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RAND MERCHANT INVESTMENT HOLDINGS LIMITED - Unaudited summary results announcement and cash dividend declaration for the six months ended 31 December 2019

Release Date: 12/03/2020 08:00
Code(s): RMI     PDF:  
 
Wrap Text
Unaudited summary results announcement and cash dividend declaration for the six months ended 31 December 2019

RAND MERCHANT INVESTMENT HOLDINGS LIMITED (RMI)
Registration number: 2010/005770/06
JSE ordinary share code: RMI
ISIN code: ZAE000210688


Unaudited summary results announcement and cash dividend declaration
for the six months ended 31 December 2019


Compound shareholders' return since listing in 2011: 16.9% per annum

Normalised earnings down 14% to R1 804 million (2018: R2 094 million) ((14%) to 117.8 cents per share)

Dividend unchanged at 45 cents per share

RMI is a strategic, active manager of a R47 billion financial services portfolio with shareholding in:

Discovery - 25.0%
Hastings - 29.8%
Momentum Metropolitan - 27.3%
OUTsurance - 89.1%
RMI Investment Managers - 100%
AlphaCode - 100%


OVERVIEW OF RESULTS

RMI's group consolidated normalised earnings decreased by 14% to R1.8 billion for the six months ended 31 December 2019. This result is mainly attributable to
the significant increase in spend on new strategic initiatives at Discovery and OUTsurance and an increase in the claims ratio of the short-term insurance
operations at OUTsurance following the Australian bushfires and also at Hastings.

It is important to note that:
- Sporadic and, most notably, natural catastrophe-linked claims spikes are an inevitable part of a short-term insurance business; and
- RMI is pleased with the investments in strategic initiatives at Discovery and OUTsurance, which are all showing signs of market traction and success.

Discovery's normalised earnings decreased by 11% for the six months ended 31 December 2019. All of Discovery's established and emerging businesses, with
the exception of VitalityLife, produced robust operating results. VitalityLife's earnings were negatively impacted by the strategic decision to mitigate its exposure to
further interest rate declines in the UK. In addition, the group invested R1 billion in new initiatives, an increase of 81% over the prior period. Of this spend, 53%
was dedicated to Discovery Bank, which is expected to remain the dominant investment going forward.

RMI included normalised earnings of R170 million from Hastings for the six months to 31 December 2019, 51% lower than the R348 million in the comparative
period. Hastings announced its 31 December 2019 year-end results on 27 February 2020, which reflected a 52% decline in normalised earnings in Sterling terms.
Gross written premiums were in line with the prior year, with volume growth offset by a change in the risk mix. Live client policies increased by 5% to 2.85 million,
driven by higher retention rates. Claims increased by 8% due to increased policy volumes and claims inflation of between 7% and 8%. The claims ratio of 82.6%
(post-Ogden) was significantly higher than the 75% claims ratio in the prior year and above the long-term target of between 75% and 79%.

Momentum Metropolitan recorded a 10% increase in diluted normalised earnings to R1.8 billion for the six-month period under review and a 12% increase in
diluted normalised earnings per share, reflecting the positive impact of the R2 billion share buy-back programme that was completed in November 2018. This
growth was supported by a resilient performance in the core South African life insurance businesses, underpinned by disciplined expense management and
steady underwriting results. Guardrisk delivered an excellent performance which, together with the sale of loss-making operations in the rest of Africa, contributed
to the overall growth in normalised earnings.

The highlights at OUTsurance for the six-month period were the continued growth recovery at Youi, the successful continuation of the expansion of OUTsurance
Business and strong OUTsurance Personal growth within a difficult economic climate. Overall group gross written premiums increased by 6% to R8.6 billion and
annualised new premium written increased by 15% to R2.1 billion. Normalised earnings, including OUTsurance's stake in Hastings, decreased by 12% to
R1.2 billion. Excluding its share in Hastings, OUTsurance's normalised earnings decreased by 6%. The devastating bushfires in Australia severely impacted the claims
ratio performance for the six-month period.

RMI Investment Managers is now in its fifth year of operations, with its financial performance tracking in line with managements expectations of investments in
affiliates at such an early stage of development.

Royal Investment Managers is a joint venture between RMI Investment Managers and Royal Bafokeng Holdings. The portfolio performed in line with expectations
during the period under review.

The net funding and holding company costs increased by 14% to R365 million. This increase is mainly attributable to a fair value gain on an interest rate swap
included in the comparative period which did not recur in the current period. RMI also channelled its enterprise and supplier development spend into its
AlphaCode initiative as part of its overall commitment to an enhanced transformation strategy.


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 reported normalised earnings of RMI's investee companies for the six months under review are listed in the table below:

                                                                                                   Six months ended
                                                                                                    31 December                               Year ended
                                                                                                                                                 30 June
R million                                                                                    2019                 2018          % change            2019

Discovery                                                                                   2 117                2 376               (11)          5 035
Hastings                                                                                      596                1 223               (51)          1 941
Momentum Metropolitan                                                                       1 772                1 618                10           3 074
OUTsurance (excluding Hastings)                                                             1 103                1 172                (6)          2 390
- OUTsurance (including Hastings)                                                           1 169                1 329               (12)          2 634
- Hastings included in OUTsurance                                                             (66)                (157)               58            (244)
Other1                                                                                         (5)                 (12)               58             (22)
1. Other includes RMI Investment Managers and AlphaCode investments.

A reconciliation of the adjustments made to derive normalised earnings is presented below.

RMI's consolidated normalised earnings for the period under review is listed in the table below:

                                                                                                 Six months ended
                                                                                                  31 December                                 Year ended
                                                                                                                                                 30 June
R million                                                                                     2019                2018          % change            2019

Discovery                                                                                      527                 597               (12)          1 261
Hastings                                                                                       170                 348               (51)            552
Momentum Metropolitan                                                                          479                 429                12             825
OUTsurance (excluding Hastings)                                                                998               1 052                (5)          2 145
- OUTsurance (including Hastings)                                                            1 058               1 193               (11)          2 364
- Hastings included in OUTsurance                                                              (60)               (141)               57            (219)
Other1                                                                                          (5)                (12)               58             (22)
Funding and holding company costs                                                             (365)               (320)              (14)           (680)
Normalised earnings                                                                          1 804               2 094               (14)          4 081
Normalised earnings per share (cents)                                                        117.8               137.2               (14)          266.9
1. Other includes RMI Investment Managers and AlphaCode investments.

MARKET VALUE OF INVESTMENTS

During the 2019 calendar year, RMI's share price decreased by 15% (2018: decreased by 21%), compared to a 7% decrease in the life insurance index and a 2%
decrease in the non-life insurance index. RMI has delivered a total annually compounded return to shareholders of 16.9% since its listing in March 2011.

The individual investment performances during the 2019 calendar year are outlined below:
- Discovery's share price decreased by 25% (2018: decreased by 14%).
- Hastings' share price decreased by 4% in Pound Sterling terms (2018: decreased by 42%) and by 3% in Rand terms (2018: decreased by 36%).
- Momentum Metropolitan's share price increased by 27% (2018: decreased by 18%).
- On a "look-through" basis, based on share prices as at 31 December 2019, the value attributed to RMI's unlisted investments decreased by 15% (2018:
  decreased by 15%) to R22.1 billion (2018: R26 billion). These unlisted investments include OUTsurance (excluding OUTsurance's 49% stake in the group's holding
  in Hastings) (89.1% held), RMI Investment Managers and the AlphaCode investments.

                                                                                                 As at 31 December                                As at
                                                                                                                                                30 June
R million                                                                                     2019                2018       % change              2019
Market value of listed investments                                                          34 832              39 577            (12)           38 726
Discovery                                                                                   19 881              26 335            (25)           24 575
Hastings (RMI's effective holding)                                                           6 192               6 372             (3)            6 543
- 29.8% holding                                                                              6 541               6 731             (3)            6 912
- Attributable to non-controlling interest in OUTsurance                                      (349)               (359)             3              (369)

Momentum Metropolitan                                                                        8 759               6 870             27             7 608
Market value of unlisted investments                                                        22 117              26 036            (15)           22 948
RMI Investment Managers and AlphaCode                                                        1 568                 836             88             1 035
Implied market value of RMI's stake in OUTsurance (excluding Hastings)                      20 549              25 200            (18)           21 913

Gross market value of portfolio                                                             56 949              65 613            (13)           61 674
Net liabilities of holding company                                                          (9 708)             (9 794)             1            (9 638)
RMI market capitalisation                                                                   47 241              55 819            (15)           52 036
RMI closing share price (cents)                                                              3 084               3 644            (15)            3 397


INTERIM DIVIDEND PAYMENT

The board believes RMI is adequately capitalised and that the company will be able to meet its obligations in the foreseeable future after payment of the interim
dividend.

The board resolved to declare an interim dividend of 45.0 cents (2018: 45.0 cents) per ordinary share. The interim dividend per ordinary share is covered 2.6 times
(2018: 3.0 times) by the normalised earnings of 117.8 cents (2018: 137.2 cents) per share.

Shareholders are referred to the cash dividend declaration below regarding the applicability of Dividend Withholding Tax to the ordinary dividend.

OUTLOOK AND ENDURING VALUE CREATION

Discovery is well positioned for growth over its planning horizon to 2023, with the capital plan intact. Key priority areas are:
- Execute on VitalityLife's stated plans to manage in the low interest rate environment, stabilise experience variances and return to robust profit in the 2021
  financial year;
- Achieve significant traction in new initiatives, most notably Discovery Bank, and ensure short-term new business thresholds are achieved for each initiative;
- Ensure the established businesses retain their insurgency; and
- Capitalise on emerging businesses' unique attributes and positioning to achieve scale and materiality.

The board and management of Hastings are confident in the group's profitable growth opportunities and its ability to deliver on its vision to become the best and
biggest digital insurance provider, with growth in the right market conditions. This will be driven by its competitive advantages of agile pricing, anti-fraud capabilities
and digital distribution. Consumer switching is set to continue and digital channels, including price comparison websites in particular, continue to grow at the
expense of more traditional distribution models. This plays to Hastings' core strategy of providing good value products in an accessible way for clients, enabled by
digital technology. Trading in 2020 has started in line with expectations. Hastings remains focused on pricing discipline, targeting a 75% - 79% loss ratio on written
business, supported by advanced risk selection and claims initiatives. Hastings does not expect any material impact on its operations following the UK's
withdrawal from the European Union.

Momentum Metropolitan will continue to focus on its Reset and Grow strategy, a roadmap that has served it well up to now. It will continue to invest carefully in
new revenue generating opportunities and in improved ways of work, while maintaining a clear focus on running the core South African life insurance operations
optimally. Consumers are under strain from the continued slow growth in disposable income and uncertain economic environment. This could have a moderating
impact on the group's operational performance in the second half of the 2020 financial year. Momentum Metropolitan remains cautiously optimistic that it will
successfully deliver on its Reset and Grow target of normalised headline earnings between R3.6 billion and R4.0 billion in the 2021 financial year.

OUTsurance's medium-term strategic focus is to expand its insurance product range and widen the distribution footprint to include multiple sales and service
channels. During the six months under review, it continued to expand the size and capability of its tied-agency force. A new motor warranty offering was added to
bolster the comprehensive motor product. OUTsurance entered into a partnership arrangement with Shoprite Holdings Limited. This partnership will allow it to
distribute long-term and short-term insurance products to the various client bases of the Shoprite group's operating brands and will commence with the
distribution of a funeral insurance product during the second quarter of 2020. During the six months under review, both OUTsurance and Youi continued to roll out
innovative digital service features, in line with the group's strategic priority of digitising service delivery.

RMI Investment Managers will ensure that its reputation as a trusted, value-adding but non-interfering shareholder of choice for the independent asset
management industry remains a core philosophy. The team and its partners in Momentum Metropolitan and RBH remain excited and committed to working with
the group's affiliates to support their growth to scale while playing a meaningful part in transforming the investment management industry.

AlphaCode is building on the entrepreneurial legacy record of financial innovation in RMI. AlphaCode identifies, partners and grows the next-generation of financial
services entrepreneurs through incubation, acceleration, collaboration and investment. The flagship initiative, AlphaCode Incubate, has identified and supported 40
black-owned next-generation financial services businesses over the past four years and provided more than R50 million in grant capital to these businesses.
AlphaCode also trained 38 students on the fundamentals of data science and entrepreneurship through the AlphaCode Explore learnership.

JJ Durand            HL Bosman
Chairman             Chief executive officer

Sandton

12 March 2020


CASH DIVIDEND DECLARATION

Notice is hereby given that a gross interim cash dividend of 45.0 cents per ordinary share, payable out of income reserves, was declared on 12 March 2020 in
respect of the six months ended 31 December 2019.

The dividend will be subject to Dividend Withholding Tax at a rate of 20%, which will result in a net dividend of 36.0 cents per ordinary share for those shareholders
who are not exempt.

The company's tax reference number is 9469/826/16/9. Its issued share capital at the declaration date comprises 1 531 807 770 ordinary shares.

Shareholders' attention is drawn to the following important dates:

Last day to trade in order to participate in this dividend                      Tuesday, 31 March 2020
Shares commence trading ex-dividend on                                          Wednesday, 1 April 2020
The record date for the dividend payment will be                                Friday, 3 April 2020
Dividend payment date                                                           Monday, 6 April 2020

No dematerialisation or rematerialisation of share certificates may be done between Wednesday, 1 April 2020 and Friday, 3 April 2020 (both days inclusive).

By order of the RMI board.


Schalk Human
Company secretary

Sandton
12 March 2020


INVESTOR CALL

Herman Bosman (chief executive officer) invites you to join him in a conversation about RMI's performance for the six months ended 31 December 2019.

He will be joined by Jan Hofmeyr, chief financial officer and Marthinus Visser, chief executive officer of OUTsurance.

This investor call will take place on Thursday, 12 March 2020 at 13:00 (SAST).

Participants can register for the conference by navigating to http://www.diamondpass.net/2845908.

Please note that registered participants will receive their dial in number upon registration.


SUMMARY CONSOLIDATED INCOME STATEMENT

                                                                                                          Six months ended
                                                                                                            31 December                               Restated
                                                                                                                                                    Year ended
                                                                                                                     Restated                          30 June
                                                                                                         2019            2018                             2019
R million                                                                                           Unaudited       Unaudited       % change           Audited
Earned premiums net of reinsurance                                                                      7 939           7 467              6            15 012
Commission and other income                                                                                26              15             73                35
Investment income                                                                                         141             111             27               211
Interest income on financial assets using the effective interest rate method                              241             313            (23)              587
Net fair value (losses)/gains on financial assets                                                         (90)            (49)            84                33
Net income                                                                                              8 257           7 857              5            15 878
Net claims paid                                                                                        (4 011)         (3 603)            11            (7 143)
Provision for cash bonuses                                                                               (243)           (227)             7              (451)
Fair value adjustment to investment contracts and insurance contract provisions                            12             (24)          100+              (122)
Fair value adjustment to financial liabilities                                                            (74)           (104)           (29)             (169)
Acquisition, marketing and administration expenses                                                     (2 341)         (2 111)            11            (4 415)
Profit before finance costs, results of associates and taxation                                         1 600           1 788            (11)            3 578
Finance costs                                                                                            (346)           (379)            (9)             (729)
Share of after-taxation results of associates                                                             984           1 139            (14)            2 612
Profit before taxation                                                                                  2 238           2 548            (12)            5 461
Taxation                                                                                                 (495)           (547)           (10)           (1 096)
Profit for the period from continuing operations                                                        1 743           2 001            (13)            4 365
Profit for the period from discontinued operation                                                         104               2           100+                 9
Profit for the period                                                                                   1 847           2 003             (8)            4 374
Attributable to:
Equity holders of the company                                                                           1 679           1 851             (9)            4 047
Non-controlling interests                                                                                 168             152             11               327
Profit for the period                                                                                   1 847           2 003             (8)            4 374


COMPUTATION OF HEADLINE EARNINGS

                                                                                                        Six months ended
                                                                                                         31 December                                Year ended
                                                                                                                                                       30 June
                                                                                                        2019             2018                             2019
R million                                                                                          Unaudited        Unaudited        % change          Audited
Earnings attributable to equity holders                                                                1 679            1 851              (9)           4 047
Adjustment for:
- Profit on sale of business unit                                                                       (111)               -                               (2)
- Loss/(profit) on dilution and disposal of equity accounted investments                                  57               26                             (129)
- Release of foreign currency translation reserve                                                         12                -                                -
- Impairment of owner-occupied building to below cost                                                      3               12                               14
- Impairment of goodwill                                                                                   2                -                                4
- Impairment relating to held for sale entities                                                            1               14                               24
- Impairment of intangible assets                                                                          -                9                               23
- Loss on disposal of property and equipment                                                               -                1                                5
- Gain on previously-held interests in DiscoveryCard business                                              -                -                             (191)
- Impairment of fixed assets                                                                               -                -                                6
Headline earnings attributable to equity holders                                                       1 643            1 913             (14)           3 801



COMPUTATION OF NORMALISED EARNINGS

RMI regards normalised earnings as the appropriate basis to evaluate business performance as it eliminates the impact of non-recurring items.

                                                                                                      Six months ended
                                                                                                       31 December                                   Year ended
                                                                                                                                                        30 June
R million                                                                                             2019              2018         % change              2019
Headline earnings attributable to equity holders                                                     1 643             1 913              (14)            3 801
RMI's share of normalised adjustments made by associates                                               158               190                                286
- Amortisation of intangible assets relating to business combinations                                  147               172                                329
- Transaction costs related to VitalityLife interest rate derivatives                                    5                 -                                  -
- Initial expenses related to Prudential Book transfer                                                   4                 3                                  6
- Unrealised losses on foreign exchange contracts not designated as a hedge                              2                 7                                 24
- Debt restructuring costs resulting from DiscoveryCard joint venture                                    -                 8                                  8
- Deferred tax raised on assessed losses                                                                 -                 -                                (82)
- Policyholder funds assessed loss                                                                       -                 -                                 (9)
- B-BBEE cost                                                                                            -                 -                                  6
- Costs relating to disposal of equity accounted investments                                             -                 -                                  4
Group treasury shares                                                                                    3                (9)                                (6)
Normalised earnings attributable to equity holders                                                   1 804             2 094              (14)            4 081



COMPUTATION OF EARNINGS PER SHARE

                                                                                                        Six months ended
                                                                                                         31 December                                  Year ended
                                                                                                                                                         30 June
                                                                                                      2019             2018                                 2019
R million                                                                                        Unaudited        Unaudited          % change            Audited
Earnings attributable to equity holders - Continuing and discontinued operations                     1 679            1 851                (9)             4 047
Earnings attributable to equity holders - Continuing operations                                      1 599            1 849               (14)             4 040
Headline earnings attributable to equity holders - Continuing and discontinued operations            1 643            1 913               (14)             3 801
Headline earnings attributable to equity holders - Continuing operations                             1 642            1 911               (14)             3 794

Number of shares in issue (millions)                                                                 1 532            1 532                 -              1 532
Weighted average number of shares in issue (millions)                                                1 529            1 524                 -              1 526

Earnings per share - Continuing and discontinued operations
Earnings per share (cents)                                                                           109.8            121.5                (10)            265.1
Diluted earnings per share (cents)                                                                   109.2            120.9                (10)            264.0
Headline earnings per share (cents)                                                                  107.5            125.6                (14)            249.0
Diluted headline earnings per share (cents)                                                          106.8            124.9                (14)            247.8

Earnings per share - Continuing operations
Earnings per share (cents)                                                                           104.6            121.4                (14)            264.6
Diluted earnings per share (cents)                                                                   104.0            120.8                (14)            263.5
Headline earnings per share (cents)                                                                  107.4            125.4                (14)            248.5
Diluted headline earnings per share (cents)                                                          106.8            124.8                (14)            247.4


COMPUTATION OF NORMALISED EARNINGS PER SHARE

                                                                                                        Six months ended
                                                                                                         31 December                                 Year ended
                                                                                                                                                        30 June
R million                                                                                             2019             2018          % change              2019
Normalised earnings attributable to equity holders - Continuing and discontinued operations          1 804            2 094               (14)            4 081
Normalised earnings attributable to equity holders - Continuing operations                           1 803            2 092               (14)            4 074

Number of shares in issue (millions)                                                                 1 532            1 532                 -             1 532
Weighted average number of shares in issue (millions)                                                1 532            1 526                 -             1 529

Earnings per share - Continuing and discontinued operations
Normalised earnings per share (cents)                                                                117.8            137.2               (14)            266.9
Diluted normalised earnings per share (cents)                                                        117.0            136.5               (14)            265.5

Earnings per share - Continuing operations
Normalised earnings per share (cents)                                                                117.7            137.1               (14)            266.4
Diluted normalised earnings per share (cents)                                                        117.0            136.4               (14)            265.0


DIVIDEND PER SHARE

                                                                                                        Six months ended
                                                                                                         31 December                                 Year ended
                                                                                                                                                        30 June
R million                                                                                                2019          2018         % change               2019
Dividend per share
Interim                                                                                                  45.0          45.0                -               45.0
Final                                                                                                       -             -                -               65.0
Total dividend                                                                                           45.0          45.0                -              110.0
Dividend cover (relative to headline earnings)                                                            2.4           2.8                                 2.3
Dividend cover (relative to normalised earnings)                                                          2.6           3.0                                 2.4



SHORT-FORM ANNOUNCEMENT

This short-form announcement is the responsibility of the directors and is only a summary of the information in the full announcement and does not contain full or
complete details. The full announcement was released on the JSEs Stock Exchange News Service (SENS) on 12 March 2020 and can be found on the company's
website at www.rmih.co.za or at https://senspdf.jse.co.za/documents/2020/jse/isse/RMIE/interim20.pdf. The full announcement is available for inspection at the
company's registered office and copies may also be requested at the company's registered office and at the offices of the sponsor, at no charge, during office
hours. Any investment decision should be based on the full announcement published on the company's website.


ADMINISTRATION

Directors

JJ Durand (chairman), HL Bosman (chief executive officer and financial director), JP Burger, P Cooper, (Ms) SEN de Bruyn, LL Dippenaar, PK Harris,
(Ms) A Kekana, P Lagerstrom, (Ms) MM Mahlare, MM Morobe, RT Mupita, O Phetwe and JA Teeger

Alternates

DA Frankel, F Knoetze and UH Lucht

Mr DR Wilson resigned as non-executive alternate director on 1 July 2019 and Mr UH Lucht was appointed as non-executive alternate director on
3 September 2019.

The following changes to RMI's subcommittees were effective from 15 November 2019:

- Mr P Lagerstrom took over from Ms SEN de Bruyn as chairperson of the audit and risk committee. Ms SEN de Bruyn remains a member of this committee.
- Mr JP Burger took over from Ms SEN de Bruyn as chairperson of the remuneration committee. Ms SEN de Bruyn remains a member of this committee.
- Mr P Cooper resigned as a member of the investment committee.

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 Listings Requirements)

Rand Merchant Bank (a division of FirstRand Bank Limited)
Physical address: 1 Merchant Place, Corner of Fredman Drive and Rivonia Road, Sandton, 2196


Transfer secretaries

Computershare Investor Services Proprietary Limited
Physical address:   Rosebank Towers, 15 Biermann Avenue, Rosebank
Postal address:     PO Box 61051, Marshalltown, 2107
Telephone:          +27 11 370 5000
Telefax:            +27 11 688 5221

Date: 12-03-2020 08:00:00
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