Wrap Text
Unaudited interim results and cash dividend announcement for the six months ended 30 September 2017
Alexander Forbes Group Holdings Limited
Registration number: 2006/025226/06
Tax reference number: 9404/921/15/8
JSE share code: AFH
ISIN: ZAE000191516
(Incorporated in the Republic of South Africa)
UNAUDITED INTERIM RESULTS AND CASH DIVIDEND ANNOUNCEMENT
For the six months ended 30 September 2017
EXECUTIVE OVERVIEW
The turnaround at Alexander Forbes Group is intensifying. We are back in the game but we still have
much to do. We have focused the business on our crystal-clear investment thesis of 'cash flow plus
growth' and are beginning to see the benefits of this reflected in our performance across key group
operating metrics.
OVERVIEW
Under our refreshed strategy titled 'Ambition 2022', the group continues to deliver strong cash flows
from operations of R470 million in the period. Looking at key financial metrics, operating expenses
were contained at 2%, group trading margins were further improved to 25.3%, up 40 basis points (bps)
and positive operating leverage was once again delivered at 60 bps, up 50 bps from the prior period.
Overall, Alexander Forbes delivered operating profit of R455 million, up 5%.
To deliver our investment thesis of 'cash flow plus growth' we need to be financially robust.
The group remained financially robust with a strong regulatory surplus position of R1.5 billion,
alongside strong cash generated from operations at 103% of operating profit. From this financially
robust position the board has approved an 18 cents interim dividend, up 6%, entirely consistent
with our focus on sustained shareholder value creation.
Alexander Forbes has an extraordinary depth of talented people who understand our core business
drivers of advice, distribution, administration and asset management. Nevertheless, we needed to
strengthen some aspects of our skill set, and since the start of the financial year our senior
management pool has been deepened with key appointments in finance, asset management, insurance,
human resources, IT and transformation, together with numerous internal promotions.
Looking ahead, although we have made progress, turnarounds are rarely linear and the improving
results should be tempered by the realism that the business still has issues to address and is
performing nowhere near its full potential.
CASH FLOW
The first part of our 'cash flow plus growth' investment thesis is to convert more of our profits
from operations into cash remitted to the group. In this regard the profit to cash conversion was
strong with cash generated from operations at 103% of operating profit, at R470 million.
Higher cash remittances allow for optimal capital allocation and dividend flexibility. This remains
an area of focus in better targeting capital allocation towards improved enhancement of
shareholder value.
OPERATING PROFIT AND GROWTH
At the group level, top-line growth of 3% was achieved, with strong performances from a number of
our key strategic focus areas. It is clear that certain strategies are beginning to deliver results,
particularly across retirements up 16% year on year, group risk up 31% year on year and short-term
insurance up 11% year on year. We also launched a number of new solutions into the marketplace over
the period.
Profit from operations before non-trading and capital items increased by 5% to R455 million when
compared with the same period last year.
The stability of our profit stream underlines our 'cash flow plus growth' investment proposition.
While satisfactory at a group level, there remain a number of opportunities to improve both our
growth levels and operating profits. Plans are in place to address these issues and execute against
performance improvement plans for underperforming businesses.
EXPENSES
Operating expense growth of 2% over the period reflects the significant effort being taken to address
a structural problem within the group - a high cost-to-income ratio. R184 million in cumulative
expense reductions and operational efficiencies have been delivered off the 2016 expense base.
We are well on track to deliver our R200 million to R250 million expense reduction target by the
end of 2020.
That said, significant opportunities remain to reduce expenses and improve operational efficiency.
In doing so, our plan is to reinvest some of these additional savings towards initiatives geared
towards better equipping us to more efficiently serve our customers through deploying the latest
digital, lean and automation technology. I am confident that whatever reallocation is made, this will
produce attractive returns and a short payback period required to further improve efficiency.
Going forward, we will measure our expense efficiency using a ratio of operating expenses to operating
income ('group expense ratio' or cost-to-income ratio). The group expense ratio for the period was
74.7%, representing an improvement of 40 bps. Lower expense ratios are essential for us to offer
competitive products and solutions to our customers, and to produce the necessary returns for our
shareholders. It is my intention to show improvement in this ratio year after year.
Improved expense discipline allowed a 2% improvement in the overall group trading margin to 25.3%
compared with 24.9% for the same period last year.
PEOPLE
One of the priorities this financial year was to strengthen the management team to bring new skills
into the group and progress has been made in this area. We have appointed new leaders in asset
management, human resources, technology and IT, customer solutions and strategy through a combination
of senior internal promotions and external hires.
An essential part of our ongoing business transformation is embedding a higher performance culture
across Alexander Forbes. We are introducing a new set of values which will guide the day-to-day
actions of our people. These values provide the framework on which decisions are made. These values
are results, learning and caring.
One of the strengths of Alexander Forbes is the dedication and commitment of our people. This has
been exemplary and I would like to thank them for their tireless work on behalf of our customers
and shareholders in this transition period as we continue to execute our turnaround under Ambition 2022.
OUTLOOK
The markets we operate in, predominantly South Africa and select emerging markets, continue to experience
uncertainty in both political and macroeconomic environments and our business model, much like
other financial services organisations, remains sensitive to these factors.
That said, at the interim stage of the 2018 financial year, our performance continues to show progress
towards delivering what we said we would do. Our turnaround is intensifying as we focus more on improving
operational performance as well as improving the customer experience through an integrated proposition
anchored around helping our customers secure a lifetime of financial well-being and security. We have
delivered more ... more customer-focused solutions, more consistency in delivering positive operating
leverage, more trading margins, more operating profit which, alongside more efficient profit to cash
conversion, has led to more dividends.
We plan on using big data to be more disruptive in the areas of predictive analytics, taking
advantage of our brand strength to drive further efficiency through improved automation. Putting the
customer at the centre of our value proposition remains key.
We are also making good progress across our group-wide technology and digital transformation
initiatives. We will continue to be selective in our investments with a clinical approach to the
allocation of capital.
As a business, we remain focused on building on the progress made over the past year under my tenure
as group chief executive. Alexander Forbes is a self-help story with a balanced and increasingly
focused portfolio of businesses in South Africa and select emerging markets.
The tendency with self-help or turnaround businesses is to focus on the successes rather than the
issues and as a result colleagues become complacent. I want to guard against this happening at Alexander Forbes.
Have we made progress against what we said we would do? Yes, some. Is it a little faster than
anticipated? Probably, in the view of some. Have we unlocked the full potential at Alexander Forbes?
Not even close ... there is certainly much more to come.
Andrew A Darfoor
Group chief executive
FINANCIAL HIGHLIGHTS
For the six months ended 30 September 2017
% change 2017 2016
Rm Restated1
Operating income (2) (from continuing operations) up 3 1 799 1 748
Profit from operations (before non-trading and capital items) up 5 455 435
Trading margin up 40 bps 25.3% 24.9%
Operating leverage (3) up 50 bps 0.6% 0.1%
Cash generated (from continuing operations) down (4) 470 490
Profit for the period (from continuing operations) up 1 309 306
Normalised profit for the period (from continuing operations) up 1 359 355
Headline earnings per share (cents) down (20) 21.7 27.0
Interim dividend (cents) up 6 18 17
Average AuA and AuM (Rbn) up 4 355 342
1. Restated for discontinued operations - refer to note 9.
2. Operating income represents revenue net of direct expenses.
3. Operating leverage represents the difference in growth of operating income and growth in
operating expenses.
OVERVIEW OF FINANCIAL RESULTS
The group's profit from operations before non-trading and capital items has grown by 5% to R455 million
for the six months to 30 September 2017.
The results for the six months ended 30 September 2016 included the operating profits from the UK-based
Lane Clark & Peacock operation which was discontinued and sold in December 2016.
In addition, on 20 January 2017, the shareholders approved a transaction whereby African Rainbow
Capital Proprietary Limited purchased 10% of the group's Africa operations. The earnings of the
group for 30 September 2017 reflect the increase in the non-controlling interest resulting from
this transaction.
The accumulated profit for the period attributable to equity shareholders of R282 million reflects a
decrease of 19% as a result of this discontinued operation and increase in non-controlling interest.
The weighted average number of shares in issue of 1 279 million decreased as a result of the 25 million
shares repurchased during the period. This share buy-back was offset by a decrease in policyholder
shares treated as treasury shares. Headline earnings per share decreased by 20% to 21.7 cents per share
for the six months ended 30 September 2017.
CONSOLIDATED OPERATING INCOME AND PROFIT FROM OPERATIONS
Operating income net of direct expenses (hereinafter referred to as operating income) represents
gross revenue net of direct product costs. The group's gross revenue is derived from fees charged
for consulting, administration and the management of investments through multi-manager portfolios.
In addition, operating income includes the net result from both the long-term and short-term
insurance operations.
The group produced operating income from continuing operations of R1 799 million for the six months
ended 30 September 2017, up 3% when compared with the same period last year.
Operating expenses of R1 344 million were 2% higher than the same period of the previous year.
This reflects the significant effort undertaken to reduce costs through driving improved expense
discipline and operational efficiencies throughout the group.
DIVISIONAL REVIEW OF OPERATIONS
The following is a brief summary of the divisional trading results for the six months ended
30 September 2017.
Institutional clients
The institutional clients division delivered R916 million of operating income, which is 5% higher
than the prior period. Business units within this division include:
- consulting - administration, consulting and actuarial services to public sector entities,
retirement funds and corporates, and healthcare actuarial and consulting;
- retirements - consulting and administration to our umbrella fund offerings, and beneficiary
fund consulting and administration;
- investments - investment services, including a range of investment portfolios, advice-led
solutions and alternative investments; and
- group risk - group life insurance offered to retirement funds and employers through
Alexander Forbes Life.
Expenses were prudently managed with a 5% growth year on year, highlighting a strong management
focus on cost and operational efficiency. As a result profit from operations increased by 4% to
R239 million for the six months ended 30 September 2017.
(i) Consulting
New business opportunities were impacted across the business unit as a result of delayed
decision-making at trustee and corporate levels. We firmly believe that our value proposition
remains relevant and we see strong momentum in clients continuing to value our expertise as a
trusted adviser in delivering favourable outcomes and experiences by securing their financial
well-being.
Consultants remain key in delivering on our strategic intent, in line with Ambition 2022 to
grow our umbrella funds and asset accumulation. One step to ensuring asset accumulation was
the launch of the Alexander Forbes Retirement Income Solution (AFRIS) in April 2017.
AFRIS provides retirement fund members with a cost-effective solution to preserve their
retirement fund savings when changing employment as well as derive an annuity income on retirement.
The healthcare consulting business remained resilient, with operating income up 11% compared with
the same period last year. Healthcare broking income grew strongly year on year as a result of an
increase in the regulated cap for commission income for broking services, growth in our existing
client base and new business wins.
Expenses were managed with a 3% year-on-year increase.
(ii) Retirements
Retirements' operating income increased by 16% year on year, driven by strong new business growth
as well as growth in the existing client base. Expenses increased by 14% year on year, attributable
to the spend on rolling out financial well-being and member education to umbrella fund clients.
The Alexander Forbes Retirement Fund (AFRF) continues to be a market leader in the umbrella fund
industry, providing relevant and cost-effective solutions to the South African market.
The Alexander Forbes Coreplan umbrella fund continues to be innovative and provides low-cost
simple umbrella solutions with a strong growth trajectory. AF Access, our umbrella fund
offering to clients of intermediary financial advisers, continues to achieve good growth in
membership and is expected to grow further.
The number of active member records for our umbrella retirement funds increased by 5% year on
year to 326 560, with the number of participating employers in our umbrella funds increasing
by 4% from the previous year.
Closing assets under management (AuM) for the umbrella funds increased by 10% year on year to
R73.2 billion, supported by strong market growth and positive net cash flows. This is compared
to an average market growth across portfolios of 5.6%.
(iii) Investments
Operating income increased by 2% for the six months ended 30 September 2017. This was supported
by strong market returns from local and global equity markets, which contributed to a blended
market return across assets under management and administration of 5.6% for the six months.
Continued cost management of direct asset manager costs improved net margin, which increased
5% year on year. Net positive cash flows of R0.2 billion were recorded, underpinned by strong
net new business which exceeded retirement fund members' net cash outflow.
A summary of the institutional cash flows for the six-month period is reflected below:
Rbn 2017 2016
Inflows from new business 6.1 4.8
Outflows due to client losses (1.2) (1.9)
Retirement fund member net cash flow movement (4.7) (9.0)
Ongoing contributions 16.7 12.5
Withdrawals for benefit payments (21.4) (21.5)
Net cash flows 0.2 (6.1)
Closing institutional assets under management (including assets under administration) increased
by 6% to R301 billion as at 30 September 2017, of which R250 billion are institutional assets
under investment management.
Operating expenses increased by 4% for the six months ended 30 September 2017, resulting in
profit from operations of R152 million.
AF Investments continues to focus on providing a broad range of investment services ranging
from investment portfolios to advice-led solutions and alternatives asset styles, with assets
under management, administration and advisement totalling over R800 billion. In September 2017
our Performer portfolio reached 20 years as well as the R100 billion mark. The new investment
philosophy of Living*Investing entails outcomes-based investing with a clear objective to help
clients secure their financial well-being while managing the risk of uncertain and challenging
economic environments.
(iv) Group risk
AF Life group risk grew gross written premium by 22% to R246 million at 30 September 2017,
achieving annualised premium income of R534 million as at 30 September 2017. Despite the increase
in new business, claims experience continued to be adversely impacted by higher disability claims.
Underwriting results improved year on year by 29%.
Retail clients
The retail clients division delivered R690 million of operating income, which is 5% higher than the same
period of the previous year, with the majority of growth being delivered by the insurance business and,
in particular, the short-term insurance business.
While the business-as-usual operating expenses have been well contained, significant investment has
been made in digital and modernisation capabilities. Including the investment in future technology
capabilities, expenses increased by 7%, resulting in profit from operations of R223 million, a 1%
growth over the prior period.
(i) Wealth and investments
The wealth and investment segment of the retail clients business is focused on generating
revenue through the offering of financial advice, administration and management of investments
both locally and offshore through our Jersey and Channel Islands operations. This segment
incorporates Financial Planning Consultants (FPC), AF Individual Client Administration (AFICA),
AF Preservation Fund, the retail components of AF Investments and the Channel Islands.
Operating income increased by 1% to R421 million for the six months ended 30 September 2017.
Assets under advisement grew by 7% to R67.8 billion at 30 September 2017. Average assets under
administration grew by 3% to R60.7 billion. The operating income split was 73% from asset-based
income and 27% from consulting and advisory fees also linked to asset values.
Over the period, assets being preserved on exit and retirement increased from 46% in
September 2016 to 57% in September 2017. The capture rate also increased from 32% in the
prior period to 41% for the six months to September.
Assets under management grew by 6% year on year to R55 billion. The flows from FPC to AF products
declined from 89% to 85%. The business focus remains on servicing the institutional member client
base while expanding the business footprint in discretionary assets, investment in current
distribution channels and expansion to include independent financial advisers.
In line with strategy, the retail wealth and investment business is investing in the future
technology capabilities that will enhance customer experiences and provide new digital
channels of engaging with customers. This has contributed to the 5% increase in expenses and,
as a result, profit from operations has decreased by 3% when compared with the prior period.
(ii) Retail insurance
The retail insurance businesses comprise AF Insurance, which provides short-term insurance
solutions and the AF Life Retail business which provides long-term insurance solutions to individuals.
Gross written premium in the AF short-term insurance business increased by 5% to R793 million
for the six months ended 30 September 2017, with the business continuing to grow as a result of
enhanced product offerings and good service levels. The loss ratio for the AF Insurance business
improved to 67.3% for the period, well below the target of 71% and a significant improvement on
the 74.1% reported at September 2016.
The AF Life Retail business accounts for 1% of the retail clients' business operating income.
Over the period the business increased its focus on distribution channels and product innovation,
which led to an increase in new life policy sales of 57%. The business remains subscale and as
a result incurred an operating loss for the period.
The combined retail insurance businesses produced operating income of R269 million, an increase
of 11% over the same period in the prior year. Despite expenses increasing 10% over the prior year,
profit from operations increased by 16% to R52 million.
Emerging markets
The emerging markets business comprises institutional and retail operations in Africa.
Year-on-year performance remains challenged with operating income down by 8% compared with the prior
period. Costs were contained at 3% year on year, driven by improved expenses and operational
efficiency initiatives.
Performance in emerging markets is largely led by the SADC region, Namibia and Botswana.
The Namibian business delivered an increase in operating income of 4% over the prior period driven by
strong performance in the retail short-term insurance business. Operating income increased by 13%
reflecting improved underwriting and management of the loss ratio at 61% when compared with 72% at
September 2016. The investments business within institutional also contributed to an increase in
operating income of 6% over the prior period, led by strong asset accumulation. Assets under management
of R3.8 billion represents an increase of 8% year on year.
Operating income in Botswana has decreased by 23% over the same period in the prior year, which has
affected emerging markets' overall performance. The decline in operating income is a result of the
loss of a key client in Botswana, the Government of Botswana, who insourced the Public Officers
Pension Fund (BPOPF). The Botswana business has developed and rolled out new initiatives, including
beneficiary trust administration and an unclaimed benefits fund.
Nigeria, Uganda and Zambia reflect smaller operations in terms of revenue contribution, and have
structured changes to their businesses. Specifically, Uganda and Zambia have new management teams
and the Nigerian business is expected to leverage off the actuarial capabilities of the Zimbabwean
acquisition to strengthen its capabilities and offering.
The emerging markets business remains a key pillar of the group's strategy and is expected to contribute
to the group's ambitions by pursuing both organic and inorganic growth opportunities. The business offers
a longer-term play with the pension reform agenda being pursued by many governments across the
African continent in view of general demographic development and continued urbanisation.
Administration only
Operating income in the 'admin only' segment comprises fees from pension fund administration,
pensioners' payroll and other ad hoc administration fees and excludes umbrella arrangements or
where consulting or actuarial solutions are provided. Operating income from these activities is
separately disclosed in line with our internal reporting and represents a segment of our business
which is not anticipated to grow in the future.
The operating income for this segment declined by 16% from the same period in the prior year, largely as a
result of the loss of a large standalone client who chose to insource their administration. The expenses
of the division are incorporated with the administration functions supporting the institutional
clients and the allocation of these expenses is designed to be in line with the income received.
The division therefore does not reflect any profit from operations.
Operations and technology
The operations and technology division continues to focus on driving efficiencies in services provided
to our clients. This division is focused on improving standard operating procedures as well as
automation. The significant modernisation programme in which we are replacing the legacy systems
within the business is progressing and receiving substantial management attention. Alexander Forbes
will continue to enhance its client value proposition and enhance its digital capability through a
modern technology platform with an improved customer experience.
ITEMS BELOW PROFIT FROM OPERATIONS
Non-trading and capital items
Non-trading and capital items of R73 million (2016: R48 million) include the ongoing accounting
amortisation of intangible assets amounting to R46 million (2016: R61 million), once-off costs
incurred in defining the group's strategy as well as the results of the cell-captive insurance
facility which are consolidated into the group's results. The accounting for amortisation has no
impact on the cash flows of the group and is excluded from the normalised results (refer to the
discussion on normalised results).
Investment income
Investment income of R143 million (2016: R93 million income) is generated from the corporate cash
balances managed through the group's treasury department. The significant cash balances recorded at
30 September 2017 arise from the sale of our international consulting practice LCP and through the
subscription of shares by African Rainbow Capital which occurred in the second half of the prior year.
Investment income related to policyholder investments includes R14 million (2016: R20 million)
related to individual policyholder funds in AF Investments that are liable for fund level taxes and
for which an equal tax liability is raised. This income (and related tax expense) should theoretically
be excluded when assessing the group's own investment income.
Finance costs
Finance costs for the six months ended 30 September 2017 increased to R48 million (2016: R38 million).
The finance costs relate largely to the revolving credit facility provided to the group as well as the
fair value adjustment associated with a foreign currency hedge linked to the group's software
development project.
Accounting for Alexander Forbes shares held in policyholder investment portfolios
In terms of International Financial Reporting Standards (IFRS), any Alexander Forbes shares acquired
by underlying asset managers and held by the group's multi-manager investment subsidiary for
policyholders (the shares) are required to be accounted for in Alexander Forbes's consolidated
financial statements as treasury shares and results in the elimination of any fair value gains or
losses made on the shares. Refer to note 13.
This accounting treatment has the effect that fair value movements in respect of linked investment
policy assets and liabilities that would normally be offset (and economically should be offset)
are not being matched in the income statement. The resultant mismatch between the asset and liability
movement does not reflect the economic substance of the transactions. The impact of this mismatch
results in an accounting profit or loss that is reported in Alexander Forbes's consolidated income
statement, whereas no actual economic profit or loss will ever be realised by the group. The reported
loss of R11 million (2016: profit of R2 million) arising from the accounting for policyholder
investments as treasury shares for the period is separately disclosed on the face of the income statement.
Profit before and after tax from continuing operations
After non-trading items, finance charges and the effect of the policyholder investments, the group's
profit before taxation from continuing operations of R468 million for the six months ended
30 September 2017 is 5% higher compared with the same period last year.
The normalised tax rate excluding the policyholder tax is 31%, resulting in profit after tax of
R309 million for the six months ended 30 September 2017.
Discontinued operations
The business results reflected as discontinued operations comprises operations within East Africa
(emerging markets), Alexander Forbes Insurance Consulting Practice as well as Lane Clark &
Peacock LLP, together with its subsidiaries in Ireland and the Netherlands (LCP). Both
Alexander Forbes Insurance Consulting Practice and LCP were disposed of by 31 March 2017.
The comparative information has been restated accordingly. The results of discontinued operations
are further detailed in note 9.
NORMALISED EARNINGS
The group's normalised earnings are presented to reflect the basis upon which management manages the
group and reflects the economic substance of the group's performance. The adjustments between the IFRS
condensed consolidated income statement and the normalised results are as follows:
(a) Accounting for property lease
The accounting treatment for long-term leases, particularly at the Sandton head office, continues to
have a small positive impact on the group's growth rate. The impact is isolated and removed from
normalised results to afford a better comparison and to reflect the true premises cost over the long term.
(b) Capitalisation of intangible assets and the related amortisation
Non-trading and capital items include the ongoing accounting amortisation of the intangible assets
amounting to R46 million for the six months ended 30 September 2017 (2016: R61 million).
The capitalisation of intangible assets and the related amortisation resulted from the required
accounting treatment at the time of the private equity acquisition of the group under common control
in 2007. As the holding company that was established at the time remains in existence (and is now
the listed entity), the amortisation will continue over the expected useful lives established at the
time of the transaction. The accounting for amortisation has no impact on the cash flows of the group.
(c) Professional indemnity insurance cell result
The company has a comprehensive insurance programme of which the first layer is self-insured through
a cell-captive insurance arrangement. The structure of the cell captive is such that it falls within
the requirements of IFRS 10 for controlled entities and is therefore consolidated in our results.
The impact of the inclusion of this insurance cell on the group results is separately isolated in
non-trading items. The profit or loss of the cell captive is excluded from our normalised results.
(d) Accounting for Alexander Forbes shares held in policyholder investment portfolios
As discussed, this accounting treatment has the effect that fair value movements in respect of
linked investment policy assets and liabilities that would normally be offset (and economically
should be offset) are not being matched in the income statement. The resultant mismatch between
the asset and liability movement does not reflect the economic substance of the transactions.
(e) Investment income and taxation payable on behalf of policyholders
The group's tax rate compared with profits before tax appears high as a result of taxation payable
on behalf of policyholders being included in this amount (refer to the investment income discussion
as well as note 8). The normalised results exclude the policyholder tax expense and the related
investment income which directly offset this tax expense.
CONDENSED CONSOLIDATED NORMALISED RESULTS (UNAUDITED)
For the six months ended 30 September 2017
Unaudited Restated1
Six months Six months
30 Sept 30 Sept
Rm 2017 % change 2016
Operating income net of direct expenses 1 799 3 1 748
Operating expenses (1 334) (1 298)
Profit from operations before non-trading and capital items 465 3 450
Non-trading and capital items (28) 7
Operating profit 437 (4) 457
Investment income 129 73
Finance costs (48) (38)
Share of profit of associates (net of income tax) 2 3
Profit before taxation 520 5 495
Income tax expense (161) (140)
Normalised profit for the period from continuing operations 359 1 355
Reconciliation of normalised profit from continuing operations
Normalised profit for the period from continuing operations 359 1 355
Accounting for property lease (10) (15)
Amortisation of intangible assets arising from business combination (46) (61)
Reported (loss)/profit arising from accounting for policyholder
investments in treasury shares (11) 2
Professional indemnity insurance cell-captive results 1 6
Tax effects on above adjustments 16 19
Profit for the period from continuing operations 309 1 306
1. Restated for discontinued operations.
FINANCIAL POSITION AND DIVIDENDS
Financial position and capital requirements
The financial position of the group remains strong and all insurance entities within the group comply
with current solvency, liquidity and regulatory capital adequacy requirements.
The board continues to have oversight of and has approved a capital allocation strategy with regard
to this cash available, which includes the following:
- continued growth in our dividends to shareholders with a target of 1.5 times cover;
- an acquisition programme, targeting bolt-on value-enhancing businesses in South Africa and
select emerging market countries;
- investment in modernisation to position the company for improved efficiency and client service; and
- share buy-backs.
The group is appropriately positioned for the pending introduction of consolidated supervision by
the regulators. The current reporting requirements to the regulator already incorporate the expected
formal framework.
As at 30 September 2017 the theoretical consolidated regulatory capital position, using the measures
and interpretations under the Solvency Assessment and Management (SAM) standard, is a surplus of
R1.5 billion (before the declared dividend distribution).
Interim dividend
A dividend declaration has been considered, taking into account the group's current and projected
regulatory position, the available cash in the group as well as the highly cash-generative nature of
the group and the investment into modernising technology which will demand additional capital investment.
Notice is hereby given that the directors have declared an interim gross cash dividend of 18 cents
(14.4 cents net of dividend withholding tax) per ordinary share for the six months ended 30 September 2017.
The dividend above has been declared from income reserves. A dividend withholding tax of 20% will be
applicable to all shareholders who are not exempt. The issued number of shares, including treasury
shares, at the date of declaration is 1 341 426 963.
The salient dates for the dividend will be as follows:
Last day of trade to receive a dividend Tuesday, 9 January 2018
Shares commence trading ex dividend Wednesday, 10 January 2018
Record date Friday, 12 January 2018
Payment date Monday, 15 January 2018
Share certificates may not be dematerialised or rematerialised between Wednesday, 10 January 2018 and
Friday, 12 January 2018, both days inclusive.
PROSPECTS
Our refined strategy keeps our clients at the centre and focuses on securing their financial well-being.
Our value proposition is about engaging with our customers at all stages of their lives to help them
make the right financial decisions. We will do this by building stronger client relationships,
by providing education and sound financial advice, and by delivering relevant, innovative financial
product solutions. Everything we do is to help our customers achieve a lifetime of financial security.
Our aim is to be a trusted partner with our customers throughout their life journey.
Under Ambition 2022, our five-pillar strategy revolves around growing each of our businesses in a more
integrated and collaborative manner, improving operational efficiency and embracing digital capabilities to
improve the overall client experience. We also want to expand the penetration or retailisation of our member
base with the concept of lifetime solutions and advice.
In terms of key strategic focus areas, the strategy across the group is centred on five core priorities:
- getting 'back in the boardroom' and improving cross-sell to end-consumers;
- making umbrella the core institutional growth engine to drive access to end consumers;
- driving small and medium-sized enterprise (SME) penetration;
- using financial well-being to target the end-consumer, leveraging data analytics and portfolio
pricing; and
- driving asset accumulation across the group.
Over the five-year period to 2022 our aim is to achieve revenue growth at or above market while delivering
positive operating leverage. This should translate into improved operating profit growth and margin enhancement.
CHANGE IN DIRECTORATE
On 1 September 2017 Ms B Radebe was appointed as non-executive director of Alexander Forbes Group
Holdings Limited and Ms N Ford-Hoon (Fok) was appointed as the group chief financial officer.
On 1 November 2017, Mr S Moloko retired as the chairman of the board. Mr Moloko will be replaced by
Ms N Nyembezi whose appointment will take effect on 1 January 2018. In the interim Mr MD Collier will
serve as the acting chairman. The board wishes to express its sincere appreciation to Mr Moloko for
his strategic input, leadership and dedication to the group over the past 10 years.
CORPORATE GOVERNANCE
On 1 October 2017, Mrs CH Wessels was appointed as group company secretary.
The company is committed to application of the principles contained in the King IV Report on Corporate
Governance for South Africa (King IV) and is in the process of aligning policies and practices to the
desired principles. We will be providing detailed information on the application of practices as part
of the 2018 integrated reporting cycle.
On behalf of the board of directors
AA Darfoor MD Collier
Group chief executive Acting chairman
Johannesburg
30 November 2017
CONDENSED CONSOLIDATED INCOME STATEMENT
For the six months ended 30 September 2017
Unaudited Restated1 Restated1
Six months Six months 12 months
30 Sept 30 Sept 31 March
Rm Notes 2017 2016 2017
Continuing operations
Fee and commission income 3 2 002 1 994 3 970
Direct expenses attributable to fee and commission income (533) (529) (1 063)
Net income from insurance operations 4 330 283 564
Operating income net of direct expenses 1 799 1 748 3 471
Operating expenses (1 344) (1 313) (2 534)
Profit from operations before non-trading and capital items 455 435 937
Non-trading and capital items 5 (73) (48) (137)
Operating profit 382 387 800
Investment income 2 6 143 93 178
Finance costs 7 (48) (38) (89)
Reported (loss)/profit arising from accounting for
policyholder investments in treasury shares 13 (11) 2 (2)
Share of profit of associates (net of income tax) 2 3 4
Profit before taxation 468 447 891
Income tax expense 8 (159) (141) (267)
Income tax expense relating to corporate profits (145) (121) (245)
Income tax expense on policyholder investment returns (14) (20) (22)
Profit for the period from continuing operations 309 306 624
Discontinued operations
Profit from discontinued operations (net of income tax) 9 15 110 950
Profit for the period 324 416 1 574
Attributable to:
Owners of the company 282 349 1 465
Non-controlling interest holders 42 67 109
324 416 1 574
Basic earnings per share (cents) 10 22.0 27.3 114.5
Diluted earnings per share (cents) 10 22.0 26.9 113.8
Weighted average number of shares in issue (millions) 10 1 279 1 279 1 280
1. Restated for discontinued operations.
2. Investment income includes R14 million (2016: R20 million) recognised as a result of
policyholder tax requirements. An amount of R22 million was recognised for the year ended
31 March 2017.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 30 September 2017
Unaudited Restated1 Audited
Six months Six months 12 months
30 Sept 30 Sept 31 March
Rm 2017 2016 2017
Profit for the period 324 416 1 574
Other comprehensive income
Items that may be reclassified to profit or loss
Foreign currency translation differences of foreign operations 28 (220) (329)
Foreign currency translation reserve of disposed foreign
operations reclassified to profit or loss - - (209)
Fair value adjustment on cash flow hedge 3 - -
31 (220) (538)
Items that will not be reclassified to profit or loss
Remeasurement of post-employment benefit obligations - - 13
- - 13
Total comprehensive income for the period 355 196 1 049
Total comprehensive income attributable to:
Owners of the company 313 160 968
Non-controlling interest holders 42 36 81
Total comprehensive income for the period 355 196 1 049
1. Restated for discontinued operations.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 30 September 2017
Audited
30 Sept 30 Sept 31 March
Rm Notes 2017 2016 2017
ASSETS
Financial assets held under multi-manager investment
contracts 13 298 859 278 817 281 498
Financial assets of insurance and cell-captive facilities 313 234 320
Property and equipment 188 313 202
Purchased and developed computer software 302 154 163
Goodwill 3 355 3 898 3 355
Intangible assets 421 610 462
Investment in associates 11 11 13
Deferred tax assets 151 156 148
Financial assets 526 490 357
Insurance receivables 1 204 1 067 1 137
Trade and other receivables 411 962 451
Cash and cash equivalents 5 970 4 466 6 263
Assets of disposal groups classified as held for sale 9 70 - 66
Total assets 311 781 291 178 294 435
EQUITY AND LIABILITIES
Owners of the company 6 448 5 789 6 901
Non-controlling interest 251 169 218
Total equity 6 699 5 958 7 119
Financial liabilities held under multi-manager investment
contracts 13 298 944 278 940 281 604
Liabilities of insurance and cell-captive facilities 313 234 320
Borrowings 725 807 725
Employee benefits 166 174 160
Deferred tax liabilities 178 287 199
Provisions 306 324 291
Finance lease liability 72 78 75
Operating lease liability 192 260 182
Deferred income 4 47 5
Insurance payables 3 464 2 753 2 960
Trade and other payables 706 1 316 784
Liabilities of disposal groups classified as held for sale 9 12 - 11
Total liabilities 305 082 285 220 287 316
Total equity and liabilities 311 781 291 178 294 435
Total equity per above 6 699 5 958 7 119
Number of shares in issue (net of treasury shares) (millions) 1 262 1 280 1 282
Net asset value per ordinary share (cents) 531 465 555
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the six months ended 30 September 2017
Restated1 Audited
Six months Six months 12 months
30 Sept 30 Sept 31 March
Rm 2017 2016 2017
Cash flows from operating activities
Cash generated from operations 470 490 1 091
Net interest received 87 35 56
Taxation paid (127) (228) (378)
Dividends paid (600) (289) (509)
Operating cash flows from continuing operations (170) 8 260
Net cash flows received from/(paid to) insurance and
policyholder contracts 390 (415) (272)
Net cash flows received from/(paid to) policyholder
investment contracts 167 2 482 (1 007)
Cash flows from operating activities - discontinued operations (3) 133 250
Net cash inflow/(outflow) from operating activities 384 2 208 (769)
Cash flows from investing activities
Net proceeds from sale of subsidiaries and businesses - 52 883
Dividends from associates 4 - -
Net cash (outflow)/inflow on financial assets (174) 9 27
Capital expenditure for the period (net of proceeds on disposal) (173) (62) (125)
Cash flows from investing activities - discontinued operations - - (9)
Net cash (outflow)/inflow from investing activities (343) (1) 776
Cash flows from financing activities
Shares purchased in terms of share buy-back programme 2 (200) - -
Borrowings raised - 100 100
Repayment of borrowings - - (83)
Proceeds from non-controlling interests - - 744
Payments to non-controlling interests (9) (6) (113)
Cash flows from investing activities - discontinued operations - (116) (117)
Net cash (outflow)/inflow from financing activities (209) (22) 531
Net (decrease)/increase in cash and cash equivalents (168) 2 185 538
Cash and cash equivalents at the beginning of the period 16 087 15 748 15 748
Exchange gains/(losses) on foreign cash and cash equivalents 40 (127) (199)
Cash and cash equivalents at the end of the period 15 959 17 806 16 087
Analysed as follows:
Cash and cash equivalents of continuing operations 5 970 4 234 6 263
Cash held under multi-manager investment contracts 9 967 13 323 9 813
Cash held under cell-captive insurance facilities 13 17 -
Cash and cash equivalents of disposal groups held for sale 9 232 11
15 959 17 806 16 087
1. Restated for discontinued operations.
2. The group purchased Alexander Forbes Group Holdings Limited shares to the value of R200 million
during the period in a general buy-back approved by shareholders on 27 March 2017.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 September 2017
Accumu-
lated Non-con-
Share Treasury Other (loss)/ trolling Total
Rm capital shares reserves profit Total interest equity
At 31 March 2016 6 192 (181) 157 (267) 5 901 255 6 156
Total comprehensive income - - (189) 349 160 36 196
Profit for the period - - - 349 349 67 416
Other comprehensive income - - (189) - (189) (31) (220)
Total transactions with owners - (1) 19 (290) (272) (122) (394)
Movement of treasury shares in policyholder assets - (1) - - (1) - (1)
Dividends paid - - - (287) (287) - (287)
Movement in share-based payment reserve - - 20 - 20 - 20
Other movements in non-controlling interest 1 - - (1) (3) (4) (122) (126)
At 30 September 2016 6 192 (182) (13) (208) 5 789 169 5 958
Total comprehensive income - - (321) 1 129 808 45 853
Profit for the period - - - 1 116 1 116 42 1 158
Other comprehensive income - - (321) 13 (308) 3 (305)
Total transactions with owners - 22 (2) 284 304 4 308
Movement of treasury shares in policyholder assets - 22 - - 22 - 22
Introduction of empowerment partner 2 - - 5 521 526 222 748
Loss on shareholder transactions 3 - - - (18) (18) (4) (22)
Dividends paid - - - (222) (222) (197) (419)
Movement in share-based payment reserve - - (8) - (8) - (8)
Other movements in non-controlling interest 1 - - 1 3 4 (17) (13)
At 31 March 2017 6 192 (160) (336) 1 205 6 901 218 7 119
1. These amounts include distributions made to non-controlling interest holders as well as changes
to acquisitions and disposal of equity held by non-controlling interest holders.
2. This amount relates to the disposal of equity interest in Alexander Forbes Limited to African
Rainbow Capital.
3. Purchase by AF Investments of the remaining 49.99% stake in Caveo Fund Solutions Proprietary
Limited from a non-controlling interest.
Accumu- Non-con-
Share Treasury Other lated trolling Total
Rm capital shares reserves profit Total interest equity
At 31 March 2017 6 192 (160) (336) 1 205 6 901 218 7 119
Total comprehensive income - - 31 282 313 42 355
Profit for the period - - - 282 282 42 324
Other comprehensive income - - 31 - 31 - 31
Total transactions with owners - (129) (37) (600) (766) (9) (775)
Shares purchased in terms of share buy-back programme 4 - (200) - - (200) - (200)
Settlement of share incentive schemes 5 - 39 (39) - - - -
Movement of treasury shares in policyholder assets - 32 - - 32 - 32
Dividends paid - - - (600) (600) (9) (609)
Movement in share-based payment reserve - - 2 - 2 - 2
At 30 September 2017 6 192 (289) (342) 887 6 448 251 6 699
4. The group purchased Alexander Forbes Group Holdings Limited shares to the value of R200 million
during the period in a general buy-back approved by shareholders on 27 March 2017.
5. During the period R26 million of the conditional share incentive scheme and R13 million of the
forfeitable share scheme were settled. Both amounts relate to the 2014 tranche.
GROUP SEGMENTAL INCOME AND PROFIT ANALYSIS
For the six months ended 30 September 2017
Operating income Profit from operations
net of direct expenses before non-trading and capital items
Rm 2017 % 2016 2017 % 2016
Institutional clients
Consulting 415 2 405 43 - 43
Retirements 128 16 110 33 22 27
Investments 335 2 328 152 - 152
Group risk 38 31 29 11 57 7
916 5 872 239 4 229
Retail clients
Wealth and investments 421 1 415 171 (3) 176
Retail insurance 269 11 243 52 16 45
690 5 658 223 1 221
Emerging markets 115 (8) 125 3 (81) 16
Administration only 78 (16) 93 - - -
Total group before items below 1 799 3 1 748 465 - 466
Accounting for property leases (10) (33) (15)
Accounting for share scheme costs - (100) (16)
Total group 1 799 3 1 748 455 5 435
The segmental analysis provided above reflects the operating structure under which management
currently reports. The above table reflects a change in the segmental analysis previously reported.
Owing to the change in structure and the reallocation of certain business lines the prior period's
numbers have been represented to provide the appropriate comparative numbers.
SUMMARY NOTES
For the six months ended 30 September 2017
1. BASIS OF PREPARATION
The condensed consolidated interim results are prepared in accordance with the JSE Limited
(JSE) Listings Requirements, the requirements of International Financial Reporting Standards
(IFRS) and its interpretations as adopted by the International Accounting Standards Board,
the South African Institute of Chartered Accountants (SAICA) Financial Reporting Guides as
issued by the Accounting Practices Committee, financial pronouncements as issued by the
Financial Reporting Standards Council, the presentation requirements of IAS 34 Interim
Financial Reporting and the requirements of the South African Companies Act.
The accounting policies applied in the preparation of the condensed consolidated interim results
are consistent with those accounting policies applied in the preparation of the previous
consolidated annual financial statements.
These interim results have not been audited or independently reviewed by the group's external
auditors. The group's 2017 annual financial information has been correctly extracted from the
underlying audited consolidated annual financial statements, except where restated for
discontinued operations.
These condensed consolidated interim results were compiled under the supervision of
Naidene Ford-Hoon, CA(SA), the group chief financial officer. The directors take full
responsibility for the preparation of this report.
Six months Six months 12 months
30 Sept 30 Sept 31 March
2017 2016 2017
2. EXCHANGE RATES
The results of foreign subsidiaries have been translated
to rand as follows:
Weighted average R:GBP rate 17.0 19.8 19.0
Closing R:GBP rate 18.1 17.9 16.8
The weighted average exchange rate above reflects the weighted exchange rate based on the
actual results recorded from the international division during the period under review.
Six months Six months 12 months
30 Sept 30 Sept 31 March
Rm 2017 2016 2017
3. FEE AND COMMISSION INCOME
Brokerage fees and commission income 21 26 45
Fee income from consulting and administration services 1 043 1 041 2 096
Revenue from investment management activities 929 909 1 790
Other income 9 18 39
Fee and commission income 2 002 1 994 3 970
4. NET INCOME FROM INSURANCE OPERATIONS
Insurance premiums earned 1 189 1 139 2 318
Less: amounts ceded to reinsurers (688) (682) (1 399)
Investment income from insurance operations 17 19 37
Less: insurance claims and withdrawals (835) (784) (1 686)
Plus: insurance claims and benefits covered through
reinsurance contracts 647 591 1 294
Net income from insurance operations 330 283 564
5. NON-TRADING AND CAPITAL ITEMS
Non-trading:
Professional indemnity insurance cell-captive result 1 6 30
Amortisation of intangible assets arising from
business combination (46) (61) (117)
Costs relating to strategic consulting engagement (22) - (39)
Other non-trading items 1 (6) 7 (11)
Total non-trading and capital items (73) (48) (137)
1. Other non-trading items relate to an impairment of developed software.
6. INVESTMENT INCOME
General operations
Interest income 108 50 115
Investment and dividend income 21 13 33
Foreign exchange gains/(losses) on intergroup loans - 10 8
129 73 156
Multi-manager operations
Investment income linked to policyholder tax expense 14 20 22
Total investment income 143 93 178
7. FINANCE COSTS
Finance costs derived from financial liabilities classified
and carried at amortised costs:
Interest on revolving credit facility (30) (32) (66)
Net hedging costs 1 (9) - -
Other interest costs (9) (6) (23)
Total finance costs (48) (38) (89)
1. During the period under review the group entered into a foreign exchange contract to hedge
foreign denominated cash flows relating to the IT modernisation project. The group designated
only the change in the fair value of the spot element as the hedging instrument. Consequently,
changes in the spot rate are accounted for in a cash flow hedge reserve via other comprehensive
income whereas the changes in fair value as a result of the forward points are immediately
recognised in profit or loss and presented under finance costs.
Six months Six months 12 months
30 Sept 30 Sept 31 March
Rm 2017 2016 2017
8. INCOME TAX EXPENSE
South African income tax
Current tax (152) (130) (269)
Current period (149) (134) (275)
Prior period (3) 4 6
Deferred tax 15 15 33
Current period 15 16 26
Prior period - (1) 7
Foreign income tax
Current tax (6) (2) (4)
Current period (6) (2) (4)
Deferred tax 1 - -
Prior period 1 - -
Foreign withholding tax (3) (4) (5)
Corporate income tax expense (145) (121) (245)
Tax attributable to policyholders (14) (20) (22)
Current tax - current period (19) (36) (24)
Deferred tax - current period 5 16 2
Total income tax expense (159) (141) (267)
9. DISCONTINUED OPERATIONS
Businesses that have been disposed of or are considered discontinued are disclosed separately
with comparative information for the condensed consolidated income statement being restated.
Assets and liabilities held at the end of the period in respect of discontinued operations,
where the disposal process is ongoing, have been reclassified as assets and liabilities of
disposal groups held for sale.
As announced on 20 December 2016 on the JSE, the group disposed of its 60% stake in Lane Clark
& Peacock, including the LCP subsidiaries in Ireland and the Netherlands, for a total consideration
of GBP75.4 million. The Alexander Forbes (East Africa) operations continue to be reflected as
discontinued with ongoing discussions with management in that region for disposal.
In addition, the group considered the Alexander Forbes Jersey and Channel Islands operations as
discontinued at 31 March 2017. Management has, however, decided to continue with these operations
in the current period. The results of this business unit are included within the wealth and
investments sector of retail clients.
Six months Six months 12 months
30 Sept 30 Sept 31 March
Rm 2017 2016 2017
Assets and liabilities of disposal group classified as
held for sale
Long-term assets 5 - 5
Deferred tax assets 1 - 1
Trade and other receivables 53 - 47
Other current assets 2 - 2
Cash and cash equivalents 9 - 11
Total assets 70 - 66
Trade and other payables 12 - 11
Total liabilities 12 - 11
Condensed income statement from discontinued operations
Operating income net of direct expenses 27 956 1 303
Operating expenses (20) (821) (1 123)
Operating profit before non-trading and capital items 7 135 180
Net investment income/(finance costs) 1 2 (7)
Non-trading and capital items 10 (14) (1)
Profit before tax 18 123 172
Taxation (3) (17) (18)
Profit after tax 15 106 154
Profit on disposals - 4 796
Profit from discontinued operations 15 110 950
10. EARNINGS PER SHARE
10.1 Basic earnings per ordinary share
Basic earnings per share is calculated by dividing the profit for the period attributable
to owners of the company by the weighted average number of ordinary shares in issue during
the period.
10.2 Headline earnings per ordinary share
Headline earnings per share is calculated by excluding applicable non-trading and capital
gains or losses from the profit attributable to ordinary shareholders and dividing the
resultant headline earnings by the weighted average number of ordinary shares in issue
during the period. Headline earnings is defined in Circular 2/2015 issued by the
South African Institute of Chartered Accountants.
10.3 Diluted earnings per ordinary share
Diluted earnings per ordinary share is calculated by adjusting the profit attributable to
owners of the company for any changes in income or expense that would result from the conversion
of dilutive potential ordinary shares; and dividing the result by the weighted average
number of ordinary shares increased by the weighted average number of additional ordinary
shares that would have been outstanding, assuming the conversion of all dilutive potential
ordinary shares.
Six months Six months 12 months
30 Sept 30 Sept 31 March
Million 2017 2016 2017
10.4 Number of shares
Weighted average number of shares 1 341 1 341 1 341
Weighted average shares held by policyholders classified
as treasury shares (16) (20) (19)
Weighted average treasury shares (46) (42) (42)
Weighted average number of shares in issue
(net of treasury shares) 1 279 1 279 1 280
Dilutive shares (conditional and forfeitable share plan) 5 16 7
1 284 1 295 1 287
Actual number of shares in issue 1 341 1 341 1 341
Treasury shares (79) (61) (59)
Shares in issue net of treasury shares 1 262 1 280 1 282
Six months Six months 12 months
30 Sept 30 Sept 31 March
Rm 2017 2016 2017
10.5 Calculation of basic and headline earnings
from total operations
Profit attributable to owners of the company 282 349 1 465
Adjusting items
Profit on sale of subsidiary - (4) (796)
Impairment losses and other capital items (5) - 14
Headline earnings for the period 277 345 683
Earnings per share from total operations
Basic earnings per share (cents) 22.0 27.3 114.5
Headline earnings per share (cents) 21.7 27.0 53.4
Diluted basic earnings per share (cents) 22.0 26.9 113.8
Diluted headline earnings per share (cents) 21.6 26.7 53.1
The group has an approved share scheme for employees that may result in dilution on both
earnings per share and headline earnings per share at the future date of vesting.
The dilutive effect is conditional on employee retention and performance during the
period for each award. The above dilutive effect is calculated based on the performance
of the company for the current period in relation to the performance criteria.
Six months Six months 12 months
30 Sept 30 Sept 31 March
Rm 2017 2016 2017
10.6 Calculation of basic and headline earnings
from continuing operations
Profit after tax from continuing operations 309 306 624
Less: profit attributable to non-controlling interests (39) (6) (23)
Profit attributable to owners of the company 270 300 601
Adjusted for:
Impairment losses and other capital items 6 - 6
Headline earnings for the period from continuing operations 276 300 607
Earnings per share from continuing operations
Basic earnings per share (cents) 21.1 23.5 47.0
Headline earnings per share (cents) 21.6 23.5 47.4
Diluted basic earnings per share (cents) 21.0 23.1 46.7
Diluted headline earnings per share (cents) 21.5 23.2 47.2
10.7 Calculation of basic and headline earnings from
discontinued operations
Profit after tax from discontinued operations 15 110 950
Less: profit attributable to non-controlling interests (3) (61) (86)
Profit attributable to owners of the company 12 49 864
Adjusted for:
Profit on disposal of subsidiary - (4) (796)
Impairment losses and other capital items (11) - 8
Headline earnings for the period from
discontinuing operations 1 45 76
Earnings per share from discontinuing operations
Basic earnings per share (cents) 0.9 3.8 67.5
Headline earnings per share (cents) 0.1 3.5 6.0
Diluted basic earnings per share (cents) 1.0 3.8 67.1
Diluted headline earnings per share (cents) 0.1 3.5 5.9
11. CAPITAL EXPENDITURE FOR THE PERIOD 192 63 132
12. OPERATING LEASE COMMITMENTS
Due within one year 178 170 187
Due between one and five years 756 1 135 766
Due after five years 447 813 558
Total operating lease commitments 1 381 2 118 1 511
Capital expenditure and commitments will be funded from internal cash resources.
13. FINANCIAL ASSETS AND LIABILITIES HELD UNDER MULTI-MANAGER INVESTMENT CONTRACTS
The policyholder assets held by the group's multi-manager investment subsidiary,
Alexander Forbes Investments in South Africa and Namibia, are recognised on the statement
of financial position in terms of IFRS. These assets are directly matched by linked obligations
to policyholders.
The investments by underlying asset managers in the listed shares of the group are recognised
as treasury shares and all fair value adjustments recognised on these treasury shares are
reversed, while the corresponding fair value of the liability continues to be recognised
in the income statement. The resultant loss for the period of R11 million has been disclosed
separately on the face of the statement of comprehensive income. This treatment also impacts on
the number of shares in issue, the impact of which is disclosed in note 10.
Below is a reconciliation of the assets held under multi-manager investment contracts with
the linked liabilities under such contracts:
Six months Six months 12 months
30 Sept 30 Sept 31 March
Rm 2017 2016 2017
Total assets held under multi-manager investment contracts
(per statement of financial position) 298 859 278 817 281 498
Reversal of adjustments made under IFRS:
Alexander Forbes shares held as policyholder assets and
reclassified in the group statement of financial position
as treasury shares 105 158 137
Financial effects of accounting for policyholder investments
as treasury shares - prior periods (31) (33) (33)
Financial effects of accounting for policyholder investments
as treasury shares - current period 11 (2) 2
Total financial liabilities held under multi-manager
investment contracts 298 944 278 940 281 604
14. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS
14.1 Financial risk factors
The group's activities expose it to a variety of financial risks: market risk (including
currency risk, fair value interest rate risk, cash flow interest rate risk and price risk),
credit risk and liquidity risk.
The condensed consolidated financial statements do not include all financial risk management
information and disclosures required in the annual financial statements and this disclosure
should be read in conjunction with the group's annual financial statements as at 31 March 2017.
There have been no material changes in the risk management or in any risk management
policies since the year-end.
14.2 Liquidity risk
Compared with the 31 March 2017 year-end, there was no material change in the contractual
undiscounted cash outflows for financial liabilities.
14.3 Fair value hierarchy
The group classifies fair value measurements using a fair value hierarchy that reflects the
significance of the inputs used in making the measurements. The fair value hierarchy has
the following levels:
- Level 1: Quoted prices in active markets for identical assets or liabilities.
- Level 2: Inputs other than quoted prices that are observable for the asset or liability,
either directly or indirectly.
- Level 3: Inputs for valuation that are not based on observable market data (that is,
inputs are unobservable).
The table below analyses financial instruments carried at fair value by valuation method.
Rm Level 1 Level 2 Level 3 Total
30 September 2017
Financial assets measured at fair value 198 157 87 798 2 937 288 892
Financial assets held under multi-manager investment contracts 167 133 - 300
Financial assets of insurance and cell-captive facilities - 437 - 437
Total financial assets measured at fair value 198 324 88 368 2 937 289 629
Cash held under multi-manager investment contracts - 9 967 - 9 967
Cash held under cell-captive insurance facilities - 13 - 13
- 9 980 - 9 980
Financial liabilities measured at fair value
Financial liabilities held under multi-manager investment contracts - 298 944 - 298 944
Financial liabilities of insurance and cell-captive facilities - 313 - 313
Total financial liabilities measured at fair value - 299 257 - 299 257
31 March 2017
Financial assets measured at fair value
Financial assets held under multi-manager investment contracts 185 603 83 311 2 771 271 685
Financial assets of insurance and cell-captive facilities 172 148 - 320
General operations - 260 - 260
Total financial assets measured at fair value 185 775 83 719 2 771 272 265
Cash held under multi-manager investment contracts - 9 813 - 9 813
- 9 813 - 9 813
Financial liabilities measured at fair value
Financial liabilities held under multi-manager investment contracts - 281 604 - 281 604
Financial liabilities of insurance and cell-captive facilities - 320 - 320
Total financial liabilities measured at fair value - 281 924 - 281 924
Transfers between Levels 1 and 2
Movements in financial assets associated with multi-manager investment contracts and
cell-captive insurance facilities are directed by clients. These movements are a result
of investments and withdrawals made. There were no transfers between Levels 1 and 2 during
the period which were as a result of a change in valuation methodology.
Level 3 reconciliation
Level 3 financial assets and liabilities comprise mainly policyholder and cell-owner assets
and liabilities. Financial assets and financial liabilities in this level are insignificant
in relation to total financial assets and financial liabilities respectively. In addition,
the movements in financial liabilities are directly linked to the movements in the linked
asset. Any fair value gains or losses resulting from policyholder or cell-owner financial
assets and financial liabilities have no impact on profit or loss except to the extent that
they relate to treasury shares. There was no change in the valuation methodology of Level 3
assets during the period under review.
Sensitivity analysis for Level 3 financial assets
The following table presents significant inputs to show the sensitivity of Level 3
measurements and assumptions used to determine the fair value of the financial assets:
Instrument Valuation technique Significant inputs
Suspended listed equities Exchange traded price Last exchange traded price
Community property company assets Discounted cash flow model Capitalisation rates and discount rates
Infrastructure and development assets Equity Equity
Distribution discount model, cost, Interest rates and exchange traded prices
mark to market, price earnings
multiple and liquidation value
Debt Debt
Discounted cash flow model Interest rates - fixed and floating
The group's overall profit or loss is not sensitive to the inputs of the models applied to derive fair value.
14.4 Valuation methods and assumptions for valuation techniques
There were no changes in the valuation methods and assumptions for valuation techniques
since 31 March 2017. A detailed description of the valuation methods and assumptions for
valuation techniques is available in our annual financial statements.
14.5 Fair value of financial assets and financial liabilities measured at amortised cost
The fair value of the following financial assets and liabilities measured at amortised cost
approximate their carrying amount:
- Trade and other receivables
- Insurance receivables
- Cash and cash equivalents
- Trade and other payables
- Insurance payables
- Borrowings at a floating interest rate
15. CRITICAL ASSUMPTIONS AND JUDGEMENTS
During the year ended 31 March 2017 we reported a specific matter which was and is still being
reviewed by a foreign regulator in respect of a legacy subsidiary business that was sold in
prior years. The claim, should any arise, will be as a result of warrantees provided on the
original sale of the business. Management have assessed and concluded that it is still too early
to determine (i) if there is any liability that may arise and (ii) in the event a liability
does arise, if it will impact on the group. The group is adequately insured for possible claims
as a result of such errors and omissions. In addition, management have obtained confirmation
from the underwriters indicating that, should a liability arise, the event will be covered
subject to the terms and conditions of the policy.
16. EVENTS AFTER THE REPORTING PERIOD
No matter which is material to the financial affairs of the company has occurred between the
reporting date and the date of approval of the interim results.
CORPORATE INFORMATION
ALEXANDER FORBES GROUP HOLDINGS LIMITED
Registration number: 2006/025226/06
Tax reference number: 9404/921/15/8
JSE share code: AFH
ISIN: ZAE000191516
(Incorporated in the Republic of South Africa)
Independent directors
MD Collier (acting chairman), D Konar, HP Meyer, BJ Memela
Non-executive directors
MS Moloko (chairman - retired 1 November 2017), DJ Anderson, WS O'Regan, B Radebe (appointed 1 September 2017)
Executive directors
AA Darfoor (group chief executive)
N Ford-Hoon (Fok) (group chief financial officer - appointed 1 September 2017)
Company secretary
CH Wessels (appointed 1 October 2017)
Investor relations
Z Amra
Registered office
Alexander Forbes, 115 West Street, Sandown, 2196
Transfer secretaries
Computershare Investor Services Proprietary Limited
Rosebank Towers, 15 Biermann Avenue, Rosebank, 2196
PO Box 61051, Marshalltown, 2107
Sponsor
Rand Merchant Bank (A division of FirstRand Bank Limited)
1 Merchant Place, corner of Fredman Drive and Rivonia Road, Sandton, 2196
Website
http://www.alexanderforbes.co.za
Date of issue: 4 December 2017
Date: 04/12/2017 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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