Wrap Text
Summarised audited results announcement and dividend declaration for the year ended 30 June 2017
Rand Merchant Investment Holdings Limited (RMI)
Registration number: 2010/005770/06
JSE ordinary share code: RMI
ISIN code: ZAE000210688
SUMMARISED AUDITED RESULTS ANNOUNCEMENT AND DIVIDEND DECLARATION FOR THE YEAR ENDED 30 JUNE 2017
VALUE CREATED for the year ended 30 June 2017
Compound shareholders' return since listing in 2011: 27.1% per annum
Normalised earnings (from continuing operations): R3 927 million (2016: R3 342 million) +18% (+17% to 263.6 cents per share)
Headline earnings (from continuing operations): R3 480 million (2016: R2 927 million) +19% (+19% to 234.2 cents per share)
Dividend: 118 cents per share: (2016: 118 cents per share) unchanged
ABOUT RMI
Rand Merchant Investment Holdings Limited (RMI) is a JSE-listed investment holding company with an investment team of experienced, alternative-
thinking, financial services specialists who actively partner smart and industry-changing management teams by being a shareholder of influence.
Value creation
RMI's primary objective is to create value for its shareholders by optimising, diversifying and modernising its investment portfolio.
Investment portfolio
As at 30 June 2017, RMI's investments included Discovery Limited (Discovery), MMI Holdings Limited (MMI), OUTsurance Holdings Limited (OUTsurance),
Hastings Group Holdings plc (Hastings), RMI Investment Managers Group Proprietary Limited (RMI Investment Managers), AlphaCode Proprietary Limited
(AlphaCode) and its first two next-generation investments, Merchant Capital Advisory Services Proprietary Limited (Merchant Capital) and Entersekt
Proprietary Limited (Entersekt). Entersekt, a mobile banking security technology company, was acquired on 30 June 2017 and therefore had no impact
on the group's results for the year under review.
The sale of RMI's investment in RMB-SI Investments Proprietary Limited (RMB Structured Insurance) was completed in March 2017. The results of RMB
Structured Insurance, excluding Truffle Capital Proprietary Limited (Truffle), are disclosed as a discontinued operation in the RMI group results for the nine
months while still under RMI's control. RMB Structured Insurance's stake in Truffle was sold to RMI Investment Managers in February 2017.
Effective 1 March 2017, RMI acquired a 29.9% stake in UK-listed short-term insurer Hastings. RMI accounts for its stake in Hastings as an investment in
associate from the effective date. RMI funded the acquisition through a combination of redeemable preference shares and a GBP-denominated loan in
terms of its domestic medium-term note and preference share programme. The stake in Hastings was bought in a wholly-owned subsidiary of RMI, Main
Street 1353 Proprietary Limited (Main Street 1353). In June 2017, RMI sold 49% of its shareholding in Main Street 1353 to OUTsurance in exchange for
additional shares in OUTsurance, as well as cash.
The portfolio is intended to evolve over time to increase in size and diversity and ensure a balance between growth- and return-focused investments.
Investment policy
RMI's aim is to be a value-adding, active enabler of leadership and innovation in financial services.
RMI invests in businesses that can deliver superior earnings and dividend growth over the long term. This involves the acquisition of meaningful interests
in companies to have significant influence. Sound management is an important investment criterion. The group forges strategic alliances on a partnership
basis and endeavour to add value, where possible. The purpose is to ensure superior returns to shareholders by way of sustainable dividends and capital
growth.
The financial services landscape is a dynamic environment and whilst it is important to enhance the current market positions and business models of the
underlying investments and evaluate traditional acquisition opportunities, it is equally important to be vigilant around the emergence of disruptive
businesses and concepts and partner with industry-changing entrepreneurs. In line with this, RMI has a start-up business, AlphaCode, which focuses on
growing next-generation businesses. On 30 June 2017, the second investment by AlphaCode was made through a 25.1% investment in Entersekt.
Dividend policy
RMI's dividend policy is to pay out all dividends received from underlying investments after servicing any funding commitments at holding company level
and considering its debt capacity and investment pipeline. The policy seeks to achieve a sound balance between providing an attractive yield to
shareholders and achieving sustained growth. Given RMI's active investment strategy, this policy will be assessed dynamically.
Listed investments
Discovery
Discovery is a pioneering market leader with uniquely-positioned businesses in the healthcare, long- and short-term insurance, wellness and financial
services industries. Founded in 1992 as a specialist health insurer, Discovery operates in South Africa, the UK, China, Singapore, Australia, Japan, Europe
and the USA through various business lines. It has an innovative business model that incentivises people to live a healthier lifestyle and offers them
protection products.
MMI
MMI is an insurance-based financial services group listed on the JSE Limited. Created in December 2010 from the merger of Metropolitan and
Momentum, MMI conducts business in South Africa, various other African countries and selected international countries. MMI's core businesses are
short- and long-term insurance, asset management, savings, healthcare administration, health risk management, employee benefits, property
management and rewards programmes.
Hastings
Hastings is a UK-listed short-term insurer. It commenced operations in 1997 and listed on the London Stock Exchange in 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
(home, van and bike). Hastings has a 7% market share of the UK private car insurance market and has 2.5 million live client policies. The group's success
in capturing market share has been combined with consistently strong underwriting performance and growing retail profitability. The group is
headquartered in Bexhill-on-Sea with offices in Newmarket, Leicester and Gibraltar.
Unlisted investments
OUTsurance
OUTsurance provides short- and long-term insurance products in South Africa and short-term insurance products in Australia, New Zealand and Namibia.
It has a client-centric ethos of providing value for money insurance solutions backed by awesome client service.
RMI Investment Managers
RMI Investment Managers' affiliate model enables the company to access a differentiated part of the investment management industry by investing in
and partnering with independent investment managers, as well as specialist investment teams. RMI Investment Managers has taken equity stakes of up
to 30% in boutique investment managers and will continue to search for opportunities that will complement RMI's existing suite of managers, as the
company builds its share of the South African investment management market.
AlphaCode
RMI's next-generation business platform continues to show progress on its strategy of identifying, partnering and growing extraordinary next-generation
financial services entrepreneurs. AlphaCode has members operating across the financial services spectrum, with many using leading-edge technology to
transform the delivery of financial services. AlphaCode's first investment, Merchant Capital, is a provider of alternative sources of working capital for small
and medium enterprises in South Africa. Its second investment, Entersekt, has developed world-class mobile banking security technology. Post year-end,
it made two additional investments in Prodigy, an international fintech platform that offers loans to postgraduate students, and Luno, a company that
offers clients a wallet to buy, store and use Bitcoin and operates a Bitcoin exchange platform.
PERFORMANCE AND OUTLOOK
External environment
RMI's external environment during the year was characterised by the following trends:
- Low GDP growth in South Africa;
- Sharp currency fluctuations;
- Political uncertainty;
- Changing consumer behaviour and expectations; and
- Rapid technological change towards digital and smart technology.
In the year under review, the South African economy suffered its first recession since the 2008 global financial crisis. Current macroeconomic conditions
suggest that there will be a continued lack of growth in the country. The ongoing political and policy uncertainty is expected to continue at least until the
ANC's December electoral conference. Inflation in South Africa is likely to remain towards the top end of the target band. The Rand is also expected to
remain weak against the Dollar, especially after the sovereign downgrades and fears that the independence of the central bank could potentially be
undermined by the government's efforts to revive the ailing economy.
Overview of results
In this difficult economic and business environment, the RMI group delivered a pleasing 18% increase in normalised earnings from continuing operations
for the year ended 30 June 2017.
Discovery's 8% increase in normalised earnings was driven by the performance of its three established South African businesses; Discovery Health (up
11%), Discovery Life (up 10%) and Discovery Invest (up 12%), as well as VitalityHealth in the UK (up 52%). The emerging businesses made significant
progress towards profitability. Discovery weathered headwinds in the UK as a result of low interest rates and unfavourable exchange rate movements.
Earnings growth was also strained by increased finance charges which 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 maintained its normalised earnings of R3.2 billion from the prior year. Growth in normalised earnings was strained by the impact of weak investment
market returns over the past two years on asset-based fees and the negative underwriting experience on group disability business. MMI's expense
optimisation project targets annual expense savings of R750 million by the 2019 financial year, with actual savings to date amounting to R323 million.
The embedded value amounted to R42.5 billion (or R26.51 per share) as at 30 June 2017, reflecting a 4.7% return for the year.
Normalised earnings from OUTsurance increased by 25% to R2.5 billion, mainly due to favourable claims experience across the group. The cost-to-
income ratio improved from 26.2% to 25.8%, primarily attributable to the efficiency gains achieved by Youi and OUTsurance Life. There was also a
significant reduction in the start-up loss at Youi New Zealand due to the improvement in the claims and cost-to-income ratios. The OUTsurance group
achieved a return on equity of 33.7% and a claims ratio of 51.3%.
RMI included normalised earnings of R246 million from Hastings for the four months from 1 March 2017 to 30 June 2017. Hastings announced its interim
results for the six months ended 30 June 2017 on 9 August 2017. Gross written premiums increased by 28% and normalised earnings by 22% for the
six-month period. Hastings recorded a sustained increase in clients, with live client policies increasing by 15% to 2.5 million and market share growing to
7% of the UK private car insurance market. Hastings declared an interim dividend of 4.1 pence per share, an increase of 24% on the interim dividend in
the prior year of 3.3 pence per share.
RMI Investment Managers completed its first two years of operations with the financial performance slightly behind expectations. This was primarily due
to the impact of weak markets on the profitability of its underlying affiliates. During the year under review, two new affiliates were added to the group,
namely Truffle and Polar Star, together adding R26 billion of assets under management across listed equities, bonds and commodities. The total assets
under management across the nine affiliates of the group totalled R75 billion as at 30 June 2017. Royal Investment Managers, established almost a year
ago as a joint venture with Royal Bafokeng Holdings, acquired its first affiliate, Sesfikile Capital, a listed property asset manager with assets under
management of R18.1 billion.
Merchant Capital continued its strong operational performance, as well as investing in its core operations and product development.
RMB Structured Insurance was sold in March 2017 and recorded a loss of R38 million in the nine months to March 2017.
The funding and holding company costs amounted to R389 million, compared to R195 million in the 2016 financial year. The increase is as a result of the
net liabilities at holding company level increasing from R1 487 million to R9 789 million following the acquisition of the 29.9% stake in Hastings. The
funding rates on the debt are as follows:
- R1 130 million preference shares (three years and one day) - 66% of prime but fixed at 7.119% for one year
- R1 130 million preference shares (five years) - 68% of prime but fixed at 7.343% for one year
- R5 650 million preference shares (three years and one day) - 66% of prime
- R1 800 million preference shares (five years) - 68% of prime
- R2 551 million GBP-denominated loan (£150 million) in Main Street 1353, the holding company of the group's investment in Hastings - 50% is a
three-year loan at LIBOR (LIBOR fixed at 0.77%) plus 1.5% and the other 50% is a five-year loan at LIBOR (LIBOR fixed at 0.98%) plus 1.95%.
Sources of normalised earnings
RMI regards normalised earnings as the appropriate basis to evaluate business performance as it eliminates the impact of non-recurring items and
accounting anomalies.
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
R million 2017 2016 % change
Continuing operations
Discovery 4 656 4 312 8
MMI 3 208 3 206 -
OUTsurance (excluding Hastings) 2 463 1 985 24
- OUTsurance (including Hastings) 2 476 1 985 25
- Hastings included in OUTsurance (13) - -
Hastings (four months ended 30 June 2017) 828 - -
Other(1) (5) (11) 55
Discontinued operation
RMB Structured Insurance (excluding Truffle) (38) 8 >(100)
1. Other includes RMI Investment Managers, Truffle and Merchant Capital.
A detailed reconciliation between reported headline earnings and normalised earnings has been provided in the annual financial statements of the
respective investee companies. The annual financial statements of these investee companies are available on their respective websites.
RMI's consolidated normalised earnings for the year under review are listed in the table below:
For the year ended
30 June % change
R million 2017 2016
Continuing operations 3 927 3 342 18
Discovery 1 167 1 079 8
MMI 816 805 1
OUTsurance (excluding Hastings) 2 092 1 664 26
- OUTsurance (including Hastings) 2 103 1 664 26
- Hastings included in OUTsurance (11) - -
Hastings (four months ended 30 June 2017) 246 - -
Other(1) (5) (11) 55
Funding and holding company costs (389) (195) (100)
Discontinued operation
RMB Structured Insurance (excluding Truffle) (30) 6 >(100)
Normalised earnings 3 897 3 348 16
Normalised earnings per share (cents) (continuing operations) 263.6 225.0 17
Normalised earnings per share (cents) (continuing and discontinued
operations) 261.6 225.3 16
1. Other includes RMI Investment Managers, Truffle and Merchant Capital.
A reconciliation of the adjustments made to headline earnings to derive normalised earnings is presented below.
Market value of investments
During the 2017 financial year, RMI's share price decreased by 5% (2016: decreased by 3%), compared to a 2% decrease in the life insurance index and a
12% increase in the non-life insurance index. RMI has delivered a total annual compounded return to shareholders of 27.1% since its listing in March
2011.
The individual investment performances during the 2017 financial year are outlined below:
- Discovery's share price increased by 4% (2016: decreased by 3%).
- MMI's share price decreased by 11% (2016: decreased by 25%), with a dividend yield of 7.8% (based on the share price of R20.24 as at 30 June 2017).
- On a "look-through" basis, based on share prices as at 30 June 2017, the value attributed to RMI's unlisted investments decreased by 12% (2016:
increased by 6%) to R29.8 billion (2016: R33.8 billion). These unlisted investments include OUTsurance (excluding OUTsurance's 49% stake in the
group's holding in Hastings) (87.7% held), RMI Investment Managers (100% held) and the AlphaCode investments.
R million 2017 2016 % change
Market value of interest in:
- Discovery 20 716 19 838 4
- MMI 8 117 9 080 (11)
- Hastings (RMI's effective holding) 9 857 - -
- 29.9% holding 10 491 - -
- Attributable to non-controlling interest of OUTsurance (634) - -
Market value of listed investments 38 690 28 918 34
RMI Investment Managers and AlphaCode at cost 619 103 >100
Discontinued operation (RMB Structured Insurance) - 364 (100)
Implied market value of RMI's stake in OUTsurance (excluding Hastings) 29 187 33 312 (12)
Gross market value of portfolio 68 496 62 697 9
Net liabilities of holding company (9 789) (1 487) >(100)
RMI MARKET CAPITALISATION 58 707 61 210 (4)
RMI closing share price (cents) 3 899 4 120 (5)
The movement in the net liabilities of the holding company was due to the acquisition of a 29.9% stake in Hastings in March 2017.
Final dividend for the 2017 financial year
The policy of paying out all dividends received from underlying investments after servicing any funding commitments at the 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.
The board resolved to declare a final dividend of 65.0 cents (2016: 65.0 cents) per ordinary share with an option to elect scrip in lieu of cash or to
reinvest all or part of the cash dividend (net of any applicable taxes) in RMI ordinary shares. The total dividend for the year of 118.0 cents (2016: 118.0
cents) per ordinary share is covered 2.2 times (2016: 1.9 times) by the normalised earnings of 261.6 cents (2016: 225.3 cents) per share.
Since 2014, RMI has actively pursued a strategy to optimise, diversify and modernise its portfolio of financial services assets. Its ambitions to diversify
geographically, add to its existing portfolio of significant stakes in financial services companies and to facilitate ongoing growth initiatives in its existing
portfolio companies imply additional investment and use of financial leverage. The RMI board has decided that, in addition to the cash dividend, it
would offer the scrip distribution alternative and the reinvestment option to prudently manage RMI's capital structure. The RMI board will continuously
assess RMI's dividend policy through its investment phase and may, if appropriate, continue to utilise the scrip distribution alternative and the
reinvestment option to support investment activity.
Shareholders are referred to the dividend declaration forming part of this announcement regarding the applicability of Dividend Withholding Tax to the
ordinary dividend and more detail on the options available to shareholders.
Events after the reporting period
Prodigy investments limited
In July 2017, RMI acquired a 3.5% stake in Prodigy Investments Limited, an international fintech platform that offers loans to postgraduate students.
Luno Limited
In August 2017, RMI invested in Luno, a company that offers clients a wallet to buy, store and use Bitcoin and operates a Bitcoin exchange platform.
Ethos Private Equity Proprietary Limited
RMI Investment Managers and Royal Investment Managers completed, subject to certain conditions, the acquisition of a combined 30% equity stake in
Ethos Private Equity (Ethos), South Africa's premier private equity asset manager of R10 billion in assets, during September 2017.
Update on RMI's strategy
RMI's aim is to be a value-adding, active enabler of leadership and innovation in financial services. Its objective is to create a portfolio of businesses
which are market leaders and can deliver sustainable earnings, an attractive dividend yield and capital growth. RMI therefore pursues opportunities in the
changing financial services landscape which meet its stringent criteria and strong values.
RMI's strategy is based on three initiatives designed to create sustainable value. They are:
- Optimisation: RMI focuses on continuously improving the value of its investee companies to create better value for its shareholders.
- Diversification: RMI is constantly evaluating opportunities to expand the services of its existing investee companies and to add new investments,
thereby creating more value.
- Modernisation: RMI is well aware of the renewal in financial services and will acquire proven businesses and invest in start-ups with special
opportunities and drivers, which can create new value.
RMI has a stated strategy to utilise its current balance sheet gearing capacity to add to its existing portfolio of significant stakes in financial services
companies. In addition to exploring opportunities to invest in early-stage businesses, RMI has previously indicated that it will seek to add a further large
investment (fourth pillar) to its portfolio alongside its existing three large holdings in Discovery, MMI and OUTsurance.
The investment in Hastings during the year is consistent with RMI's current investment mandate and style which focuses on high-quality companies
offering long-term growth prospects and are led by empowered and aligned management teams. Furthermore, the investment enhances the geographic
diversification of the portfolio into the large and competitive UK short-term insurance market. The opportunity for collaboration between OUTsurance
and Hastings is also a significant enhancement to the overall investment proposition. OUTsurance and Hastings employ similar business models,
particularly in relation to dynamic and analytical approaches to risk underwriting and the use of modern direct distribution channels.
It is RMI's objective to provide shareholders with a consistent annual dividend flow. In extraordinary circumstances, this can be complemented by other
distributions in the form of special dividends or the unbundling of investments to shareholders.
STRATEGIC INITIATIVE PROGRESS MADE
OPTIMISATION OF OUR Extension of the MMI and OUTsurance incentive schemes
ESTABLISHED INVESTMENTS Sale of RMB Structured Insurance to Santam
Management will continue its strategic Acquired 109 million additional shares in OUTsurance
dialogue and activity across the portfolio. It Sale of 49% of Main Street 1353 to OUTsurance
will assist with creating leadership stability Exploration of new products and strategic projects to diversify revenue streams for OUTsurance
and succession planning. Ongoing strategic dialogue with Discovery and MMI
DIVERSIFICATION OF INCOME Acquired a 29.9% stake in Hastings for R8.6 billion, effective 1 March 2017
STREAM AND DISTRIBUTION Finalisation of the acquisition of the following stakes in RMI Investment Managers:
OF ASSETS 26% in Polar Star
RMI will evaluate expanding its geographic 25% in Truffle
footprint further, either independently and/ 25% in Sesfikile Capital
or through the existing portfolio. Continue to evaluate later-stage, capital-light business models with organic growth potential
MODERNISATION AlphaCode has established itself as a centre of fintech excellence in South Africa and a source of
RMI will continue to identify new innovation and next-generation thinking for the broader RMI portfolio
businesses, technologies and industry Acquired the following investments:
trends to complement RMI and its investee 25.1% in Entersekt
companies. 3.5% in Prodigy Finance
Minority stake in Luno
Pipeline of potential future investment opportunities created
Outlook and future value creation
Existing portfolio
The year under review saw Discovery continuing development of its operating model, with refinements in its three components, namely the Vitality
shared-value insurance model, its growth engine and capital management philosophy. These together form the group's ambition of being the best
insurance organisation globally and a powerful force for social good by 2018. Discovery has set three-dimensional criteria against which to measure the
group against the aims of its ambition, namely:
- Brilliant businesses: Market-leading businesses with sustainable products that meet complex consumer needs, driving significant engagement and
superior loss ratios and lapse rates, supported by an exceptional service ecosystem.
- Profound impact: Incentivises millions of people around the world to live healthier and be engaged in their wellness, with a measurable positive effect
on their health. A return of risk-free plus 10% on equity and capital, as well as each business meeting an internal rate of return of risk-free plus 10%,
with operating profit growth of CPI + 10% and robust cash management.
- Powerful assets: A unique business model underpinned by powerful science and data assets. A fully operational global Vitality network and a
distinctive global brand.
The year under review saw material progression in all three these criteria, positioning Discovery strongly to meet the goals of its ambition.
The strategic focus areas of MMI are client-centricity, growth and excellence, with client engagement solutions through Multiply identified as an area of
specific strategic importance to differentiate MMI's client value proposition. MMI continues to invest in growth initiatives with the aim of enhancing
shareholder value over the longer term, with an increasing amount of the investment budget being allocated to initiatives that will broaden the South
African distribution footprint. The partnership with African Bank creates the opportunity to expand MMI's distribution network and solution set. MMI has
started the rationalisation of its African portfolio, with the health insurance joint venture in India likely to be its largest ongoing investment initiative
outside of South Africa in the near future.
The South African economy is expected to remain challenging for the foreseeable future, which is likely to result in below inflationary premium growth
for OUTsurance's South African operations. The Youi group is expected to achieve improved growth in the near future following the roll-out of product
and service innovations coupled with entering the compulsory third party and commercial insurance markets. These strategies will take some time to
contribute to premium growth. OUTsurance is excited about the strength of the client proposition of OUTvest and the positive impact this business can
have on the savings and investment landscape in South Africa. The advice and administrative offering of this new venture will be expanded in the 2018
financial year. In the likely absence of strong premium growth in the next financial year, OUTsurance will retain its focus on underwriting discipline and the
pursuit of operational excellence.
Hastings continues on its profitable growth trajectory. Its significant presence and strategic focus on price comparison websites, together with its
straightforward insurance offering appeals to clients. It therefore continues to grow market share by both attracting new clients and maintaining strong
retention levels. Hastings continues to invest in its digital and data-driven model to ensure agile and responsive pricing. This approach allows Hastings to
maintain its robust underwriting discipline, resulting in loss ratios below the target range. Hastings is well on course to deliver on its ambitious 2019
targets set at the time of its listing in October 2015.
The assets under management across the affiliates of RMI Investment Managers continue to grow as clients look to independent asset managers for
alternative choices to managing their assets. Industry flows, however, slowed during the year under review. This, coupled with the impact of lower asset
class returns and heightened fee pressure, has resulted in a more challenging environment for the profitability of its affiliate asset managers.
Each affiliate has substantially strengthened their business during the year by diversifying their client base, adding to their investment and operations
teams as well as through the value that RMI Investment Managers has brought to each affiliate across strategy, distribution and operations. The team is
pleased with the overall progress, especially with its growing reputation as a trusted, value-adding but non-interfering shareholder of choice for the
independent asset management industry.
As mentioned in the RMI interim results announcement in March 2017, while the team is more focused on the execution of the growth initiatives at each
affiliate than on further acquisitions, they continue to look for opportunities to add affiliates, particularly in the areas where the business is underexposed,
notably in the managing of global assets and unlisted assets. In keeping with this, the team is very excited about Ethos becoming an affiliate, given the
quality of the business as South Africa's oldest and one of the most highly-regarded alternative asset managers as well as the constructive outlook for the
alternatives landscape, given client demand and a supportive regulatory environment. The team and its joint venture partners in MMI and RBH look
forward to working with Ethos as they broaden out their business into other parts of the alternatives market to create a more diversified and transformed
business.
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.
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 lifecycles of financial services businesses.
Traditional financial services
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
AlphaCode's vision is to pioneer the next stage of financial services by identifying, partnering and growing extraordinary next-generation financial
services entrepreneurs. Over the last year, AlphaCode has had success with partnering these next-generation businesses with its underlying portfolio
companies to drive innovation and modernisation and building an investment portfolio of superior entrepreneur-led, early-stage fintech-focused
businesses that have achieved some market traction and are poised for rapid growth.
Adding to its investment in Merchant Capital, the SME working capital financier, AlphaCode acquired 25.1% of Entersekt, an innovator that has
developed world-class mobile banking security technology. AlphaCode also participated in a large capital raise in Prodigy Finance, an international
fintech platform that offers loans to postgraduate students accepted into business, engineering and law at the world's top universities, alongside one of
Europe's leading venture capital fintech investors, Balderton Capital. In August 2017, RMI invested in Luno, a company that offers clients a wallet to buy,
store and use Bitcoin and operates a Bitcoin exchange platform. AlphaCode has a strong pipeline of investment opportunities and will continue to invest
in this space.
AlphaCode remains committed to building the broader entrepreneurial sector in South Africa by supporting high-impact black technology entrepreneurs,
providing mentorship, free office space, support facilities and access to enterprise development funding through its broad-based black economic
empowerment centre of excellence.
RMI remains confident that its clear strategy, in conjunction with its solid investment portfolio and underpinned by unwavering values, will allow it to
continue delivering on its primary objective of creating sustainable, long-term value for shareholders.
GT Ferreira Herman Bosman
Chairman Chief executive
Sandton
19 September 2017
CASH DIVIDEND OR, AS AN ALTERNATIVE, AN ELECTION TO EITHER
(I) RECEIVE A SCRIP DISTRIBUTION; OR
(II) REINVEST THE CASH DIVIDEND.
1. Introduction
The board of directors (RMI board) of Rand Merchant Investment Holdings Limited (RMI) has declared a final gross cash dividend of 65 cents per RMI
ordinary share for the year ended 30 June 2017 (cash dividend). Subject to the approval by RMI shareholders (RMI shareholders) of the resolution
proposed to RMI shareholders in terms of a notice pursuant to section 60 (section 60 notice) of the Companies Act, 71 of 2008 (Companies Act), to be
released on the Stock Exchange News Service (SENS) of JSE Limited (JSE) immediately subsequent to this announcement, the RMI board has resolved to
make a maximum of 25 755 195 fully paid RMI ordinary shares of R0.0001 cents each (RMI shares) available to RMI shareholders as (a) capitalisation
shares (having an aggregate notional issue price of up to R978 697 424.90) (capitalisation shares) and/or (b) reinvestment shares (having an aggregate
notional issue price of the cash dividend reinvested (net of any applicable taxes)) (reinvestment shares).
The RMI board has resolved to:
i. Make the capitalisation shares available to shareholders, in lieu of the cash dividend (scrip distribution alternative); and
ii. Offer RMI shareholders the ability to reinvest all or part of their cash dividend (net of any applicable taxes) (subscription value) in RMI ordinary shares
by RMI (a) crediting such subscription value to RMI shareholders; and (b) applying such credit on behalf of RMI shareholders to subscribe for
reinvestment shares (reinvestment option),
as may be elected by RMI shareholders in respect of all or a part of their shareholding recorded in RMI's securities register at 12:00 on the record
date, being Friday, 6 October 2017 (record date).
2. Rationale
Since 2014, RMI has actively pursued a strategy to optimise, diversify and modernise its portfolio of financial services assets. RMI's ambitions to diversify
geographically, add to its existing portfolio of significant stakes in financial services companies and to facilitate ongoing growth initiatives in its existing
portfolio companies imply additional investment and use of financial leverage. The RMI board has decided that, in addition to the cash dividend, it
would offer the scrip distribution alternative and the reinvestment option to prudently manage RMI's capital structure. The RMI board will continuously
assess RMI's dividend policy through its investment phase and may, if appropriate, continue to utilise the scrip distribution alternative and the
reinvestment option to support investment activity.
The scrip distribution alternative and reinvestment option are effective methods of managing the balance sheet post the March 2017 acquisition of a
29.9% interest in Hastings Group Holdings plc by RMI, which was debt-funded. Furthermore, the scrip distribution alternative and the reinvestment
option each provide a cost-effective opportunity for shareholders to increase their shareholding in RMI.
The scrip distribution alternative and the reinvestment option are underpinned by the support of Remgro Limited (Remgro), Royal Bafokeng Proprietary
Holdings Limited, LL Dippenaar and GT Ferreira (being shareholders representing in aggregate approximately 52.2% of the RMI shareholders' voting
rights). Furthermore, Remgro has undertaken to elect to receive reinvestment shares in respect of all its shareholding, as contemplated in the
reinvestment option.
3. Terms of the scrip distribution alternative and reinvestment option
Each of the scrip distribution alternative and reinvestment option applies to the final gross cash dividend of 65 cents per RMI share for the year ended 30
June 2017 declared on Tuesday, 19 September 2017. This will result in the payment of a net cash dividend of 52 cents per RMI share to RMI
shareholders liable for the full local 20% dividends tax and 65 cents per RMI share to RMI shareholders exempt from dividends tax. Non-resident RMI
shareholders may qualify for a reduced rate of dividends tax, depending on whether or not there is an applicable agreement for the avoidance of double
taxation between South Africa and the country in which a non-resident RMI shareholder is resident for tax purposes.
The scrip distribution alternative and reinvestment option will proceed pursuant to the approval of RMI shareholders in terms of the section 60 notice
authorising the allotment and issue of up to a maximum of 25 755 195 RMI shares as fully paid capitalisation shares (in terms of the scrip distribution
alternative) or fully paid reinvestment shares (in terms of the reinvestment option) to RMI shareholders. The issue price for the capitalisation and
reinvestment shares is R38.00 per RMI share, being a 3.9% discount to the closing share price of RMI shares on the JSE as at 15 September 2017.
The number of capitalisation shares which RMI shareholders may elect to receive under the scrip distribution alternative has been determined in the ratio
of 1.71053 fully paid RMI shares for every 100 RMI shares held on the record date.
The reinvestment shares will be issued in consideration for the amount of the cash dividend (net of any applicable taxes) as elected to be reinvested by
RMI shareholders. The number of reinvestment shares, which RMI shareholders may elect to receive under the reinvestment option, assuming RMI
shareholders are liable for the full local 20% dividends tax, has been determined in the ratio of 1.36842 reinvestment shares for every 100 RMI shares
held on the record date. If no dividends tax is payable, the number of reinvestment shares, which RMI shareholders may elect to receive under the
reinvestment option has been determined in the ratio of 1.71053 reinvestment shares for every 100 RMI shares held on the record date.
The ratio of the scrip distribution alternative and reinvestment option has been determined with reference to such RMI shareholder's ordinary
shareholding in RMI (at 12:00 on the record date) in relation to the ratio that 65 cents or the cash dividend (net of any applicable taxes), in the scrip
distribution alternative or reinvestment option, respectively, bears to the issue price being R38.00 per share, which is a 3.9% discount to the closing price
on Friday, 15 September 2017 for RMI shareholders electing such option.
A circular setting out the terms of the cash dividend, scrip distribution alternative and the reinvestment option, including a form of election, will be
posted to RMI shareholders on Tuesday, 19 September 2017.
The election to receive either the scrip distribution alternative or the reinvestment option is optional. RMI shareholders may elect to participate in either
(i) the scrip distribution alternative; or (ii) the reinvestment option, in respect of all or part of their shareholding on the record date. RMI shareholders not
electing to participate in the scrip distribution alternative or the reinvestment option in respect of all or part of their shareholding will be deemed, by
default, to have elected to receive the cash dividend. RMI shareholders recorded in the securities register of RMI at 12:00 on the record date, who have
not elected to receive the capitalisation shares or the reinvestment shares, will be paid the cash dividend in respect of their entire shareholding on the
record date.
To the extent that the receipt and/or exercise of the election to participate in the scrip distribution alternative or the reinvestment option and/or the
receipt of capitalisation shares or the reinvestment shares pursuant to the scrip distribution alternative or the reinvestment option, respectively, in
jurisdictions other than South Africa might be prohibited or otherwise restricted by legal or regulatory requirements, require RMI to take any further
action, and/or the failure to comply with any of those legal or regulatory requirements might constitute a violation of the laws or regulatory requirements
of such jurisdictions, RMI shareholders will not be entitled to elect to participate in and/or receive RMI shares pursuant to the scrip distribution alternative
or the reinvestment option, directly or indirectly, in those jurisdictions, and shall be deemed to have elected the cash dividend, notwithstanding an
election to participate in the scrip distribution alternative or the reinvestment option by such RMI shareholder.
In respect of the reinvestment option, RMI will not be seeking shareholder approval in terms of section 41 of the Companies Act. Accordingly, RMI
shareholders who are (i) directors or prescribed officers of RMI; or (ii) related or inter-related (as contemplated in section 2 of the Companies Act) to RMI
or to any directors or prescribed officers of RMI will not be eligible to elect the reinvestment option and shall be deemed to have elected the cash
dividend, notwithstanding an election of the reinvestment option by such RMI shareholder.
Where an RMI shareholder's entitlement to new RMI shares in respect of the scrip distribution alternative or the reinvestment option results in a fraction
of a new RMI share, such fraction will be rounded down to the nearest whole number resulting in allocations of whole RMI shares to RMI shareholders
and a cash payment for the fraction will be made to such RMI shareholders.
The weighted average traded price for RMI shares on Wednesday, 4 October 2017 less 10% of such weighted average traded price shall be used as the
cash value for fractional entitlements to be paid to RMI shareholders in accordance with the JSE Listings Requirements. RMI will release an
announcement on Thursday, 5 October 2017 in respect of the cash value determined on this basis.
4. Circular and salient dates
A circular providing RMI shareholders with the full information on the cash dividend, the scrip distribution alternative and the reinvestment option,
including a form of election to participate in either (i) the scrip distribution alternative or (ii) the reinvestment option, will be distributed to RMI
shareholders on Tuesday, 19 September 2017.
The salient dates of events thereafter are as follows:
Event 2017
Circular and form of election posted to RMI shareholders Tuesday, 19 September
Declaration information released on SENS Tuesday, 19 September
Finalisation information, including the ratio applicable to the scrip distribution
alternative/reinvestment option released on SENS Tuesday, 19 September
Last day to trade in order to be eligible to participate in the cash dividend/scrip
distribution alternative/reinvestment option (cum cash dividend/scrip distribution
alternative/reinvestment option) Tuesday, 3 October
RMI shares trade ex the entitlement to the cash dividend/scrip distribution alternative/
reinvestment option Wednesday, 4 October
Listing of maximum possible number of new RMI shares that could be issued in terms
of the scrip distribution alternative and reinvestment option Wednesday, 4 October
Cash value in respect of the RMI shares for determination of fractional entitlements to
RMI shares, based on the volume weighted average price on Wednesday, 4 October
2017, discounted by 10%, released on SENS by 11:00 on Thursday, 5 October
Last day to elect (i) the scrip distribution alternative in lieu of the cash dividend; or
(ii) to reinvest the cash dividend in terms of the reinvestment option. Forms of election
to reach the Transfer Secretaries by 12:00 on Friday, 6 October
Record date in respect of the cash dividend/scrip distribution alternative/reinvestment
option Friday, 6 October
Share certificates in respect of the scrip distribution alternative, posted and/or
electronic funds transfers and CSDP/broker accounts credited/updated Monday, 9 October
Announcement regarding the results of the cash dividend/scrip distribution alternative/
reinvestment option released on SENS Monday, 9 October
Share certificates in respect of the reinvestment option posted and CSDP/broker
accounts credited/updated Wednesday, 11 October
Maximum number of new RMI shares listed adjusted to reflect the actual number
of new RMI shares issued in respect of the scrip distribution alternative and the
reinvestment option on or about Friday, 13 October
Notes:
1. All times provided are South African standard time quoted on a 24-hour basis, unless specified otherwise. The above
dates and times are subject to change. If applicable, any changes will be released on SENS.
2. Share certificates may not be dematerialised or rematerialised between Wednesday, 4 October 2017 and Friday,
6 October 2017, both days inclusive.
By order of the RMI board.
JS Human
Company secretary
Sandton
19 September 2017
FINANCIAL REVIEW
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 30 June 2017, 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 30 June
2017 2016
Audited Effective Actual Effective Actual
Continuing operations
Discovery 25.1% 25.0% 25.1% 25.0%
MMI 25.7% 25.5% 25.7% 25.5%
OUTsurance 88.5% 87.7% 84.5% 83.6%
Hastings 29.9% 29.9% - -
RMI Investment Managers 100.0% 100.0% 100.0% 100.0%
Merchant Capital 25.1% 25.1% 25.1% 25.1%
Entersekt 25.1% 25.1% - -
Discontinued operation
RMB Structured Insurance - - 78.1% 75.5%
Summarised consolidated income statement
for the year ended 30 June
2017 2016 %
R million Audited Audited change
Continuing operations
Earned premiums net of reinsurance 14 064 13 428 5
Fee and other income 135 110 23
Investment income 688 579 19
Profit on sale of subsidiary 1 - -
Net fair value losses on financial assets (43) (39) 10
Income 14 845 14 078 5
Net claims paid (6 783) (6 888) (2)
Fair value adjustment to investment contracts and insurance contract
provisions (427) (414) 3
Fair value adjustment to financial liabilities (199) (204) (2)
Acquisition, marketing and administration expenses (3 886) (3 768) 3
Profit before finance costs, share of after-tax results of associates and
taxation 3 550 2 804 27
Net finance costs (414) (136) >100
Share of after-tax results of associates 1 702 1 524 12
Profit before taxation 4 838 4 192 15
Taxation (1 084) (893) 21
Profit for the year from continuing operations 3 754 3 299 14
Discontinued operation
(Loss)/profit for the year from discontinued operation (49) 8 >(100)
Profit for the year 3 705 3 307 12
Attributable to:
Equity holders of RMI 3 327 2 977 12
Non-controlling interests 378 330 15
Profit for the year 3 705 3 307 12
Computation of headline earnings
for the year ended 30 June
2017 2016 %
R million Audited Audited change
Earnings attributable to equity holders 3 327 2 977 12
Adjustment for:
Intangible asset impairments 91 37
Loss/(profit) on dilution of shareholding 28 (26)
Profit on sale of subsidiary (20) (29)
Impairment of available-for-sale financial assets 9 3
Impairment of owner-occupied building to below cost 7 -
Realised profit on sale of available-for-sale financial assets (2) (1)
Loss/(profit) on disposal of property and equipment 1 (2)
Release of foreign currency translation reserve - (23)
Profit from business combination - (2)
Headline earnings attributable to equity holders 3 441 2 934 17
Headline earnings from continuing operations 3 480 2 927 19
Headline earnings from discontinued operations (39) 7 >(100)
Headline earnings from continuing and discontinued operations 3 441 2 934 17
Computation of normalised earnings
for the year ended 30 June
%
R million 2017 2016 change
Headline earnings attributable to equity holders 3 441 2 934 17
RMI's share of normalised adjustments made by associates: 456 438
Amortisation of intangible assets relating to business combinations 238 209
Basis and other changes and investment variances 117 131
Non-recurring and restructuring expenses 63 39
Rebranding and business acquisition expenses 25 91
Net realised and fair value losses/(gains) on shareholders' assets 13 (53)
Additional 54.99% share of DiscoveryCard profits - 22
Accrual of dividends payable to preference shareholders - (1)
Group treasury shares - (24)
Normalised earnings attributable to equity holders 3 897 3 348 16
Computation of earnings and dividend per share
for the year ended 30 June
2017 2016 %
R million Audited Audited change
Earnings attributable to equity holders 3 327 2 977 12
Headline earnings attributable to equity holders 3 441 2 934 17
Normalised earnings attributable to equity holders 3 897 3 348 16
Number of shares in issue (millions) 1 506 1 486 1
Weighted average number of shares in issue (millions) 1 486 1 482 -
Continuing operations
Earnings per share (cents) 226.5 200.5 13
Diluted earnings per share (cents) 223.0 197.1 13
Headline earnings per share (cents) 234.2 197.6 19
Diluted headline earnings per share (cents) 230.6 194.3 19
Normalised earnings per share (cents) 263.6 225.0 17
Diluted normalised earnings per share (cents) 259.7 221.6 17
Continuing and discontinued operations
Earnings per share (cents) 223.9 200.9 11
Diluted earnings per share (cents) 220.4 197.5 12
Headline earnings per share (cents) 231.5 198.0 17
Diluted headline earnings per share (cents) 227.9 194.7 17
Normalised earnings per share (cents) 261.6 225.3 16
Diluted normalised earnings per share (cents) 257.7 222.0 16
Dividend per share (cents)
Interim dividend 53.0 53.0 -
Final dividend 65.0 65.0 -
Total dividend 118.0 118.0 -
Summarised consolidated statement of comprehensive income
for the year ended 30 June
2017 2016 %
R million Audited Audited change
Profit for the year 3 705 3 307 12
Other comprehensive income for the year
Items that may subsequently be reclassified to income
Currency translation differences (248) 364 >(100)
Fair value movement on available-for-sale financial assets (22) 1 >(100)
Impairment of available-for-sale financial assets 13 - -
Deferred taxation relating to available-for-sale financial assets 2 (4) >100
Share of other comprehensive income of associates (417) 1 >(100)
Items that may subsequently be reclassified to income, after taxation (448) (26) >(100)
Items that will not be reclassified to income, after taxation 31 27 15
Other comprehensive income for the year (672) 362 >(100)
Total comprehensive income for the year 3 033 3 669 (17)
Total comprehensive income attributable to:
Equity holders of RMI 2 707 3 264 (17)
Non-controlling interests 326 405 (20)
Total comprehensive income for the year 3 033 3 669 (17)
Summarised consolidated statement of financial position
as at 30 June
2017 2016
R million Audited Audited
Assets
Property and equipment 1 000 679
Goodwill and other intangible assets 90 113
Investments in associates 24 455 14 888
Financial assets 9 846 10 679
Loans and receivables including insurance receivables 2 536 2 774
Deferred acquisition cost 338 365
Reinsurance contracts 672 257
Deferred taxation 176 204
Assets of discontinued operation - 6 100
Cash and cash equivalents 2 302 611
Total assets 41 415 36 670
Equity
Share capital and premium 14 328 13 526
Reserves 4 947 5 030
Capital and reserves attributable to equity holders of the company 19 275 18 556
Non-controlling interests 1 215 1 170
Total equity 20 490 19 726
Liabilities
Financial liabilities 12 479 2 514
Insurance contracts 6 841 7 068
Share-based payment liability 165 253
Payables and provisions 1 263 1 238
Deferred taxation 53 -
Taxation 124 245
Liabilities of discontinued operation - 5 626
Total liabilities 20 925 16 944
Total equity and liabilities 41 415 36 670
Statement of changes in equity for the year ended 30 June
Transactions
Share Equity with non- Non-
Audited 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
Profit per 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) - -
BBBEE 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
Profit per income statement - - - - 3 327 378 3 705
Other comprehensive income - (417) - (203) - (52) (672)
Dividend paid - - - - (1 753) (253) (2 006)
Shares issued 760 - - - - - 760
Income of associates retained - 770 - - (770) - -
BBBEE cost - 1 - - - - 1
Movement in treasury shares 37 6 - - 3 - 46
Transactions with non-controlling interests - 1 (902) - 11 44 (846)
Issue of share capital to non-controlling interests by subsidiaries - - - - - 71 71
Share-based payment reserve - 3 - 5 (165) (23) (180)
Sale of subsidiary 5 (3) 10 (7) (120) (115)
Balance as at 30 June 2017 14 328 4 300 (2 989) 295 3 341 1 215 20 490
Consolidated statement of cash flows
for the year ended 30 June
2017 2016
R million Audited Audited
Cash flows from operating activities
Cash generated from operations 2 638 2 815
Interest income 503 450
Dividends received 1 085 1 089
Income tax paid (1 130) (684)
Cash flows from discontinued operation 190 213
Net cash generated from operating activities 3 286 3 883
Cash flows from investing activities
Purchase of property and equipment (484) (266)
Disposal of property and equipment 2 18
Additions to investments (9 215) (6 051)
Disposals of investments 9 572 3 516
Investments in associates (9 040) (289)
Proceeds on sale of subsidiary 165 -
Cash flows from discontinued operation - (133)
Net cash outflow to investing activities (9 000) (3 205)
Cash flows from financing activities
Proceeds from issue of shares 760 -
Issue of preference share debt 9 710 400
Redemption of preference share debt (2 298) -
Cash raised from borrowings incurred 2 367 60
Cost of funding (59) -
Dividends paid on preference shares in issue (271) (140)
Dividends paid by subsidiaries to non-controlling interests (253) (189)
Additional shares acquired in subsidiary (912) -
Dividends paid to shareholders (1 753) (1 738)
Proceeds on issue of shares to non-controlling interest 71 41
Cash flows from discontinued operation - (72)
Net cash inflow from/(outflow to) financing activities 7 362 (1 638)
Net increase/(decrease) in cash and cash equivalents for the year 1 648 (960)
Unrealised foreign currency translation adjustment - continuing operations 43 675
Unrealised foreign currency translation adjustment - discontinued operation - 1
Cash and cash equivalents at the beginning of the year 611 2 142
Cash and cash equivalents transferred to assets of discontinued operation - (1 247)
Cash and cash equivalents at the end of the year 2 302 611
Segmental report
The segmental analysis is based on the management accounts prepared for the group.
Audited Discontinued RMI
R million Discovery MMI OUTsurance Hastings operations Other(1) group
Year ended 30 June 2017
Net income - - 14 703 - - 142 14 845
Policyholder benefits and transfer to policyholder
liabilities - - (7 210) - - - (7 210)
Depreciation - - (131) - - (5) (136)
Amortisation - - (86) - - (2) (88)
Other expenses - - (3 523) - - (139) (3 662)
Finance costs - - (1) - - (413) (414)
Fair value adjustment to financial liabilities - - (199) - - - (199)
Gain on derivative relating to acquisition of associate - - 750 - - (750) -
Share of after tax results of associates 1 097 378 29 189 - 9 1 702
Profit/(loss) before taxation 1 097 378 4 332 189 - (1 158) 4 838
Taxation - - (1 079) - - (5) (1 084)
Result for the year from continuing operations 1 097 378 3 253 189 - (1 163) 3 754
Discontinued operation - - - - (49) - (49)
Profit/(loss) for the year 1 097 378 3 253 189 (49) (1 163) 3 705
Gain on derivative related to inter-group transaction - - (750) - - 750 -
Hastings included in OUTsurance - - (10) 10 - - -
Profit/(loss) for the year 1 097 378 2 493 199 (49) (413) 3 705
Normalised earnings 1 167 816 2 476 233 (38) (757) 3 897
Hastings included in OUTsurance - - (13) 13 - - -
Normalised earnings 1 167 816 2 463 246 (38) (757) 3 897
Assets - - 14 234 - - 2 636 16 870
Investments in associates 8 938 5 956 3 842 5 108 - 611 24 455
Intangible assets - - 89 - - 1 90
Total assets 8 938 5 956 18 165 5 108 - 3 248 41 415
Hastings included in OUTsurance - - (3 793) 3 793 - - -
Total assets 8 938 5 956 14 372 8 901 - 3 248 41 415
Total liabilities - - 8 341 - - 12 584 20 925
Audited Discontinued RMI
R million Discovery MMI OUTsurance operations Other(1) group
Year ended 30 June 2016
Net income - - 14 026 - 52 14 078
Policyholder benefits and transfer to policyholder
liabilities - - (7 302) - - (7 302)
Depreciation - - (118) - (4) (122)
Amortisation - - (73) - - (73)
Other expenses - - (3 431) - (142) (3 573)
Finance costs - - - - (136) (136)
Fair value adjustment to financial liabilities - - (204) - - (204)
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
Investments in 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
1 Other includes RMI, RMI Investment Managers, Truffle, Merchant Capital, Entersekt and consolidation entries.
Geographical segments
Audited South New
R million Africa Australia Zealand UK Total
Year ended 30 June 2017
Profit/(loss) 2 207 991 (62) - 3 136
Share of after tax results of associates 1 367 - - 335 1 702
Profit/(loss) before taxation 3 574 991 (62) 335 4 838
Taxation (779) (305) - - (1 084)
Result from continuing operations 2 795 686 (62) 335 3 754
Discontinued operations (49) - - - (49)
Profit/(loss) for the year 2 746 686 (62) 335 3 705
Assets
Property and equipment 941 41 18 - 1 000
Investments in associates 15 554 - - 8 901 24 455
Financial assets 5 346 6 722 314 - 12 382
Cash and cash equivalents 2 036 236 30 - 2 302
Other assets 145 921 210 - 1 276
Total assets 24 022 7 920 572 8 901 41 415
Liabilities
Insurance contract liabilities 1 961 4 697 183 - 6 841
Other liabilities 10 588 828 117 2 551 14 084
Total liabilities 12 549 5 525 300 2 551 20 925
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 operations 8 - - - 8
Profit/(loss) for the year 2 843 506 (107) 65 3 307
Assets
Property and equipment 601 47 31 - 679
Investments in associates 14 888 - 14 888
Financial assets 5 594 7 274 579 - 13 447
Cash and cash equivalents 374 199 38 - 611
Other assets 5 937 995 113 - 7 045
Total assets 27 394 8 515 761 - 36 670
Liabilities
Insurance contract liabilities 1 763 5 053 252 - 7 068
Other liabilities 8 400 1 334 142 - 9 876
Total liabilities 10 163 6 387 394 - 16 944
Financial instruments measured at fair value
The group's activities expose it to a variety of financial risks. The table below analyses financial instruments carried at fair value by level in the fair value
hierarchy. The different levels are based on the extent that quoted prices are used in the calculation of the fair value of the financial instruments. These
levels are defined as follows:
Level 1 - fair value is based on quoted market prices (unadjusted) in active markets for identical instruments as measured on the reporting date.
Level 2 - fair value is determined through valuation techniques based on observable market inputs. These valuation techniques maximise the use of
observable market data where it is available and rely as little as possible on entity specific estimates.
Level 3 - fair value is determined through valuation techniques which use significant unobservable inputs.
Total
Audited carrying
R million Level 1 Level 2 Level 3 amount
30 June 2017
Financial assets
Equity securities
- Exchange traded funds 619 - - 619
- Listed preference shares 377 - - 377
- Collective investment schemes - 99 - 99
- Listed equity securities 129 - - 129
- Unlisted equity securities - - 1 1
Debt securities
- Unlisted preference shares - 105 - 105
- Zero-coupon deposits - 208 - 208
- Term deposits - 4 429 - 4 429
- Government, municipal and public utility securities - 457 - 457
- Money market securities - 2 551 - 2 551
- Collective investment schemes - 45 - 45
- Other debt securities at fair value through profit or loss - 7 813 820
Derivative asset - 6 - 6
Total financial assets recognised at fair value 1 125 7 907 814 9 846
Financial liabilities
Financial liabilities at fair value through profit or loss - - 150 150
Derivative liability - 8 - 8
Total financial liabilities recognised at fair value - 8 150 158
Audited
R million 2017 2016
Reconciliation of movement in level 3 assets
Balance at the beginning of the year 643 386
Additions in the current year 281 294
Disposals (sales and redemptions) (106) (4)
Investment income accrued 64 33
Dividends received (68) (66)
Balance at the end of the year 814 643
The level 3 financial assets at fair value through profit or loss represent loans and preference share investments, the value of which is not significantly
sensitive to an increase or decrease in the counterparty credit rating due to the collateralised nature of the transaction.
Reconciliation of movement in level 3 liabilities
Balance at the beginning of the year 144 107
Preference dividends charged to the income statement in respect of
profit sharing arrangements on ring-fenced insurance business 199 205
Preference dividends paid (193) (207)
Shareholder loan advanced - 39
Balance at the end of the year 150 144
The level 3 financial liabilities at fair value through profit or loss represent profits arising out of profit sharing arrangements on ring-fenced insurance
business that accrue on a monthly basis.
Total
Audited carrying
R million Level 1 Level 2 Level 3 amount
30 June 2016
Financial assets
Equity securities
- Exchange traded funds 412 - - 412
- Listed preference shares 393 - - 393
- Listed equity securities 124 - - 124
Debt securities
- Unlisted preference shares - 647 - 647
- Zero-coupon deposits - 83 - 83
- Term deposits - 5 219 - 5 219
- Government, municipal and public utility securities - 431 - 431
- Money market securities - 2 657 - 2 657
- Collective investment schemes - 41 - 41
- Other debt securities at fair value through profit or loss - - 643 643
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
The fair values of the above instruments were determined as follows:
Level 1
The fair value of financial instruments traded in an active market is based on quoted market prices at the statement of financial position date. A market is
regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory
agency and those prices represent actual and regularly occurring market transactions on an arm's length basis.
The listed preference share investments comprise instruments which are listed on a securities exchange. The fair values of these investments are
calculated based on the quoted closing prices of the individual investments on the reporting date. These instruments are included in Level 1 and
comprise mainly equity and debt instruments classified as trading securities. The investment in the exchange traded funds track the performance of the
top forty and top fifty companies listed on the JSE.
Level 2
The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques
maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required
to fair value an instrument are market observable, the instrument is included in Level 2.
Level 2 instruments comprise derivative, debt and short-term money market instruments where the value is determined by using market observable
input, e.g. JIBAR, prime rate, foreign currency rates, listed bond rates of similar instruments, without significant adjustments.
The unlisted preference shares are redeemable with a notice period of one year. Dividend yields are 65% of the prime overdraft rate. The fair value of
the preference shares with a maturity date of longer than one year is calculated on a discounted cash flow basis with the discount rate adjusted for
changes in credit risk of the ultimate counterparty. Due to the redeemable nature, the preference shares are deemed to be debt securities.
The fair value of money market instruments and government, municipal and public utility securities is determined based on observable market inputs.
These instruments consist of fixed and floating rate notes held in segregated portfolios. These instruments are typically listed on the Bond Exchange of
South Africa (BESA). Instruments listed on BESA are not as actively traded as Level 1 instruments. Despite this, the fair values of these instruments can be
readily determined as the inputs utilised in the fair value calculation are available in the open market and on the coupon face at issue date.
Zero-coupon deposits are not traded actively during a financial reporting period and are classified as Level 2 financial instruments. Fair value is
determined based on a discounted cash flow valuation.
The group uses zero-coupon deposits to offset the interest rate risk inherent in some of the life insurance products underwritten by OUTsurance Life. The
counterparties to these deposits are the large South African banks. The zero-coupon deposits have been structured to allow for the payment of the
notional initial deposit to be spread over the specified term to enable cash flow matching. The maturity dates of the accreting zero-coupon deposits are
long-term, with maturity dates at the various trading dates not exceeding 15 years. The fair values of the accreting zero-coupon deposits are determined
monthly based on observable market inputs. To determine the fair values of the accreting zero-coupon deposits, a risk-free swap yield curve produced
every business day by the JSE is referenced. The instruments are designated at fair value through profit or loss, with both the interest accrual and fair
value accounted for in profit or loss.
Level 3
If one or more of the significant inputs are not based on observable market data, the instrument is included in Level 3. The financial instruments at fair
value through profit or loss represent profits arising out of the profit sharing arrangements that accrue on a monthly basis and which are distributed as
preference dividends bi-annually to the FirstRand Limited Group. The only significant unobservable input in the calculation of the preference dividend is
the historic profit of the profit sharing arrangements and there are no other inputs that determine the value of these instruments. Should the profit of the
profit sharing arrangement increase or decrease, the preference dividend will increase or decrease in direct proportion.
A specific valuation technique is used to value this Level 3 financial instrument which represents an accrued profit related to the FirstRand Limited
Homeowners profit sharing arrangement:
The fair value is determined based on valuation techniques where the input is determined by management, e.g. profits arising out of profit sharing
arrangements, and is not readily available in the market or where market observable input is significantly adjusted.
Inputs are determined by the profits arising and calculations are made in accordance with the profit share percentages, stipulated within the profit
sharing arrangement. No assumptions or adjustments or any other inputs are made to the profits before or after distribution. Distribution of the profits
arising are made in the form of preference dividends.
BASIS OF PREPARATION
These summarised, audited financial results for the year ended 30 June 2017 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 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 2017 contained in this booklet 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 that it is unaudited.
Normalised earnings presented in these summarised financial results constitute pro forma financial information. The pro forma financial information is the
responsibility of RMI's board of directors and is presented for illustrative purposes. Because of its nature, the pro forma financial information may not
fairly present RMI's financial position, changes in equity, results of operations or cash flows. An assurance report has been prepared and issued by RMI's
auditor, PricewaterhouseCoopers Inc., on the pro forma financial information included in this report and is available at the registered office of RMI.
Copies of the auditor's reports on the annual consolidated financial statements and the 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.
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, (Ms) A Kekana, P Lagerstrom,
MM Morobe, O Phetwe and KC Shubane.
Alternates
F Knoetze and DR Wilson
Mr Durand was elected as deputy chairman of the board of directors effective from 25 November 2016. Ms Kekana was appointed as a non-executive
director (she used to be an alternate for Mr Phetwe) and Mr Wilson as an alternate non-executive director on 1 September 2017.
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
19 September 2017.
Date: 19/09/2017 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
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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