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MAF
MAF
MAF-Mutual & Federal- Unaudited financial results: six months ended 30 June 2007
Mutual & Federal Insurance Company Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1970/006619/06)
JSE Share code: MAF
ISIN: ZAE000010823
NSX share code: MTF
Website: www.mf.co.za
E-mail: investor@mf.co.za
Unaudited financial results for the six months ended 30 June 2007
Income Statement for the six months ended 30 June 2007
30 June 30 June 31 December
2007 2006 Change 2006
R`m R`m % R`m
Gross premiums 4 594 4 260 8 8 549
Less: reinsurance premiums (667) (550) (1 122)
Net premiums 3 927 3 710 7 427
Change in provision for unearned
premiums net of reinsurance (114) (76) 32
Earned premiums net of reinsurance 3 813 3 634 7 459
Commission income on reinsurance 136 91 182
Net investment income 574 639 1 306
Other operating income 4 3 2
Net income 4 527 4 367 8 949
Claims incurred net of reinsurance (2 656) (2 330) (4 679)
Acquisition costs (802) (911) (1 794)
Management expenses (397) (354) (737)
Impairment of goodwill (20) (21) (36)
Profit before taxation 652 751 (13) 1 703
Taxation (151) (201) (726)
Profit after taxation 501 550 (9) 977
Share of profit of associate company 2 2 4
Profit for the period 503 552 981
Profit attributable to minority (54) (57) (115)
shareholders
Profit attributable to equity 449 495 (9) 866
holders of the company
Earnings per share
(a) Headline earnings per share are
calculated on profit attributable to
ordinary shareholders adjusted for
the impairment of goodwill,
intangibles and the profit on sale
of property and equipment.
Determination of headline earnings
Profit attributable to ordinary 449 495 866
shareholders
Impairment of goodwill 20 21 36
Impairment of intangible assets 10 14 10
Profit on sale of property and (3) (1)
equipment
Headline earnings 476 530 911
Headline earnings per share 187 211 (11) 361
(cents)
Diluted headline earnings per 178 203 344
share (cents) (note 2)
(b) Basic earnings per share are
based on profit attributable to
ordinary shareholders.
Basic earnings per share
Basic earnings per share (cents) 176 197 (11) 343
Diluted basic earnings per share 168 190 327
(cents) (note 2)
Ordinary dividend per share 45 40 175
declared in respect of the period
(cents)
Dividend per share paid in the 135 115 155
period (cents)
Special dividend per share (cents) 800
Net asset value per share (cents) 1 377 2 028 (32) 1 342
Number of shares in issue (million)
- at period end - excluding treasury 255,2 252,2 254,7
shares
- weighted average 254,8 251,6 252,5
- diluted weighted average (note 2) 267,8 260,9 264,8
Balance Sheet at 30 June 2007
As at As at As at
30 June 30 June 31 December
2007 2006 2006
R`m R`m R`m
Assets
Property and equipment 209 204 226
Investment in associate company 6 2 4
Goodwill 26 61 46
Intangible assets 167 101 132
Investment properties - 5 -
Investments at fair value through 5 547 5 932 5 051
profit and loss
Ordinary shares 3 497 3 015 2 963
Government stock 3 33 4
Money market instruments and other 2 047 2 884 2 084
Reinsurers` share of insurance 885 830 781
contract provisions
Deferred acquisition costs 181 159 174
Deferred taxation 6 5 10
Trade and other receivables 1 249 941 960
Cash and cash equivalents 1 082 2 307 1 159
Total assets 9 358 10 547 8 543
Equity and liabilities
Post retirement medical aid 148 135 147
provision
Deferred taxation 138 124 132
Interest bearing loans 1 7 5
Insurance contract provisions 4 254 3 956 3 730
Agents` balances, accounts payable 1 075 961 924
and provisions
Total shareholders` equity 3 742 5 364 3 605
Ordinary shareholders` capital and 3 513 5 115 3 417
reserves
Interest of minority shareholders 229 249 188
in subsidiary companies
Total equity and liabilities 9 358 10 547 8 543
Statement of Changes in Equity for the six months ended 30 June 2007
Share Contingency
R`m capital reserve
Balance at 31 December 2005 196 708
Profit for the period
Share based payments
Transfer to contingency reserve 44
Current period movements
Dividends paid
Issue of shares 15
Balance at 30 June 2006 211 752
Profit for the period
Share based payments
Transfer to contingency reserve 5
Current period movements
Dividends paid
Issue of shares 166
Balance at 31 December 2006 377 757
Profit for the period
Share based payments
Transfer to contingency reserve 31
Current period movements
Dividends paid
Issue of shares 29
Balance at 30 June 2007 406 788
Attributable to ordinary shareholders
of the group
Foreign Share
currency based Property
translation payments revaluation
R`m reserve reserve reserve
Balance at 31 December 2005 (18) 132 15
Profit for the period
Share based payments 10
Transfer to contingency reserve
Current period movements 3
Dividends paid
Issue of shares
Balance at 30 June 2006 (15) 142 15
Profit for the period
Share based payments 16
Transfer to contingency reserve
Current period movements (5) 4
Dividends paid
Issue of shares
Balance at 31 December 2006 (20) 158 19
Profit for the period
Share based payments 11
Transfer to contingency reserve
Current period movements (3)
Dividends paid
Issue of shares
Balance at 30 June 2007 (23) 169 19
Attributable to ordinary shareholders
of the group
Minority
share-
Retained holders`
R`m income interest Total
Balance at 31 December 2005 3 845 197 5 075
Profit for the period 495 57 552
Share based payments 10
Transfer to contingency reserve (44) -
Current period movements 3
Dividends paid (286) (5) (291)
Issue of shares 15
Balance at 30 June 2006 4 010 249 5 364
Profit for the period 371 58 429
Share based payments 16
Transfer to contingency reserve (5) -
Current period movements (2) (3)
Dividends paid (2 248) (119) (2 367)
Issue of shares 166
Balance at 31 December 2006 2 126 188 3 605
Profit for the period 449 54 503
Share based payments 11
Transfer to contingency reserve (31) -
Current period movements (3)
Dividends paid (390) (13) (403)
Issue of shares 29
Balance at 30 June 2007 2 154 229 3 742
Cash Flow Statement for the six months ended 30 June 2007
30 June 30 June 31 December
2007 2006 2006
R`m R`m R`m
Cash generated from operating 324 387 601
activities
Investment income 168 211 408
Taxation paid (59) (183) (787)
Cash inflow from operations 433 415 222
Cash (utilised in)/generated by (159) 185 1 440
investing activities
Decrease in funding requirements 274 600 1 662
Cash effects of financing activities (354) (270) (2 477)
Dividends paid (381) (276) (2 492)
Proceeds from issue of shares 27 6 15
(Decrease)/increase in cash and cash (80) 330 (815)
equivalents
Cash and cash equivalents at 1 159 1 974 1 974
beginning of year
Effect of exchange rate movements on 3 3 -
cash and cash equivalents
Cash and cash equivalents at end of 1 082 2 307 1 159
the period
Notes
1. Statement of compliance
The condensed consolidated interim financial statements have been prepared in
accordance with International Financial Reporting Standards ("IFRSs") and its
interpretations issued by the International Accounting Standards Board ("IASB")
for interim financial statements (IAS 34). The condensed interim financial
statements are in compliance with the Listings Requirements of the JSE Limited.
The condensed interim financial statements do not include all of the information
required for full annual financial statements. The accounting policies applied
in the preparation of these financial statements are consistent with those used
in the annual financial statements for the year ended 31 December 2006.
2. Diluted basic and headline earnings per share
Diluted basic and headline earnings per share are determined by adjusting the
weighted average number of ordinary shares outstanding to assume conversion of
all dilutive potential ordinary shares.
3. Segmental analysis
Risk
Commercial Finance Personal Unallocated Total
Divisional segments R`m R`m R`m R`m R`m
June 2006
Gross premiums 1 965 650 1 645 4 260
Profit/(loss) 176 9 (45) 611 751
before taxation
Total assets 1 374 373 511 8 289 10 547
Total liabilities 3 097 390 1 424 272 5 183
December 2006
Gross premiums 4 001 1 321 3 227 8 549
Profit/(loss) 459 14 (40) 1 270 1 703
before taxation
Total assets 1 451 289 565 6 238 8 543
Total liabilities 3 033 370 1 343 192 4 938
June 2007
Gross premiums 2 191 665 1 738 4 594
Profit/(loss) 126 6 (23) 543 652
before taxation
Total assets 1 628 443 670 6 617 9 358
Total liabilities 3 431 473 1 569 143 5 616
Supplementary Income Statement for the six months ended 30 June 2007
30 June 30 June 31 December
2007 2006 Change 2006
(Reflecting long-term rate of R`m R`m % R`m
return adjustment)
Technical account (note A)
Gross premiums 4 594 4 260 8 8 549
Net premiums 3 927 3 710 6 7 427
Earned premiums net of 3 813 3 634 7 459
reinsurance
Claims incurred net of (2 620) (2 310) (4 671)
reinsurance
Acquisition expenses (715) (846) (1 612)
Management expenses (369) (338) (721)
Net underwriting surplus 109 140 455
Investment return on insurance 211 141 50 289
funds (note B)
General insurance result 320 281 14 744
Long-term investment return on 207 209 (1) 329
shareholders` funds (note B)
Operating income based on long- 527 490 8 1 073
term investment return
Non-technical account (note A)
Short-term investment 156 289 688
fluctuations
Dividends, interest and 169 211 408
rentals
Realised surplus on 326 1 663 2 132
investments
Unrealised surplus/(deficit) 79 (1 235) (1 234)
on investments
Allocated investment return (418) (350) (618)
transferred to technical
account (note B)
Impairment of goodwill (20) (21) (36)
Non-operational items (11) (7) (22)
Profit before taxation 652 751 1 703
Taxation (including secondary (151) (201) (726)
tax on companies)
Profit after taxation 501 550 977
Profit attributable to (54) (57) (115)
minority shareholders of the
company
Share of profit of associate 2 2 4
company
Profit attributable to equity 449 495 866
shareholders
Operating earnings per share
Operating earnings per share
are calculated on profit
attributable to ordinary
shareholders adjusted for
impairment of goodwill, non-
operational items, share of
associated company`s profits,
short-term investment
fluctuations net of taxation
adjusted for minority
shareholders` share and
secondary tax on companies.
Determination of operating
earnings
Profit attributable to 449 495 866
ordinary shareholders
Impairment of goodwill 20 21 36
Non-operational items 11 7 22
Share of associated (2) (2) (4)
company`s profits
Short-term investment (156) (289) (688)
fluctuations
Minority shareholders` short- 14 23 24
term investment fluctuations
Taxation effect of short- 16 80 185
term investment fluctuations
Secondary tax on companies 42 29 319
Operating earnings 394 364 8 760
Operating earnings per share 155 145 7 301
(cents)
Diluted operating earnings 147 140 287
per share (cents) (note 2)
Combined ratio (%) (note C) 97,1 96,1 93,9
Notes to the supplementary income statement
A. Presentation
The results for the period, in accordance with IFRS, are shown in the income
statement. To illustrate the outturn of the insurance and investment operations,
the above supplementary income statement is provided and separated into:
(a) A technical account
The technical account includes a long-term investment return which is applied to
both:
(1) funds generated by the insurance activities;
(2) shareholders` funds
This rate of return was increased from 11,1% to 15,6% during the period in
accordance with the approach adopted by the holding company, Old Mutual. This
change in rate increased operating income by R121 million in 2007.
(b) A non-technical account
The non-technical account includes all non-insurance related activities
including investments, and above mentioned allocated investment returns
transferred to the technical account.
B. Allocation
The investment return on investments supporting insurance activities is
allocated to the technical account in determining the general insurance result.
In addition the long-term investment return on investments supporting
shareholders` funds is allocated from the non-technical account to the technical
account in determining an operating income based on the long-term investment
return. The allocations accordingly negate one another in the determination of
profit before taxation.
The long-term investment return on shareholders` funds is an estimate of the
long-term trend investment return for the relevant category of investments
having regard to past performance, current trends and future expectations.
C. Combined ratio
This reflects the ratio of total insurance expenditure to net earned premiums.
Comments
Underwriting profits declined during the first six months of 2007 following a
substantial increase in the incidence and severity of large commercial fires, an
increase in the frequency of commercial motor claims and extensive weather-
related losses following storms in Gauteng in January and KwaZulu-Natal in
March. These circumstances were exacerbated by the high levels of competition
which have prevailed during the last two years and which hindered efforts to
achieve premium levels commensurate with risks insured.
The underwriting result has been favourably impacted by a R48 million (2006: R36
million) reduction in technical reserves following further refinements of
estimation methods for technical reserves. The company has targeted a 75%
confidence level in applying these methods and the Board is satisfied that this
is appropriate for the company.
Premiums grew by 8% which reflects increases in rates offset by the cancellation
of certain uneconomic business which reflects management`s resolve to not pursue
growth at the expense of profitability. Actions to remedy unprofitable business
are proving successful and there were indications of improvements in a number of
portfolios during the second quarter.
Investment income declined by 10% during the period following the reduction in
shareholders` funds during 2006 after the payment of a special dividend. Returns
were nevertheless most satisfactory following strong gains in the price of
listed equities during the period.
The net asset value per share accordingly increased from R13,42 to R13,77 during
the period and the solvency margin (being the ratio of net assets to net
premiums) was 49% at 30 June 2007.
The Board remains optimistic regarding prospects but cautions that the results
for the six months are not necessarily indicative of the outcome for the
remainder of the year.
COMPLIANCE
The company complies in all material respects with the JSE Listings Requirements
and the King Report Code of Corporate Practices and Conduct.
CAPITALISATION AWARD WITH A CASH DIVIDEND ALTERNATIVE (NUMBER 75)
Notice is hereby given that the directors of the company have resolved to issue
fully paid ordinary shares in the company as a capitalisation award to ordinary
shareholders. Ordinary shareholders will be entitled, in respect of all or part
of their shareholding, to elect to receive new fully paid ordinary shares which
shares will be issued only to those ordinary shareholders who elect in respect
of all or part of their shareholding, on or before 12h00, Friday, 7 September
2007 to receive the capitalisation award shares. Shareholders not electing to
receive new fully paid ordinary shares in respect of all or part of their
shareholding will be entitled to receive a cash dividend alternative of 45 cents
per ordinary share ("the cash dividend alternative").
SALIENT DATES
In accordance with the provisions of STRATE, the electronic settlement and
custody system used by JSE Limited, the relevant dates for the capitalisation
award election and the cash dividend alternative are as follows:
2007
Last day to trade to receive the cash
dividend or participate in the
capitalisation award Friday, 31 August
Shares commence trading ex the cash dividend
and the capitalisation award Monday, 3 September
Listing of the maximum number of new
ordinary shares to be taken up in terms of
the capitalisation award Monday, 3 September
Last day to elect to receive capitalisation
award shares by no later than 12h00 on Friday, 7 September
Record date to participate in the
capitalisation award or receive the cash
dividend alternative on Friday, 7 September
Payment of the cash dividend alternative to
shareholders who have elected to not
participate in the capitalisation award or
have participated in the capitalisation
award in respect of only part of their
shareholding Monday, 10 September
New shares issued and posted or Central
Securities Depository Participant ("CSDP")
or broker accounts credited regarding the
shares to be issued to shareholders
participating in the capitalisation award in
respect of all or part of their shareholding
on Monday, 10 September
The maximum number of new shares listed in
terms of the capitalisation award adjusted
to reflect the actual number of shares
issued in terms of the capitalisation award
on or about Thursday, 13 September
Note:
1. Shares may not be dematerialised or rematerialised between Monday, 3
September 2007 and Friday, 7 September 2007, both days inclusive.
2. The above dates and times are subject to change. Any changes will be
published on Securities Exchange News Service ("SENS") and in the press.
The number of capitalisation shares to which shareholders are entitled will be
determined in the ratio that 45 cents per ordinary share bears to the 30 day
volume weighted average price for the company`s share, to be determined by no
later than Thursday, 23 August 2007. Details of the ratio will be published on
SENS not later than Friday, 24 August 2007 and in the financial press the
following business day. Trading in the STRATE environment does not permit
fractions and fractional entitlements. Accordingly, where a shareholder`s
entitlement to new ordinary shares calculated in accordance with the above
formula gives rise to a fraction of a new ordinary share, such fraction will be
rounded up to the nearest whole number where the fraction is greater than or
equal to 0,5 and rounded down to the nearest whole number where the fraction is
less than 0,5.
Note:
Dematerialised shareholders are required to notify their duly appointed CSDP or
broker of their election in terms of the capitalisation award in the manner and
at the time stipulated in the agreement governing the relationship between the
shareholder and his/her CSDP or broker.
On behalf of the Board
JB Magwaza B Campbell
(Chairman) (Managing Director)
1 August 2007
Registered Office: 19th Floor, Mutual & Federal Centre, 75 President Street,
Johannesburg, 2001
Transfer Secretaries: Computershare Investor Services 2004 (Pty) Limited, 70
Marshall Street, Johannesburg, 2001
Sponsor: Nedbank Capital, 135 Rivonia Road, Sandown, 2196
Mutual & Federal Insurance Company Limited (incorporated in the Republic of
South Africa)
(Registration number: 1970/006619/06)
JSE Share code: MAF ISIN: ZAE000010823 NSX share code: MTF
Website: www.mf.co.za E-mail: investor@mf.co.za
A Member of the Old Mutual Group Authorised Financial Services Provider
Date: 02/08/2007 08:00:04 Produced by the JSE SENS Department.
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