identified in the report.
The auditor's report does not necessarily report on all of the information contained in these summarised consolidated financial statements. Shareholders
are therefore advised that in order to obtain a full understanding of the nature of the auditor's engagement they should review the auditor's report
together with the accompanying financial information from the issuer's registered office.
The forward-looking information has not been commented or reported on by the group's external auditor.
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 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.
As at 30 June 2016, 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 2016 30 June 2015
Audited Effective Actual Effective Actual
CONTINUING OPERATIONS
Discovery 25.1% 25.0% 25.7% 25.0%
MMI 25.7% 25.5% 25.2% 25.0%
OUTsurance 84.5% 83.6% 84.2% 83.4%
RMI Investment Managers 100.0% 100.0% 100.0% 100.0%
Merchant Capital 25.1% 25.1% - -
DISCONTINUED OPERATION
RMB Structured Insurance 78.1% 75.5% 78.3% 76.4%
Summarised consolidated income statement
For the year ended
30 June
Restated
2016 2015 %
R million Audited Audited change
Continuing operations
Earned premiums net of reinsurance 13 428 11 148 20
Fee and other income 110 99 11
Investment income 579 490 18
Net fair value losses on financial assets (39) (40) (3)
Income 14 078 11 697 20
Net claims paid (6 888) (5 832) 18
Fair value adjustment to investment contracts and insurance contract provisions (414) (356) 16
Fair value adjustment to financial liabilities (204) (201) 1
Acquisition, marketing and administration expenses (3 768) (3 290) 15
Profit before finance costs, share of after tax results of associates and taxation 2 804 2 018 39
Net finance costs (136) (74) 84
Share of after tax results of associates 1 524 2 145 (29)
Profit before taxation 4 192 4 089 3
Taxation (893) (657) 36
Profit for the year from continuing operations 3 299 3 432 (4)
Discontinued operation
Profit for the year from discontinued operation 8 81 (90)
PROFIT FOR THE YEAR 3 307 3 513 (6)
Attributable to:
Equity holders of RMI 2 977 3 292 (10)
Non-controlling interests 330 221 49
PROFIT FOR THE YEAR 3 307 3 513 (6)
Computation of headline earnings
For the year ended
30 June
2016 2015 %
R million Audited Audited change
Earnings attributable to equity holders 2 977 3 292 (10)
Adjustment for:
Intangible asset impairments 37 4
Profit on sale of subsidiary (29) -
Profit on dilution of shareholding (26) (22)
Release of foreign currency translation reserve (23) -
Impairment of available-for-sale financial assets 3 35
Profit from business combination (2) -
Profit on disposal of property and equipment (2) -
Realised profit on sale of available-for-sale financial assets (1) (40)
Profit on sale of associate - (11)
HEADLINE EARNINGS ATTRIBUTABLE TO EQUITY HOLDERS 2 934 3 258 (10)
Sources of headline earnings
For the year ended
30 June
Restated
2016 2015 %
R million Audited Audited change
Continuing operations 2 927 3 195 (8)
Discovery 925 1 362 (32)
MMI 534 699 (24)
OUTsurance 1 674 1 171 43
Other(1) (11) 1 >(100)
Funding and holding company costs (195) (38) >(100)
Discontinued operation
RMB Strudtured Insurance (excluding Truffle) 7 63 (89)
HEADLINE EARNINGS 2 934 3 258 (10)
(1) "Other" includes RMI Investment Managers, Truffle and Merchant Capital.
Computation of normalised earnings
For the year ended
30 June
2016 2015 %
R million Audited Audited change
Headline earnings attributable to equity holders 2 934 3 258 (10)
RMI's share of normalised adjustments made by associates: 438 (87)
Amortisation of intangible assets relating to business combinations 209 218
Basis and other changes and investment variances 131 37
Rebranding and business acquisition expenses 91 105
Net realised and fair value (gains)/losses on shareholders' assets (53) 2
Non-recurring and restructuring expenses 39 35
Additional 54.99% share of DiscoveryCard profits 22 -
Accrual of dividends payable to preference shareholders (1) -
Fair value adjustment to puttable non-controlling interest financial liability - (415)
Deferred tax raised on assessed losses - (74)
Finance costs raised on puttable non-controlling interest financial liability - 16
Non-controlling interest adjustment if no put options - (11)
Group treasury shares (24) (11)
NORMALISED EARNINGS ATTRIBUTABLE TO EQUITY HOLDERS 3 348 3 160 6
Computation of earnings per share
For the year ended
30 June
2016 2015 %
R million Audited Audited change
Earnings attributable to equity holders 2 977 3 292 (10)
Headline earnings attributable to equity holders 2 934 3 258 (10)
Normalised earnings attributable to equity holders 3 348 3 160 6
Number of shares in issue (millions) 1 486 1 486 -
Weighted average number of shares in issue (millions) 1 482 1 483 -
Continuing operations
Earnings per share (cents) 200.5 217.8 (8)
Diluted earnings per share (cents) 197.1 215.7 (9)
Headline earnings per share (cents) 197.6 215.5 (8)
Diluted headline earnings per share (cents) 194.3 213.5 (9)
Normalised earnings per share (cents) 225.0 208.4 8
Diluted normalised earnings per share (cents) 221.6 206.9 7
Continuing and discontinued operations
Earnings per share (cents) 200.9 222.0 (10)
Diluted earnings per share (cents) 197.5 220.0 (10)
Headline earnings per share (cents) 198.0 219.8 (10)
Diluted headline earnings per share (cents) 194.7 217.8 (11)
Normalised earnings per share (cents) 225.3 212.7 6
Diluted normalised earnings per share (cents) 222.0 211.1 5
Dividend per share (cents)
Interim dividend 53.0 52.0 2
Final dividend 65.0 64.0 2
TOTAL DIVIDEND 118.0 116.0 2
Summarised consolidated statement of comprehensive income
For the year ended
30 June
2016 2015 %
R million Audited Audited change
Profit for the year 3 307 3 513 (6)
Other comprehensive income for the year
Items that may subsequently be reclassified to income
Currency translation differences 364 (142) >100
Fair value movement on available-for-sale financial assets 1 17 (94)
Deferred taxation relating to fair value movement on avaiable-for-sale financial
assets (4) (3) 33
Share of other comprehensive income of associates 1 152 (99)
Items that may subsequently be reclassified to income, after taxation (26) 136 >(100)
Items that will not be reclassified to income, after taxation 27 16 69
Other comprehensive income for the year 362 24 >100
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 3 669 3 537 4
Total comprehensive income attributable to:
Equity holders of RMI 3 264 3 336 (2)
Non-controlling interests 405 201 >100
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 3 669 3 537 4
Summarised consolidated statement of financial position
as at 30 June
Restated
2016 2015
R million Audited Audited
ASSETS
Property and equipment 679 546
Goodwill and other intangible assets 113 68
Investments in associates 14 888 14 063
Financial assets 10 679 11 779
Loans and receivables including insurance receivables 2 774 2 321
Deferred acquisition cost 365 362
Reinsurance contracts 257 832
Deferred taxation 204 216
Assets of discontinued operation 6 100 -
Cash and cash equivalents 611 2 142
TOTAL ASSETS 36 670 32 329
EQUITY
Share capital and premium 13 526 13 526
Reserves 5 030 3 579
Capital and reserves attributable to equity holders of the company 18 556 17 105
Non-controlling interests 1 170 978
TOTAL EQUITY 19 726 18 083
LIABILITIES
Insurance contracts 7 068 7 469
Share-based payment liability 253 182
Financial liabilities 2 514 5 140
Payables and provisions 1 238 1 329
Deferred taxation - 80
Taxation 245 46
Liabilities of discontinued operation 5 626 -
TOTAL LIABILITIES 16 944 14 246
TOTAL EQUITY AND LIABILITIES 36 670 32 329
Statement of changes in equity
Share Transactions
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 2014 13 592 2 094 (2 076) 343 1 525 899 16 377
Income statement - - - - 3 292 221 3 513
Other comprehensive income - 152 - (108) - (20) 24
Dividend paid - - - - (1 694) (178) (1 872)
Income of associates retained - 1 119 - - (1 119) - -
BEE cost - 1 - - - - 1
Puttable non-controlling interests - (5) - - - - (5)
Movement in treasury shares (66) 11 - - - - (55)
Transactions with non-controlling
interests - (4) 59 (55) 45 38 83
Issue of share capital to non-controlling
interests by subsidiaries - - - - - 18 18
Share-based payment reserve - - - 2 (3) - (1)
Balance as at 30 June 2015 13 526 3 368 (2 017) 182 2 046 978 18 083
Income statement - - - - 2 977 330 3 307
Other comprehensive income - 1 - 286 - 75 362
Dividend paid - - - - (1 738) (189) (1 927)
Income of associates retained - 612 - - (612) - -
BEE cost - 1 - - - - 1
Change in non-distributable reserves - 1 - - - - 1
Movement in treasury shares - 11 - - - - 11
Transactions with non-controlling
interests - (55) (80) 20 25 (65) (155)
Issue of share capital to non-controlling
interests by subsidiaries - - - - - 41 41
Share-based payment reserve - - - 5 (3) - 2
BALANCE AS AT 30 JUNE 2016 13 526 3 939 (2 097) 493 2 695 1 170 19 726
Summarised consolidated statement of cash flows
For the year ended
30 June
Restated
2016 2015
R million Audited Audited
Cash flows from operating activities - continuing operations 3 670 3 445
Cash flows from operating activities - discontinued operation 213 1 060
Investment activities - continuing operations (3 072) (2 864)
Investment activities - discontinued operation (133) (915)
Financing activities - continuing operations (1 566) (660)
Financing activities - discontinued operation (72) (53)
Net (decrease)/increase in cash and cash equivalents (960) 13
Unrealised foreign currency translation adjustment - continuing operations 675 (184)
Unrealised foreign currency translation adjustment - discontinued operation 1 3
Cash and cash equivalents at the beginning of the year 2 142 2 310
Cash and cash equivalents transferred to assets of discontinued operation (1 247) -
Cash and cash equivalents at the end of the year 611 2 142
Segmental report
The segmental analysis is based on the management accounts prepared for the group.
Audited Discontinued RMI
R million Discovery MMI OUTsurance operation Other(1) group
Year ended 30 June 2016
Operating profit - - 2 898 - (94) 2 804
Finance costs - - - - (136) (136)
Share of after tax results of
associates 949 555 15 - 5 1 524
Profit/(loss) before taxation 949 555 2 913 - (225) 4 192
Taxation - - (904) - 11 (893)
Result for the year from continuing
operations 949 555 2 009 - (214) 3 299
Discontinued operation - - - 8 - 8
PROFIT/(LOSS) FOR THE YEAR 949 555 2 009 8 (214) 3 307
NORMALISED EARNINGS 1 079 805 1 985 7 (528) 3 348
Assets - - 14 541 6 100 1 028 21 669
Associates 8 517 6 210 39 - 122 14 888
Intangible assets - - 110 - 3 113
TOTAL ASSETS 8 517 6 210 14 690 6 100 1 153 36 670
TOTAL LIABILITIES - - 8 793 5 626 2 525 16 944
Year ended 30 June 2015 (Restated)
Operating profit - - 1 956 - 62 2 018
Finance costs - - - - (74) (74)
Share of after tax results of
associates 1 434 695 15 - 1 2 145
Profit/(loss) before taxation 1 434 695 1 971 - (11) 4 089
Taxation - - (632) - (25) (657)
Result for the year from continuing
operations 1 434 695 1 339 - (36) 3 432
Discontinued operation - - - 81 - 81
Profit/(loss) for the year 1 434 695 1 339 81 (36) 3 513
Normalised earnings 1 012 956 1 388 81 (277) 3 160
Assets - - 11 750 5 544 904 18 198
Associates 7 869 6 107 33 31 23 14 063
Intangible assets - - 64 2 2 68
TOTAL ASSETS 7 869 6 107 11 847 5 577 929 32 329
TOTAL LIABILITIES - - 7 136 5 084 2 026 14 246
(1) "Other" includes RMI, RMI Investment Managers, Truffle, Merchant Capital and consolidation entries.
Geographical segments
Audited South
R million Africa Australia New Zealand UK Total
Year ended 30 June 2016
Profit/(loss) 2 045 730 (107) - 2 668
Share of after tax results of associates 1 459 - - 65 1 524
Profit/(loss) before taxation 3 504 730 (107) 65 4 192
Taxation (669) (224) - - (893)
Result from continuing operations 2 835 506 (107) 65 3 299
Discontinued operation 8 - - - 8
PROFIT/(LOSS) FOR THE YEAR 2 843 506 (107) 65 3 307
TOTAL ASSETS 27 394 8 515 761 - 36 670
TOTAL LIABILITIES 10 163 6 387 394 - 16 944
Year ended 30 June 2015
Profit 1 999 75 (130) - 1 944
Share of after tax results of associates 2 017 - - 128 2 145
Profit before taxation 4 016 75 (130) 128 4 089
Taxation (633) (24) - - (657)
Result from continuing operations 3 383 51 (130) 128 3 432
Discontinued operation 81 - - - 81
PROFIT/(LOSS) FOR THE YEAR 3 464 51 (130) 128 3 513
TOTAL ASSETS 25 550 6 186 593 - 32 329
TOTAL LIABILITIES 9 200 4 834 212 - 14 246
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 observable prices and/or data 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 2016
Financial assets
Equity securities
- available-for-sale 805 - - 805
- at fair value through profit or loss 124 - - 124
Debt securities
- available-for-sale - 647 - 647
- at fair value through profit or loss - 8 431 643 9 074
Derivative asset - 29 - 29
TOTAL FINANCIAL ASSETS RECOGNISED AT FAIR VALUE 929 9 107 643 10 679
Financial liabilities
Financial liabilities at fair value through profit or loss - - 144 144
Derivative liability - 12 - 12
TOTAL FINANCIAL LIABILITIES RECOGNISED AT FAIR VALUE - 12 144 156
For the year ended
30 June
Audited
R million 2016 2015
Reconciliation of movement in level 3 assets
Balance at the beginning of the year 386 415
Additions in the current year 294 -
Disposals (sales and redemptions) (4) -
Investment income accrued 33 32
Dividends received from the OUTsurance Investment Trust (66) (61)
BALANCE AT THE END OF THE YEAR 643 386
Reconciliation of movement in level 3 liabilities
Balance at the beginning of the year 107 105
Preference dividends charged to the income statement 205 201
Preference dividends paid (207) (199)
Shareholder loan advanced 39 -
BALANCE AT THE END OF THE YEAR 144 107
Total
Audited carrying
R million Level 1 Level 2 Level 3 amount
30 June 2015
Equity securities
- available-for-sale 746 - - 746
- at fair value through profit or loss 2 143 29 - 2 172
Debt securities
- available-for-sale - 560 - 560
- at fair value through profit or loss 1 084 6 707 386 8 177
Derivative asset - 46 - 46
TOTAL FINANCIAL ASSETS RECOGNISED AT FAIR VALUE 3 973 7 342 386 11 701
Financial liabilities
Convertible debentures - 15 - 15
Financial liabilities at fair value through profit or loss - - 107 107
Derivative liability - 36 - 36
Investment contracts - 1 417 - 1 417
TOTAL FINANCIAL LIABILITIES RECOGNISED AT FAIR VALUE - 1 468 107 1 575
Reclassification of comparative information
RMB Structured Insurance treated as a discontinued operation
RMI classified RMB Structured Insurance, excluding its stake in Truffle, as a discontinued operation, due to the sale being considered as highly probable in
terms of IFRS 5. The comparative information in the income statement and statement of cash flows have been reclassified as required by IFRS 5.
The reclassifications to the comparative income statement due to this accounting treatment of RMB Structured Insurance are set out below:
Summarised consolidated income statement
for the year ended
30 June
Original Restated
Audited 2015 2015 Re-
R million Audited Audited classification
Continuing operations
Earned premiums net of reinsurance 11 738 11 148 (590)
Fee and other income 312 99 (213)
Investment income 563 490 (73)
Net fair value gains/(losses) on financial assets 128 (40) (168)
Income 12 741 11 697 (1 044)
Net claims paid (6 109) (5 832) 277
Fair value adjustment to investment contracts and insurance contract provisions (438) (356) 82
Fair value adjustment to financial liabilities (201) (201) -
Acquisition, marketing and administration expenses (3 840) (3 290) 550
Profit before finance costs, share of after tax results of associates and taxation 2 153 2 018 (135)
Net finance costs (162) (74) 88
Share of after tax results of associates 2 146 2 145 (1)
Profit before taxation 4 137 4 089 (48)
Taxation (624) (657) (33)
Profit for the year from continuing operations 3 513 3 432 (81)
Discontinued operation
Profit for the year from discontinued operation - 81 81
PROFIT FOR THE YEAR 3 513 3 513 -
Attributable to:
Equity holders of RMI 3 292 3 292 -
Non-controlling interests 221 221 -
PROFIT FOR THE YEAR 3 513 3 513 -
Reclassification of term deposits from cash and cash equivalents to debt securities at fair value through profit or loss
The reclassification was done to align the classification of term deposits between the Australian and South African operations of OUTsurance.
Extract of summarised consolidated statement of financial position
Original Restated
Audited 2015 2015 Re-
R million Audited Audited classification
Financial assets 8 288 11 779 3 491
Cash and cash equivalents 5 633 2 142 (3 491)
Original Restated
Audited 2014 2014 Re-
R million Audited Audited classification
Financial assets 6 861 9 276 2 415
Cash and cash equivalents 4 725 2 310 (2 415)
The impact of the reclassifications due to the treatment of RMB Structured Insurance as a discontinued operation and the reclassification of the term
deposits on the statement of cash flows is illustrated below:
Summarised consolidated statement of cash flows
for the year ended 30 June
Original Restated
Audited 2015 2015 Re-
R million Audited Audited classification
Cash flows from operating activities - Continuing operations 4 505 3 445 (1 060)
Cash flows from operating activities - Discontinued operation - 1 060 1 060
Investment activities - Continuing operations (2 703) (2 864) (161)
Investment activities - Discontinued operation - (915) (915)
Financing activities - Continuing operations (713) (660) 53
Financing activities - Discontinued operation - (53) (53)
Net increase in cash and cash equivalents 1 089 13 (1 076)
Unrealised foreign currency translation adjustment - Continuing operations (181) (184) (3)
Unrealised foreign currency translation adjustment - Discontinued operation - 3 3
Cash and cash equivalents at the beginning of the year 4 725 2 310 (2 415)
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 5 633 2 142 (3 491)
Administration
Directors
GT Ferreira (Chairman), HL Bosman (CEO & FD), JP Burger, P Cooper, (Ms) SEN De Bruyn Sebotsa, LL Dippenaar, JW Dreyer, JJ Durand, PM Goss, PK Harris,
P Lagerstrom, MM Morobe, O Phetwe and KC Shubane.
Alternates
F Knoetze and (Ms) A Kekana.
Mr L Crouse resigned as an alternate director to Mr JJ Durand effective 31 March 2016 and Mr F Knoetze was appointed as alternate director to
Mr JJ Durand effective 1 April 2016.
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.rmih.co.za
Sponsor
(in terms of JSE Limited Listings Requirements)
Rand Merchant Bank
(a division of FirstRand Bank Limited)
Physical address: 1 Merchant Place, corner of Fredman Drive and Rivonia Road, Sandton, 2196
Transfer secretaries
Computershare Investor Services 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: 12/09/2016 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
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