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MAF
MAF
MAF - Mutual & Federal Insurance Company - Reviewed Financial Results For
The Year Ended 31 December 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
Reviewed financial results for the year ended 31 December 2007
Authorised Financial Services Provider
A Member of the Old Mutual Group
Income Statement
for the year ended 31 December 2007
31 December 31 December
2007 2006 Change
R`m R`m %
Gross premiums 9 323 8 549 9
Less: reinsurance premiums (1 320) (1 122)
Net premiums 8 003 7 427 8
Change in provision for unearned (55) 32
premiums net of reinsurance
Earned premiums net of reinsurance 7 948 7 459
Commission income on reinsurance 249 182
Net investment income 850 1 306
Other operating income 4 8
Net income 9 051 8 955
Claims incurred net of reinsurance (5 235) (4 681)
Acquisition costs (1 797) (1 794)
Management expenses (803) (741)
Impairment of goodwill (40) (36)
Profit before taxation 1 176 1 703 (31)
Taxation (359) (726)
Profit after taxation 817 977 (16)
Share of profit of associate - 4
company
Profit for the period 817 981
Profit attributable to minority (84) (115)
shareholders
Profit attributable to equity 733 866 (15)
holders of the company
Earnings per share
(a) Headline earnings per share
are calculated on profit
attributable to equity holders of
the company adjusted for the
impairment of goodwill,
intangibles and the profit on sale
of property and equipment.
Determination of headline
earnings
Profit attributable to equity 733 866
holders of the company
Impairment of goodwill 40 36
Impairment of intangible assets 8 10
Profit on sale of property and (3) (1)
equipment
Headline earnings 778 911
Headline earnings per share 305 361 (16)
(cents)
Diluted headline earnings per 287 344
share (cents) (note 2)
(b) Basic earnings per share are
based on profit attributable to
equity holders of the company.
Basic earnings per share
Basic earnings per share (cents) 287 343 (16)
Diluted basic earnings per share 271 327
(cents) (note 2)
Ordinary dividend per share 45 175 -
declared in respect of the year
(cents)
Dividend per share paid in the 180 155
year (cents)
Special dividend per share 200 800
(cents)
Net asset value per share 1 255 1 342 (6)
(cents)
Number of shares in issue
(million)
- at period end - excluding 256,1 254,7
treasury shares
- weighted average 255,4 252,5
- diluted weighted average (note 270,8 264,8
2)
Balance Sheet
at 31 December 2007
As at As at
31 December 31 December
2007 2006
R`m R`m
Assets
Property and equipment 249 226
Investment in associate company 4 4
Goodwill 6 47
Intangible assets 185 132
Investments and securities 4 996 5 031
Ordinary shares 2 419 2 964
Government stock 3 3
Money market instruments and other 2 574 2 064
Reinsurers` share of insurance contract 897 781
provisions
Deferred acquisition costs 182 174
Subrogation recoveries 140 107
Deferred taxation 31 10
Loans and advances 49 65
Trade and other receivables 1 027 807
Cash and cash equivalents 1 142 1 159
Total assets 8 908 8 543
Equity and liabilities
Post retirement medical aid provision 156 147
Deferred taxation 35 132
Interest bearing loans 3 5
Insurance contract provisions 4 274 3 730
Agents` balances, accounts payable and 1 095 924
provisions
Total shareholders` equity 3 345 3 605
Equity holders of the company`s 3 215 3 417
capital and reserves
Interest of minority shareholders in 130 188
subsidiary companies
Total equity and liabilities 8 908 8 543
Statement Of Changes In Equity
for the year ended 31 December 2007
Attributable to equity holders of
the group
Foreign Share-
currency based
Contin- trans- pay-
Share gency lation ment
R`m capital reserve reserve reserve
Balance at 31 December 2005 196 708 (18) 132
Profit for the period
Share-based payments 26
Transfer to contingency 49
reserve
Current period movements (2)
Dividends paid
Issue of shares 181
Balance at 31 December 2006 377 757 (20) 158
Profit for the period
Share-based payments 20
Transfer to contingency 83
reserve
Current period movements (3)
Dividends paid
Issue of shares 83
Balance at
31 December 2007 460 840 (23) 178
Attributable to equity holders of
the group
Property Minority
revalua- share-
tion Retained holders`
R`m reserve income interest Total
Balance at 31 December 2005 15 3 845 197 5 075
Profit for the period 866 115 981
Share-based payments 26
Transfer to contingency (49) -
reserve
Current period movements 4 (2) -
Dividends paid (2 534) (124) (2 658)
Issue of shares 181
Balance at 31 December 2006 19 2 126 188 3 605
Profit for the period 733 84 817
Share-based payments 20
Transfer to contingency (83) -
reserve
Current period movements (1) 1 (3)
Dividends paid (1 035) (142) (1 177)
Issue of shares 83
Balance at
31 December 2007 18 1 742 130 3 345
Cash Flow Statement
for the year ended 31 December 2007
31 December 31 December
2007 2006
R`m R`m
Cash generated from operating activities 724 601
Investment income 383 408
Taxation paid (361) (787)
Cash inflow from operations 746 222
Cash generated by investing activities 331 1 440
Decrease in funding requirements 1 077 1 662
Cash effects of financing activities (1 094) (2 477)
Dividends paid (1 105) (2 492)
Proceeds from issue of shares 11 15
Decrease in cash and cash equivalents (17) (815)
Cash and cash equivalents at beginning of 1 159 1 974
year
Cash and cash equivalents at end of the 1 142 1 159
year
Notes
1. Statement of compliance
The condensed consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards ("IFRSs") and in
terms of IAS 34, and its interpretations issued by the International
Accounting Standards Board ("IASB"), and are in compliance with the Listings
Requirements of the JSE Limited. The 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
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
December 2007
Gross premiums 4 467 1 346 3 510 9 323
Profit before 324 13 29 810 1 176
taxation
Total assets 1 689 316 655 6 248 8 908
Total liabilities 3 389 491 1 558 125 5 563
Supplementary Income Statement
for the year ended 31 December 2007
31 December 31 December
2007 2006 Change
(Reflecting long-term rate of R`m R`m %
return adjustment)
Technical account (note A)
Gross premiums 9 323 8 549 9
Net premiums 8 003 7 427 8
Earned premiums net of reinsurance 7 948 7 459
Claims incurred net of reinsurance (5 234) (4 680)
Acquisition expenses (1 548) (1 612)
Management expenses (800) (734)
Net underwriting surplus 366 433
Investment return on insurance 429 289 48
funds (note B)
General insurance result 795 722 10
Long-term investment return on 482 329 47
shareholders` funds (note B)
Operating income based on long-term 1 277 1 051 22
investment return
Non-technical account (note A)
Short-term investment fluctuations (61) 688
Dividends, interest and rentals 383 408
Realised surplus on investments 1 006 2 132
Unrealised deficit on investments (539) (1 234)
Allocated investment return (911) (618)
transferred to technical account
(note B)
Impairment of goodwill (40) (36)
Profit before taxation 1 176 1 703
Taxation (including dividend tax) (359) (726)
Profit after taxation 817 977
Profit attributable to minority (84) (115)
shareholders
Share of profit of associate - 4
company
Profit attributable to equity 733 866
holders of the company
Operating earnings per share
Operating earnings per share are
calculated on profit attributable
to equity holders of the company
adjusted for impairment of
goodwill, share of associate
company`s profits, short-term
investment fluctuations net of
taxation adjusted for minority
shareholders` share and dividend
tax.
Determination of operating
earnings
Profit attributable to equity 733 866
holders of the company
Impairment of goodwill 40 36
Share of associate company`s - (4)
profit
Short-term investment 61 (688)
fluctuations
Minority shareholders` short-term (11) 24
investment fluctuations
Taxation effect of short-term (45) 185
investment fluctuations
Dividend tax 134 319
Operating earnings 912 738 24
Operating earnings per share 357 292 22
(cents)
Diluted operating earnings per 337 279
share (cents) (note 2)
Combined ratio (%) (note C) 95,4 94,2
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 result 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% in 2006 to 15,6% in 2007 in
accordance with the approach adopted by the holding company, Old Mutual. This
change in rate increased operating income by R262 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
Profit attributable to equity shareholders has decreased by 15% following a
reduction in underwriting results and investment income.
The underwriting surplus was enhanced by reserve releases of R96 million
(2006: R215 million) following further refinements to the estimation methods
used in the setting of technical provisions. If these are excluded, the
underwriting result improved over last year by R52 million in spite of an
exceptionally high number of commercial fires and a deterioration in the
commercial motor account. Whilst remedial action caused some improvement,
profitability in the motor account remains at unacceptable levels.
Investment income declined significantly following the disposal of investments
to finance a R2 billion special dividend in late 2006. Returns were
nevertheless satisfactory and benefited from strong gains in listed equities
during 2007.
The reductions in underwriting and investment income were largely offset by a
lower tax charge in 2007 following a significant dividend tax in 2006.
Despite the payment of a special dividend of 200 cents per share in December
2007, the net asset value per share declined by only 6% during the year to
R12,55 at 31 December 2007. The solvency margin at that date on an
international basis (being the ratio of net assets to net premiums) was 42%
which is in accordance with management`s long-term objectives.
As announced on 8 November 2007, Old Mutual plc is in discussions with a
community investment company, Royal Bafokeng Holdings (Proprietary) Limited
("RBH"), which may result in an offer being extended to all shareholders, as a
result of which RBH would acquire a majority interest in Mutual & Federal
("the pending offer"). Negotiations are continuing in this regard and
shareholders will be advised once further details are available.
There are signs of a hardening of rates and several insurers are increasing
premiums in a number of underrated sectors. Accordingly prospects for
underwriting profitability remain favourable and although recent electricity
load shedding has created substantial inconvenience to the company it is
unlikely to impact the underwriting account. As a result of the deterioration
in prospects in the world economy in 2008, equity markets are expected to be
exceptionally volatile during 2008 and the strong growth experienced during
2007 is unlikely to be repeated during 2008.
COMPLIANCE
The company complies in all material respects with the JSE Listings
Requirements and the King Report Code of Corporate Practices and Conduct.
REVIEW
KPMG Inc. has reviewed the financial information set out in this results
announcement with the exception of the supplementary income statement. The
unqualified review opinion is available for inspection at the company`s
registered office.
DIVIDEND
In terms of the pending offer from RBH, the purchase price payable will reduce
by the amount of any dividend paid and the resultant tax charge. Shareholders
who accept the offer will accordingly not benefit from the 7% escalation
accruing in respect of the amount of such dividend (irrespective of the
payment date) and the Board therefore believes that it would not be in the
interests of most shareholders to receive a dividend at this time. As the
offer will be in respect of a majority shareholding, the Board has accordingly
decided to not declare a final dividend.
On behalf of the Board
JB Magwaza KN Kennedy
(Chairman) (Managing Director)
7 February 2008
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
Website: www.mf.co.za
E-mail: investor@mf.co.za
Date: 08/02/2008 08:00:03 Produced by the JSE SENS Department.
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