Wrap Text
Summarised unaudited results announcement and cash dividend declaration for the six months ended 31 December 2016
RAND MERCHANT INVESTMENT HOLDINGS LIMITED (RMI)
Registration number: 2010/005770/06
JSE ordinary share code: RMI
ISIN code: ZAE000210688
Summarised unaudited results announcement and cash dividend declaration for the six months ended 31 December 2016
Financial indicators for the six months ended 31 December 2016
Normalised earnings from continuing operations up 12% to 121.3 cents
Normalised earnings from continuing and discontinued operations up 11% to 121.5 cents
Ordinary dividend maintained at 53.0 cents
Introduction
As at 31 December 2016, RMI's investments included 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), AlphaCode Proprietary Limited (AlphaCode) and AlphaCode's first investment, Merchant Capital Advisory Services Proprietary Limited
(Merchant Capital).
The sale of RMI's investment in RMB Structured Insurance, excluding its stake in Truffle Capital Proprietary Limited (Truffle), is expected to be completed by
mid-March 2017. The results of RMB Structured Insurance, excluding Truffle, are disclosed as a discontinued operation in the RMI group results.
Effective 1 March 2017, RMI acquired a 29.9% stake in Hastings Group Holdings plc (Hastings). RMI will account for its stake in Hastings as an investment in
associate from the effective date. RMI funded the acquisition through debt (a combination of preference shares and loans) in terms of its domestic
medium-term note and preference share programme.
PERFORMANCE AND OUTLOOK
Economic environment
The economic environment for the period under review remained challenging. The inflation rate remained well above the South African Reserve Bank's
6% upper-range, preventing interest rate relief for generally highly-indebted South African households. Increasing inflation, rising levels of unemployment
and low consumer confidence contributed to muted household spending. The ongoing local political uncertainty has also negatively impacted investor
confidence. This was compounded by increased global political uncertainty following the result of the US election. On the positive side, a decrease in the
trade deficit provided support to the Rand.
Overview of results
In this difficult economic and business environment, the group delivered a 12% increase in normalised earnings from continuing operations for the six
months ended 31 December 2016.
Discovery's 3% increase in normalised earnings was driven by the performance of its three established South African businesses; Discovery Health (up 12%),
Discovery Life (up 13%) and Discovery Invest (up 21%), as well as VitalityHealth in the UK (up 53%). Earnings growth was strained by a decrease in
investment income attributable to equity holders and an increase in finance charges. The investment income in the prior period included interest earned
on the rights issue cash before it was deployed into the business. The increased finance charges emanated from the funding of the new business
acquisition costs incurred at VitalityLife and an increase in the utilisation of Discovery's bank syndicated loan programme to fund new initiatives.
MMI recorded a 5% decrease in normalised earnings, mainly due to lower morbidity profits, lower health administration revenue and the impact of weak
investment markets on asset-based fee income. MMI's expense optimisation project, which targets annual expense savings of R750 million by the 2019
financial year, remains on track. The embedded value amounted to R42.5 billion as at 31 December 2016, reflecting an annualised return of 4.5%.
Normalised earnings from OUTsurance increased by 23%. This strong result was driven by a significant improvement in the cost-to-income ratio across the
group, but in particular at Youi due to scale benefits and cost efficiencies. There was also a significant reduction in the start-up loss at Youi New Zealand
due to premium growth and a significant reduction in the claims ratio. The OUTsurance group achieved a return on equity of 39%, a claims ratio of 53.9%
and a cost-to-income ratio of 25.0%.
RMI Investment Managers completed its first 18 months of operations in the period under review and in line with expectations, reduced its loss to R8 million
from R12 million in the comparative period. The investment performance of the affiliates continues to improve with most of their funds in the first or second
quartile of their peer group over one and three years. The financial performance remains on track with most of the affiliates at or slightly below their
financial targets as low absolute returns from the South African equity and global markets in Rand terms resulted in lower performance fees for those
products that have absolute return benchmarks.
Merchant Capital 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 from R15 million to R3 million.
Sources of income
The total normalised earnings of RMI's investee companies for the period under review are listed in the table below:
Six months ended Year ended
31 December 30 June
2016 2015 2016
R million Unaudited Unaudited % change Audited
Continuing operations
Discovery 2 184 2 124 3 4 312
MMI 1 598 1 679 (5) 3 206
OUTsurance 1 139 923 23 1 985
Other(1) (8) (12) 33 (11)
Discontinued operation
RMB Structured Insurance 3 15 (80) 8
(1) "Other" includes RMI Investment Managers, Truffle and AlphaCode.
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 six months ended 31 December 2016 from continuing and discontinued operations amounted
to R1.8 billion, an increase of 11% on the comparative period. The table below provides a breakdown of this number:
Six months ended Year ended
31 December 30 June
2016 2015 2016
R million Unaudited Unaudited % change Audited
Continuing operations 1 803 1 611 12 3 342
Discovery 546 533 2 1 079
MMI 404 420 (4) 805
OUTsurance 959 773 24 1 664
Other(1) (8) (12) 33 (11)
Funding and holding company costs (98) (103) 5 (195)
Discontinued operation
RMB Structured Insurance 2 12 (83) 6
NORMALISED EARNINGS 1 805 1 623 11 3 348
NORMALISED EARNINGS PER SHARE (CENTS) (CONTINUING
OPERATIONS) 121.3 108.3 12 225.0
NORMALISED EARNINGS PER SHARE (CENTS) (CONTINUING AND
DISCONTINUED OPERATIONS) 121.5 109.2 11 225.3
(1) "Other" includes RMI Investment Managers, Truffle and AlphaCode.
The funding and holding company costs include the funding and operational expenses incurred at the RMI corporate centre. This includes the investment
in AlphaCode.
Value of investments
During the 2016 calendar year, RMI's share price increased by 3%, compared to a 5% decrease in the JSE life insurance index and a 33% increase in the
JSE non-life insurance index. RMI has delivered a total annual compounded return to shareholders of 27.2% since its listing in March 2011.
The individual investment performances during the 2016 calendar year are outlined below:
- Discovery's share price decreased by 14%;
- MMI's share price increased by 7%, with a dividend yield of 6.5% (based on an assumed share price of R24); and
- on a "look-through" basis, based on share prices as at 31 December 2016, the value attributed to RMI's unlisted investments increased by 16%
to R33.3 billion. These unlisted investments include OUTsurance (84.1% held), RMB Structured Insurance (75.5% held), RMI Investment Managers
(100% held) and Merchant Capital (25.1% held).
The values of RMI's investments are summarised in the table below:
As at As at
31 December 30 June
Unaudited
R million 2016 2015 % change 2016
Market value of interest in:
- Discovery 18 543 21 531 (14) 19 838
- MMI 9 461 8 823 7 9 080
Market value of listed investments 28 004 30 354 (8) 28 918
Implied value of unlisted investments 33 253 28 616 16 33 779
Gross value of portfolio 61 257 58 970 4 62 697
Net liabilities of the holding company (2 127) (1 459) (46) (1 487)
RMI MARKET CAPITALISATION 59 130 57 511 3 61 210
RMI CLOSING SHARE PRICE (CENTS) 3 980 3 871 3 4 120
The movement in the net liabilities of the holding company was mainly due to the raising of additional debt to finance the acquisition of the investments
in Polar Star Management and Sesfikile Capital, the acquisition of an additional 18 million shares in OUTsurance and the extension of the OUTsurance and
MMI management incentive schemes.
Interim 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. However, given the increased activity and changes in RMI's investment
portfolio, RMI will dynamically assess its dividend policy.
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 interim dividend declared below.
The board resolved to declare an interim dividend of 53.0 cents (2015: 53.0 cents) per ordinary share. The dividend is covered 2.3 times (2015: 2.1 times)
by the normalised earnings of 121.5 cents (2015: 109.2 cents) per share.
Following the increased financial leverage (mainly due to the Hastings acquisition), RMI will incur significant additional funding costs on the preference
shares issued and loans incurred. Shareholders should expect a decrease in the final dividend to be declared in September 2017.
Shareholders are referred to the dividend declaration forming part of this announcement regarding the applicability of Dividend Withholding Tax to the
ordinary dividend.
King IV
RMI strives to deliver corporate governance of the highest standard. The King IV Report on Corporate Governance for South Africa 2016 (King IV) was
launched on 1 November 2016. In anticipation thereof, RMI completed an assessment of its practices against the principles of King IV to benchmark
practices against the latest available guidelines and trends. This assessment is available in RMI's 2016 annual integrated report at www.rmih.co.za.
EVENTS AFTER THE REPORTING PERIOD
Acquisition of a 29.9% stake in Hastings Group Holdings plc
On 21 February 2017, RMI announced that the requisite regulatory approvals had been received from the Financial Surveillance Department of the South
African Reserve Bank, the UK Financial Conduct Authority and the Gibraltar Financial Services Commission for the acquisition of a 29.9% stake in Hastings.
The effective date of the transaction was 1 March 2017 and the purchase price was a cash consideration of GBP487.3 million (248 pence per share).
RMI has also entered into a relationship agreement with Hastings in terms of which RMI will be able to nominate a director and observer to the board of
Hastings and to all standing committees of the Hastings board (other than the nominations committee) for as long as RMI holds a direct or indirect
interest of between 15% and 29.9% in the ordinary share capital of Hastings. The first such appointees are Herman Bosman, CEO of RMI, as the director
and Willem Roos, CEO of OUTsurance, as the observer.
Hastings was listed on the London Stock Exchange on 15 October 2015. It is a fast-growing agile digital general insurance provider operating principally in
the UK motor market. It provides private car and other forms of personal insurance cover. In recent years, it has achieved growth through strategic focus,
optimised digital distribution, superior data generation and utilisation, sophisticated risk selection and advanced fraud detection and claims
management. Hastings is led by a highly-regarded, experienced and entrepreneurial management team that drives a client-centric ethos and culture.
This acquisition is consistent with RMI's strategy that, in addition to its role as an active and value-adding shareholder in its existing portfolio companies,
RMI intends to optimise, diversify and modernise its investment portfolio through investments across a broad spectrum of scale and lifecycles of financial
services businesses. This acquisition meets RMI's objectives of diversifying geographically and into growing market segments, adding a significant
traditional financial services business alongside its existing portfolio in partnership with a high quality and entrepreneurial management team.
RMI funded this acquisition through debt (a combination of preference shares and loans) in terms of its domestic medium-term note and preference
share programme in its wholly-owned subsidiary, RMI Treasury Company Limited (TreasuryCo). RMI also redeemed its existing preference share and bridge
funding with the proceeds of new funding raised in TreasuryCo.
RMI is not eligible for Hastings' final dividend of 6.6 pence per share, which was announced on 2 March 2017.
Truffle Capital Proprietary Limited
RMI Investment Managers finalised its acquisition of a 25% equity stake in Truffle, an active equity and multi-asset boutique asset manager managing R22
billion of assets, for R60 million in February 2017.
STRATEGY AND OUTLOOK
Existing portfolio
South Africa is experiencing a tough macroeconomic environment, characterised by high inflation and weak growth, resulting in pressure on the
disposable income of consumers. Ratings agencies share the view that more needs to be done to improve South Africa's growth prospects. A downgrade
to sub-investment grade could result in higher interest payments, a weaker Rand, higher cost of living and subdued confidence, giving rise to higher
unemployment and lower investments. Against the background of an increasingly complex regulatory environment, local growth in new business volumes
and profit at RMI's existing investments are 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. Although the global economy appears to have shrugged off earlier concerns related to Brexit and the result of the US election through
further stimulus and a swift response by central banks, the world economy remains under pressure.
Against this demanding backdrop, RMI believes that its investee companies have appropriate strategies in place to continue producing resilient
operational performances.
Through its Vitality shared-value insurance model, organic growth strategy and sophisticated capital management philosophy, Discovery believes it could
create sustainable long-term growth. The Vitality shared-value insurance model has a profound impact on sales, lapses, behaviour change and improved
insurance risk. The organic growth strategy includes substantial investment in new initiatives, whilst the capital management philosophy applies rigorous
solvency assessments and standards according to a five-year capital plan.
MMI is focusing on client-centricity, growth and excellence. Client engagement solutions have been identified as being of specific strategic importance
to differentiate MMI's client value proposition. Continued investment in growth initiatives aims to enhance shareholder value over the longer term and an
increasing amount of this investment budget will be allocated to initiatives that broaden MMI's South African distribution footprint. The joint venture in
India is expected to be MMI's largest ongoing initiative outside of South Africa. The MMI board believes that the group has identified and is implementing
innovative strategies that will unlock value and generate the required return on capital for shareholders over time.
The weak South African economy has resulted in a significant decrease in vehicle sales, coupled with a highly competitive market. OUTsurance expects a
slow recovery for the South African economy and that the growth trajectory for its South African operations will remain unchanged for the foreseeable
future. Product innovation in Australia and New Zealand should contribute to future growth. A key strategic focus is to enable interaction with clients
through digital channels, as this will widen new business acquisition opportunities. OUTsurance is also looking forward to launching new products and
innovations over the next year whilst maintaining a strong focus on growing the established operations.
In September 2016, RMI Investment Managers finalised the acquisition of a 25% equity stake in Polar Star, a commodity arbitrage hedge fund managing
R4 billion of assets. In February 2017, the acquisition of a 25% equity stake in Truffle, an active equity and multi-asset boutique asset manager managing
R22 billion of assets, was completed. Royal Investment Managers completed its acquisition of a 25% equity stake in Sesfikile Capital in November 2016.
Sesfikile Capital is a listed property manager with assets under management of R15 billion.
RMI Investment Managers' team already had an impact on adding value to the strategy, operations, marketing and distribution of its affiliates. The affiliates
collectively managed R67 billion of client assets as at the end February 2017 (up from R65 billion as at 30 June 2016). Notable achievements across the
affiliates in 2016 include:
- Coreshares' listing of an S&P500 exchange-traded fund on the JSE, the first of its kind;
- the Perpetua MET Equity Fund ranking in the top 5% of all general equity funds in 2016, a difficult year for active equity managers;
- Polar Star's ZAR hedge fund ranked as the top performing hedge fund across all South African hedge funds over five years to the end
of December 2016 by HedgeNews Africa; and
- Truffle rated as the number two asset manager in South Africa by Morningstar (with more than R5 billion of unit trust assets under management)
as at 31 December 2016, with 100% of their funds rated 4 or 5 stars.
The focus at RMI Investment Managers is on ensuring the success of its existing affiliates through the various initiatives underway to diversify and grow their
client base, add efficiencies and best practice to their operational capabilities and back their strategic initiatives as a supportive shareholder. The team is
very pleased with the overall progress. While management will in 2017 focus more on the execution of these initiatives than on further acquisitions, the
team will continue to look for opportunities to add to its affiliates, particularly in the areas where they are underexposed. These include the managing of
global assets and unlisted assets (e.g. private equity), both of which are seen as attractive areas of the South African asset management industry.
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.
The sale of RMB Structured Insurance is expected to be concluded by mid-March 2017.
New investments
In addition to optimising its existing portfolio, RMI plans to diversify and modernise its investment portfolio through opportunities across a wide spectrum of
scale and life cycles of financial services businesses.
Traditional financial services
Hastings achieved excellent results for the year ended 31 December 2016 and increased some of the targets set during its initial public offering in
October 2015. RMI is excited about the diversification impact and growth prospects that this investment will have on its investment portfolio.
RMI has entered into exclusive negotiations with its 84%-owned subsidiary, OUTsurance, regarding the potential disposal by RMI of a 49% interest in Main
Street 1353 Proprietary Limited (Main Street 1353) to OUTsurance.
Main Street 1353, a wholly-owned subsidiary of RMI, holds the 29.9% interest in Hastings, which was acquired with effect from 1 March 2017. The proposed
transaction creates enhanced alignment between RMI and OUTsurance and optimises the investment in Hastings through cooperation and potential
synergies that may be realised between Hastings and OUTsurance.
OUTsurance and Hastings employ similar business models, albeit in different markets, specifically in relation to dynamic and analytical approaches to risk
underwriting and the use of modern direct distribution channels. OUTsurance and Hastings have identified areas of potential collaboration that may
include the sharing of best practices and learnings between the businesses, as appropriate.
The proposed transaction remains subject, inter alia, to the necessary terms being agreed, including key terms pertaining to pricing and to the requisite
regulatory approvals being obtained.
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.
Next-generation financial services
RMI continues to identify, partner and grow extraordinary entrepreneurs building disruptive scalable businesses in the financial services industry through its
AlphaCode initiative. Numerous early-stage investment opportunities have been assessed across the fintech value chain, including lending, payments,
advanced data analytics, block chain and investment solutions to identify businesses that have achieved some market traction and are poised for
growth. RMI has a strong pipeline of investment opportunities and will continue to invest in this space.
For and on behalf of the board
GT Ferreira HL Bosman
Chairman Chief executive
Sandton
13 March 2017
CASH DIVIDEND DECLARATION
Notice is hereby given that a gross interim dividend of 53.0 cents per ordinary share payable out of income reserves was declared on 13 March 2017 in
respect of the six months ended 31 December 2016.
The dividend will be subject to Dividend Withholding Tax at a rate of 20%, which will result in a net dividend of 42.4 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.
Shareholders' attention is drawn to the following important dates:
- Last day to trade in order to participate in this dividend Tuesday, 28 March 2017
- Shares commence trading ex-dividend on Wednesday, 29 March 2017
- The record date for the dividend payment will be Friday, 31 March 2017
- Dividend payment date Monday, 3 April 2017
No dematerialisation or rematerialisation of share certificates may be done between Wednesday, 29 March 2017 and Friday, 31 March 2017 (both days
inclusive).
By order of the board
J S Human
Company secretary
Sandton
13 March 2017
REVIEW OF INVESTMENT PERFORMANCE
A summary of the financial and operational performance of the main contributors to RMI's group normalised earnings is set out below:
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 financial highlights include:
- New business, excluding new closed schemes, increased by 15% to R8.2 billion;
- Normalised profit from operations increased by 13% to R3.4 billion;
- Normalised earnings increased by 3% to R2.2 billion;
- Gross inflows under management increased by 12% to R55.2 billion;
- Embedded value decreased by 6% to R53.3 billion; and
- The interim dividend increased by 3% to 88.0 cents per share.
RMI included R546 million of Discovery's earnings in its normalised earnings (2015: R533 million).
For a detailed review of Discovery's performance, RMI's shareholders are referred to www.discovery.co.za.
MMI
MMI is a South African financial services group that provides life insurance, employee benefits, investment 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 period under review is summarised below:
- The new business present value of premiums increased by 2% to R21.3 billion and the new business annualised premium equivalent increased by 4% to
R2.9 billion;
- The value of new business decreased by 3% to R292 million, with the new business margin remaining at 1.4%.
- The embedded value amounted to R42.5 billion (2 648 cents per share), reflecting an annualised return on embedded value of 4.5%;
- Diluted normalised earnings decreased by 5% to R1.6 billion, mainly as a result of lower morbidity profits, lower health administration revenue and the
impact of weak investment markets on asset-based fee income;
- Diluted earnings and headline earnings decreased by 33% and 29% respectively due to the strengthening Rand negatively affecting investment returns
on shareholder funds and the impact of fair value movements on MMI shares held in policyholder funds;
- High group disability claims, largely linked to the current unfavourable economic conditions, negatively impacted on earnings growth;
- MMI achieved total expense savings of R63 million in the six months under review, with a reduction in annual expenses of R750 million targeted for 2019;
and
- The interim dividend remained in line with the comparative period at 65.0 cents per share.
A capital buffer of R2.9 billion was recorded at 31 December 2016, after allowing for economic capital requirements, strategic growth initiatives and the
interim dividend.
RMI included R404 million of MMI's earnings in its normalised earnings (2015: R420 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.
The OUTsurance group delivered an excellent financial performance for the period under review:
- Group normalised earnings increased by 23% to R1 139 million, driven mainly by a significant improvement in the cost-to-income ratio across the group,
but in particular at Youi due to scale benefits and cost efficiencies;
- Net earned premiums grew by 10% to R7 billion, of which the Australasian operations contributed 46%;
- The claims ratio increased from 52.9% to 53.9%;
- The cost-to-income ratio decreased from 26.9% to 25.0%; and
- The interim dividend increased by 6% to 17.5 cents per share.
New policy inceptions for the OUTsurance group, measured in terms of annualised premium, decreased by 25% from the comparative six months, a period
which reflected a historic high. In the South African market, the ongoing difficult economic climate and competitive conditions continued to suppress
volume growth. In Australia, the decrease in new policy inceptions is primarily associated with a material increase in price competition over the last year
as claims inflation outstripped premium inflation. This diluted Youi's competitive position which is anchored by a philosophy of pricing discipline. Negative
media reports on the sales processes in both Australia and New Zealand impacted on consumer confidence in the Youi brand and resulted in a slower
growth rate, particularly in New Zealand. The necessary changes have been implemented to meet the high expectations of Youi's clients in Australia and
New Zealand.
OUTsurance's South African short-term operations increased net earned premiums by 5%. Business OUTsurance delivered strong net earned premium
growth of 10%, but new business volumes in the personal lines segment have been under pressure. The claims ratio decreased from 51.5% to 50.6% due to
reduced new business strain, resulting from slower growth and continued to track below the long-term target of 55%. The cost-to-income ratio improved
from 18.4% to 17.8% as a result of below inflationary growth in the cost base.
OUTsurance Life recorded normalised earnings of R35 million, compared to R24 million in the comparative period. Earnings growth was driven by a 13%
increase in net earned premiums to R200 million, higher investment income and reduced operating expenditure. The embedded value increased by 15%
to R766 million.
Youi Australia generated normalised earnings of R270 million for the six months under review, compared to R201 million in the comparative period. The
claims ratio increased from 58.4% to 59.2% due to higher natural peril claims. The cost-to-income ratio reduced from 32.9% to 30.1%, resulting from cost
efficiencies and scale benefits.
Youi New Zealand halved its loss to R35 million, largely due to a 65% increase in net earned premiums and a reduction in the claims ratio from
77.0% to 60.7%.
Normalised earnings at OUTsurance Namibia increased from R13 million to R17 million on the back of 11% growth in net earned premiums and a
significant improvement in the cost-to-income ratio.
The OUTsurance group is well prepared to comply with the new prudential standards of the Solvency Assessment and Management regulatory regime,
which is expected to become effective on 1 July 2017.
RMI included R959 million of OUTsurance's earnings in its normalised earnings (2015: R773 million).
For a detailed review of OUTsurance's performance, RMI's shareholders are referred to www.outsurance.co.za.
FINANCIAL REVIEW
Basis of preparation
These summarised unaudited financial results for the six months ended 31 December 2016 have been prepared in accordance with:
- International Financial Reporting Standards (IFRS), including IAS 34: Interim financial reporting;
- the requirements of the Companies 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 period, 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 period 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 announcement is not audited. The forward-looking information in this announcement is not an earnings forecast and has not been reviewed and
reported on by the company'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 broad-based black economic empowerment (BBBEE) transactions entered into; and
- "deemed" treasury shares held by policyholders and mutual funds managed by them.
As at 31 December 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:
31 December 31 December
2016 2015
Unaudited Effective Actual Effective Actual
Continuing operations
Discovery 25.1% 25.0% 25.1% 25.0%
MMI 25.7% 25.5% 25.8% 25.5%
OUTsurance 84.9% 84.1% 84.2% 83.4%
RMI Investment Managers 100.0% 100.0% 100.0% 100.0%
Merchant Capital 25.1% 25.1% 25.1% 25.1%
Discontinued operation
RMB Structured Insurance 78.1% 75.5% 78.1% 75.5%
Summarised consolidated income statement
Six months ended
31 December
Year ended
Restated 30 June
2016 2015 2016
R million Unaudited Unaudited % change Audited
Continuing operations
Earned premiums net of reinsurance 7 048 6 405 10 13 428
Fee and commission income 65 50 30 110
Investment income 331 278 19 579
Net fair value losses on financial assets (40) (110) (64) (39)
Income 7 404 6 623 12 14 078
Net claims paid (3 580) (3 247) 10 (6 888)
Fair value adjustment to investment contracts and insurance contract
provisions (221) (143) 55 (414)
Fair value adjustment to financial liabilities (88) (100) (12) (204)
Acquisition, marketing and administration expenses (1 904) (1 828) 4 (3 768)
Profit before finance costs, share of after-tax results of associates and
taxation 1 611 1 305 23 2 804
Net finance costs (84) (67) 25 (136)
Share of after-tax results of associates 770 881 (13) 1 524
Profit before taxation 2 297 2 119 8 4 192
Taxation (496) (428) 16 (893)
Profit for the period from continuing operations 1 801 1 691 7 3 299
Profit for the period from discontinued operation 1 17 (94) 8
PROFIT FOR THE PERIOD 1 802 1 708 6 3 307
Attributable to:
Equity holders of RMI 1 619 1 550 4 2 977
Non-controlling interests 183 158 16 330
PROFIT FOR THE PERIOD 1 802 1 708 6 3 307
Computation of headline earnings
Six months ended Year ended
31 December 30 June
2016 2015 2016
R million Unaudited Unaudited % change Audited
Earnings attributable to equity holders 1 619 1 550 4 2 977
Adjustment for:
Profit on sale of subsidiary (18) (29) (29)
Intangible asset impairments 16 - 37
Loss/(profit) on dilution of shareholding 10 (17) (26)
Realised profit on sale of available-for-sale financial assets (1) (1) (1)
Profit on sale of property and equipment (1) (1) (2)
Release of foreign currency translation reserve - - (23)
Impairment of available-for-sale financial assets - - 3
Profit from business combination - - (2)
HEADLINE EARNINGS ATTRIBUTABLE TO EQUITY HOLDERS 1 625 1 502 8 2 934
Computation of normalised earnings
Six months ended Year ended
31 December 30 June
2016 2015 2016
R million Unaudited Unaudited % change Audited
Headline earnings attributable to equity holders 1 625 1 502 8 2 934
RMI's share of normalised adjustments made by investee companies: 188 146 438
Amortisation of intangible assets relating to business combinations 97 116 209
Basis and other changes and investment variances 47 17 131
Rebranding and business acquisition expenses 21 50 91
Non-recurring and restructuring expenses 20 15 39
Net realised and fair value losses/(gains) on shareholders' assets 3 (67) (53)
Additional 54.99% share of DiscoveryCard profits - 15 22
Accrual of dividends payable to preference shareholders - - (1)
Group treasury shares (8) (25) (24)
NORMALISED EARNINGS ATTRIBUTABLE TO EQUITY HOLDERS 1 805 1 623 11 3 348
Computation of earnings per share
Six months ended Year ended
31 December 30 June
2016 2015 2016
R million Unaudited Unaudited % change Audited
Earnings attributable to equity holders 1 619 1 550 4 2 977
Headline earnings attributable to equity holders 1 625 1 502 8 2 934
Normalised earnings attributable to equity holders 1 805 1 623 11 3 348
Number of shares in issue (millions) 1 486 1 486 - 1 486
Weighted average number of shares in issue (millions) 1 482 1 482 - 1 482
Continuing operations
Earnings per share (cents) 109.0 103.7 5 200.5
Diluted earnings per share (cents) 107.3 103.2 4 197.1
Headline earnings per share (cents) 109.4 100.5 9 197.6
Diluted headline earnings per share (cents) 107.7 100.1 8 194.3
Normalised earnings per share (cents) 121.3 108.3 12 225.0
Diluted normalised earnings per share (cents) 119.6 108.1 11 221.6
Continuing and discontinued operations
Earnings per share (cents) 109.2 104.6 4 200.9
Diluted earnings per share (cents) 107.5 104.1 3 197.5
Headline earnings per share (cents) 109.6 101.4 8 198.0
Diluted headline earnings per share (cents) 107.9 101.0 7 194.7
Normalised earnings per share (cents) 121.5 109.2 11 225.3
Diluted normalised earnings per share (cents) 119.8 108.9 10 222.0
Dividend per share (cents)
Interim dividend 53.0 53.0 - 53.0
Final dividend - - - 65.0
TOTAL DIVIDEND PER SHARE (CENTS) 53.0 53.0 - 118.0
Summarised consolidated statement of comprehensive income
Six months ended Year ended
31 December 30 June
2016 2015 2016
R million Unaudited Unaudited % change Audited
Profit for the period 1 802 1 708 6 3 307
Other comprehensive income for the period
Items that may subsequently be reclassified to income
Currency translation differences (464) 428 >(100) 364
Fair value movement on available-for-sale financial assets (27) (27) - 1
Deferred taxation relating to fair value movement on available-for-
sale financial assets 6 5 20 (4)
Share of other comprehensive income of associates (487) 592 >(100) 1
Items that may subsequently be reclassified to income, after
taxation (491) 583 >(100) (26)
Items that will not be reclassified to income, after taxation 4 9 (56) 27
Other comprehensive income for the period (972) 998 >(100) 362
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 830 2 706 (69) 3 669
Total comprehensive income attributable to:
Equity holders of RMI 706 2 483 (72) 3 264
Non-controlling interests 124 223 (44) 405
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 830 2 706 (69) 3 669
Summarised consolidated statement of financial position
As at
31 December
As at
Restated 30 June
2016 2015 2016
R million Unaudited Unaudited Audited
ASSETS
Property and equipment 730 726 679
Goodwill and other intangible assets 78 42 113
Investments in associates 14 971 15 287 14 888
Financial assets 10 090 12 797 10 679
Loans and receivables including insurance receivables 2 645 3 051 2 774
Deferred acquisition cost 348 422 365
Reinsurance contracts 237 614 257
Taxation 15 5 -
Deferred taxation 109 135 204
Assets of discontinued operation 6 663 - 6 100
Cash and cash equivalents 877 2 266 611
TOTAL ASSETS 36 763 35 345 36 670
EQUITY
Share capital and premium 13 556 13 539 13 526
Reserves 4 646 5 108 5 030
Capital and reserves attributable to equity holders of the company 18 202 18 647 18 556
Non-controlling interests 1 186 1 119 1 170
TOTAL EQUITY 19 388 19 766 19 726
LIABILITIES
Insurance contracts 6 589 8 436 7 068
Share-based payment liability 132 170 253
Financial liabilities 3 301 5 250 2 514
Payables and provisions 1 120 1 597 1 238
Deferred taxation - 71 -
Taxation 63 55 245
Liabilities of discontinued operation 6 170 - 5 626
TOTAL LIABILITIES 17 375 15 579 16 944
TOTAL EQUITY AND LIABILITIES 36 763 35 345 36 670
Statement of changes in equity
Transactions
Share Equity with non- Non-
Unaudited capital and accounted controlling Other Retained controlling Total
R million premium reserves interests reserves earnings interests equity
Balance as at 1 July 2015 13 526 3 368 (2 017) 182 2 046 978 18 083
Income statement - - - - 1 550 158 1 708
Other comprehensive income - 592 - 341 - 65 998
Dividends paid - - - - (951) (99) (1 050)
Income of associates retained - 367 - - (367) - -
Movement in treasury shares 13 5 - - - - 18
Transactions with non-controlling
interests - (19) 7 - - 4 (8)
Issue of share capital to non-controlling
interests by subsidiaries - - - - - 12 12
Share-based payment reserve - - - 6 (2) 1 5
Balance as at 31 December 2015 13 539 4 313 (2 010) 529 2 276 1 119 19 766
Balance as at 1 July 2016 13 526 3 939 (2 097) 493 2 695 1 170 19 726
Income statement - - - - 1 619 183 1 802
Other comprehensive income - (487) - (426) - (59) (972)
Dividends paid - - - - (966) (108) (1 074)
Income of associates retained - 243 - - (243) - -
BBBEE cost - 1 - - - - 1
Movement in treasury shares 30 2 - - 3 - 35
Transactions with non-controlling
interests - - (98) - 2 (16) (112)
Issue of share capital to non-controlling
interests by subsidiaries - - - - - 23 23
Share-based payment reserve - 2 - 5 (41) (7) (41)
BALANCE AS AT 31 DECEMBER 2016 13 556 3 700 (2 195) 72 3 069 1 186 19 388
Summarised consolidated statement of cash flows
Six months ended
31 December
Year ended
Restated 30 June
2016 2015 2016
R million Unaudited Unaudited Audited
Cash flows from operating activities - continuing operations 1 368 2 122 3 670
Cash flows from operating activities - discontinued operation (349) 52 213
Cash flows from investment activities - continuing operations (48) (1 625) (3 072)
Cash flows from investment activities - discontinued operation (244) 135 (133)
Cash flows from financing activities - continuing operations (533) (1 225) (1 566)
Cash flows from financing activities - discontinued operation 495 78 (72)
Net increase/(decrease) in cash and cash equivalents 689 (463) (960)
Unrealised foreign currency translation adjustments - continuing operations (521) 587 675
Unrealised foreign currency translation adjustments - discontinued operation - - 1
Cash and cash equivalents at the beginning of the period 611 2 142 2 142
Cash and cash equivalents transferred to assets of discontinued operation 98 - (1 247)
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 877 2 266 611
Segment report
The segmental analysis is based on the management accounts prepared for the group.
Unaudited Discontinued RMI
R million Discovery MMI OUTsurance operation Other(1) group
Six months ended 31 December 2016
Operating profit/(loss) - - 1 648 - (37) 1 611
Finance costs - - - - (84) (84)
Share of after-tax results of associates 500 263 8 - (1) 770
Profit/(loss) before taxation 500 263 1 656 - (122) 2 297
Taxation - - (502) - 6 (496)
Result from continuing operations 500 263 1 154 - (116) 1 801
Discontinued operation - - - 1 - 1
PROFIT/(LOSS) FOR THE PERIOD 500 263 1 154 1 (116) 1 802
NORMALISED EARNINGS 546 404 1 139 3 (287) 1 805
Assets - - 13 817 6 663 1 234 21 714
Associates 8 437 6 081 38 - 415 14 971
Intangible assets - - 73 - 5 78
TOTAL ASSETS 8 437 6 081 13 928 6 663 1 654 36 763
TOTAL LIABILITIES - - 7 864 6 170 3 341 17 375
Six months ended 31 December 2015 - Restated
Operating profit/(loss) - - 1 352 - (47) 1 305
Finance costs - - - - (67) (67)
Share of after-tax results of associates 476 397 6 - 2 881
Profit/(loss) before taxation 476 397 1 358 - (112) 2 119
Taxation - - (425) - (3) (428)
Result from continuing operations 476 397 933 - (115) 1 691
Discontinued operation - - - 17 - 17
Profit/(loss) for the period 476 397 933 17 (115) 1 708
Normalised earnings 533 420 923 15 (268) 1 623
Assets - - 13 834 5 576 606 20 016
Associates 8 701 6 423 30 57 76 15 287
Intangible assets - - 39 1 2 42
TOTAL ASSETS 8 701 6 423 13 903 5 634 684 35 345
TOTAL LIABILITIES - - 8 404 5 136 2 039 15 579
(1) "Other" includes RMI, RMI Investment Managers, Truffle, AlphaCode and consolidation entries.
Geographic segments
Unaudited South United
R million Africa Australia New Zealand Kingdom Total
Six months ended 31 December 2016
Profit/(loss) before taxation 1 163 399 (35) - 1 527
Share of after-tax results of associates 722 - - 48 770
Profit/(loss) before taxation 1 885 399 (35) 48 2 297
Taxation (367) (129) - - (496)
Result from continuing operations 1 518 270 (35) 48 1 801
Discontinued operation 1 - - - 1
PROFIT/(LOSS) FOR THE PERIOD 1 519 270 (35) 48 1 802
TOTAL ASSETS 28 558 7 579 626 - 36 763
TOTAL LIABILITIES 11 577 5 471 327 - 17 375
Six months ended 31 December 2015 - Restated
Profit/(loss) before taxation 1 016 292 (70) - 1 238
Share of after-tax results of associates 864 - - 17 881
Profit/(loss) before taxation 1 880 292 (70) 17 2 119
Taxation (337) (91) - - (428)
Result from continuing operations 1 543 201 (70) 17 1 691
Discontinued operation 17 - - - 17
PROFIT/(LOSS) FOR THE PERIOD 1 560 201 (70) 17 1 708
TOTAL ASSETS 26 540 8 038 767 - 35 345
TOTAL LIABILITIES 9 099 6 119 361 - 15 579
Financial instruments measured at fair value
The group's activities expose it to a variety of financial risks. This interim results announcement does not include all financial risk management information
and disclosures required in the annual financial statements and should therefore be read in conjunction with the group's annual integrated report for the
year ended 30 June 2016.
The table below analyses financial instruments carried at fair value by level in the fair value hierarchy. The different levels are based on the extent that
quoted prices are used in the calculation of the fair value of the financial instruments. These levels are defined as follows:
Level 1 - fair value is based on quoted market prices (unadjusted) in active markets for identical instruments as measured on the reporting date.
Level 2 - fair value is determined through valuation techniques based on observable market inputs. These valuation techniques maximise the use of
observable market data where it is available and rely as little as possible on entity-specific estimates.
Level 3 - fair value is determined through valuation techniques which use significant unobservable inputs.
Total
Unaudited carrying
R million Level 1 Level 2 Level 3 amount
As at 31 December 2016
Financial assets
Equity securities
- available-for-sale 935 - - 935
- at fair value through profit or loss 141 - - 141
Debt securities
- available-for-sale - 505 - 505
- at fair value through profit or loss - 7 687 807 8 494
Derivative asset - 15 - 15
TOTAL FINANCIAL ASSETS RECOGNISED AT FAIR VALUE 1 076 8 207 807 10 090
Financial liabilities
Financial liabilities at fair value through profit or loss - - 127 127
Derivative liability - 209 - 209
TOTAL FINANCIAL LIABILITIES RECOGNISED AT FAIR VALUE - 209 127 336
Six months ended
31 December
Unaudited
R million 2016 2015
Reconciliation of movement in level 3 assets
Balance at the beginning of the period 643 386
Additions in the current period 281 -
Amount received in the current period (106) -
Investment income accrued 28 16
Dividends received from the OUTsurance Investment Trust (39) (33)
BALANCE AT THE END OF THE PERIOD 807 369
Reconciliation of movement in level 3 liabilities
Balance at the beginning of the period 144 107
Preference dividend accrued 88 100
Preference dividend paid (105) (107)
BALANCE AT THE END OF THE PERIOD 127 100
Total
Unaudited carrying
R million Level 1 Level 2 Level 3 amount
As at 31 December 2015 - Restated
Financial assets
Equity securities
- available-for-sale 723 - - 723
- at fair value through profit or loss 2 072 26 - 2 098
Debt securities
- available-for-sale - 651 - 651
- at fair value through profit or loss 943 7 796 369 9 108
Derivative asset - 24 - 24
TOTAL FINANCIAL ASSETS RECOGNISED AT FAIR VALUE 3 738 8 497 369 12 604
Financial liabilities
Convertible debentures - 15 - 15
Financial liabilities at fair value through profit or loss - 29 100 129
Derivative liability - 14 - 14
Investment contracts - 1 490 - 1 490
TOTAL FINANCIAL LIABILITIES RECOGNISED AT FAIR VALUE - 1 548 100 1 648
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
Six months ended
31 December
Unaudited Original Restated Re-
R million 2015 2015 classification
Continuing operations
Earned premiums net of reinsurance 6 892 6 405 (487)
Fee and other income 171 50 (121)
Investment income 320 278 (42)
Net fair value gains/(losses) on financial assets 27 (110) (137)
Income 7 410 6 623 (787)
Net claims paid (3 468) (3 247) 221
Fair value adjustment to investment contracts and insurance contract
provisions (278) (143) 135
Fair value adjustment to financial liabilities (100) (100) -
Acquisition, marketing and administration expenses (2 202) (1 828) 374
Profit before finance costs, share of after-tax results of associates and
taxation 1 362 1 305 (57)
Net finance costs (102) (67) 35
Share of after-tax results of associates 887 881 (6)
Profit before taxation 2 147 2 119 (28)
Taxation (439) (428) 11
Profit for the period from continuing operations 1 708 1 691 (17)
Discontinued operation
Profit for the period from discontinued operation - 17 17
PROFIT FOR THE PERIOD 1 708 1 708 -
Attributable to:
Equity holders of RMI 1 550 1 550 -
Non-controlling interests 158 158 -
PROFIT FOR THE PERIOD 1 708 1 708 -
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
As at 31 As at 31
Unaudited December December Re-
R million 2015 2015 classification
Financial assets 8 101 12 797 4 696
Cash and cash equivalents 6 962 2 266 (4 696)
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
Six months ended
31 December
Unaudited Original Restated Re-
R million 2015 2015 classification
Cash flows from operating activities - Continuing operations 2 174 2 122 (52)
Cash flows from operating activities - Discontinued operation - 52 52
Cash flows from investment activities - Continuing operations (285) (1 625) (1 340)
Cash flows from investment activities - Discontinued operation - 135 135
Cash flows from financing activities - Continuing operations (1 147) (1 225) (78)
Cash flows from financing activities - Discontinued operation - 78 78
Net increase/(decrease) in cash and cash equivalents 742 (463) (1 205)
Unrealised foreign currency translation adjustment - Continuing
operations 587 587 -
Cash and cash equivalents at the beginning of the period 5 633 2 142 (3 491)
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 6 962 2 266 (4 696)
ADMINISTRATION
Directors
GT Ferreira (chairman), JJ Durand (deputy chairman), HL Bosman (CEO & FD), JP Burger, P Cooper, (Ms) SEN De Bruyn Sebotsa, LL Dippenaar, JW Dreyer,
PM Goss, PK Harris, P Lagerstrom, MM Morobe, O Phetwe and KC Shubane.
Alternates
F Knoetze and (Ms) A Kekana
Mr Durand was elected as deputy chairman of the board of directors effective from 25 November 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: Rosebank Towers, 15 Biermann Avenue, Rosebank
Postal address: PO Box 61051, Marshalltown, 2107
Telephone: +27 11 370 5000
Telefax: +27 11 688 5221
Date: 13/03/2017 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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