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MAF
MAF
MAF - Mutual & Federal Insurance Company Limited - Unaudited Financial Results
For The Six Months Ended 30 June 2008 And Cautionary Announcement
Unaudited financial results
for the six months ended 30 June 2008 and
cautionary announcement
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
Income Statement
30 June 30 June 31 December
2008 2007 Change 2007
R`m R`m % R`m
Gross premiums 4 689 4 594 2 9 323
Less: Reinsurance premiums (663) (667) (1 320)
Net premiums 4 026 3 927 3 8 003
Change in provision for (112) (114) (55)
unearned premiums net of
reinsurance
Earned premiums net of 3 914 3 813 7 948
reinsurance
Commission income on 117 136 249
reinsurance
Net investment income 278 574 850
Other operating income - 4 4
Net income 4 309 4 527 9 051
Claims incurred net of (2 827) (2 656) (5 235)
reinsurance
Acquisition costs (813) (802) (1 797)
Administration expenses (416) (397) (803)
Impairment of goodwill (3) (20) (40)
Profit before taxation 250 652 (62) 1 176
Taxation (78) (151) (359)
Profit after taxation 172 501 (66) 817
Share of profit of associate - 2 -
company
Profit for the period 172 503 817
Profit attributable to (25) (54) (84)
minority shareholders
Profit attributable to equity 147 449 (67) 733
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 147 449 733
equity holders of the company
Impairment of goodwill 3 20 40
Impairment of intangible - 10 8
assets
Profit on sale of property (1) (3) (3)
and equipment
Headline earnings 149 476 778
Headline earnings per share 58 187 (69) 305
(cents)
Diluted headline earnings 55 178 287
per 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 57 176 (68) 287
(cents)
Diluted basic earnings per 55 168 271
share (cents) (note 2)
Ordinary dividend per share 45 45 45
declared in respect of the
period (cents)
Dividend per share paid in 135 135 180
the period (cents)
Special dividend per share 200
(cents)
Net asset value per share 1 223 1 377 (11) 1 255
(cents)
Number of shares in issue
(million)
- at period end - excluding 273,5 255,2 256,1
treasury shares
- weighted average 257,6 254,8 255,4
- diluted weighted average 269,2 267,8 270,8
(note 2)
Balance Sheet
As at As at As at
30 June 30 June 31 December
2008 2007 2007
R`m R`m R`m
Assets
Goodwill 3 26 6
Intangible assets 226 167 185
Property and equipment 256 209 249
Deferred taxation 14 6 31
Investment in associate company 4 6 4
Deferred acquisition costs 202 181 182
Reinsurers` share of insurance 1 130 885 897
contract provisions
Loans and advances 49 56 49
Investments and securities 5 166 5 525 4 995
Ordinary shares 2 465 3 497 2 418
Money market instruments and 2 701 2 028 2 577
other
Trade and other receivables 1 163 1 215 1 167
Cash and cash equivalents 1 115 1 082 1 142
Total assets 9 328 9 358 8 907
Equity and liabilities
Insurance contract provisions 4 751 4 254 4 274
Finance lease liabilities 6 1 3
Post retirement medical aid 155 148 156
provision
Deferred taxation 35 138 34
Agents` balances, accounts 904 1 075 1 095
payable and provisions
Total shareholders` equity 3 477 3 742 3 345
Equity holders of the 3 344 3 513 3 215
company`s capital and reserves
Interest of minority 133 229 130
shareholders in subsidiary
Total equity and liabilities 9 328 9 358 8 907
Statement Of Changes In Equity
Attributable to equity holders of the
company
Foreign Share-
currency based
Contin- trans- pay-
Share gency lation ment
R`m capital reserve reserve reserve
Balance at
31 December 2006 377 757 (20) 158
Profit for the period
Share-based payments 11
Transfer to contingency
reserve 31
Current period movements (3)
Dividends paid
Issue of shares 29
Balance at
30 June 2007 406 788 (23) 169
Profit for the period
Share-based payments 9
Transfer to contingency
reserve 52
Current period movements
Dividends paid
Issue of shares 54
Balance at
31 December 2007 460 840 (23) 178
Profit for the period
Share-based payments 12
Transfer to contingency 2
reserve
Current period movements 6
Dividends paid
Issue of shares 371
Balance at 30 June 2008 831 842 (17) 190
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Property Minority
revalua- share-
tion Retained holders`
R`m reserve income interest Total
Balance at
31 December 2006 19 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 19 2 154 229 3 742
Profit for the period 284 30 314
Share-based payments 9
Transfer to contingency
reserve (52) -
Current period movements (1) 1 -
Dividends paid (645) (129) (774)
Issue of shares 54
Balance at
31 December 2007 18 1 742 130 3 345
Profit for the period 147 25 172
Share-based payments 12
Transfer to contingency (2) -
reserve
Current period movements 6
Dividends paid (407) (22) (429)
Issue of shares 371
Balance at 30 June 2008 18 1 480 133 3 477
Cash Flow Statement
30 June 30 June 31 December
2008 2007 2007
R`m R`m R`m
Cash generated from operating 307 324 744
activities
Investment income 229 168 384
Taxation paid (253) (59) (361)
Cash inflow from operations 283 433 767
Cash (utilised in)/generated by (252) (159) 310
investing activities
Decrease in funding requirements 31 274 1 077
Cash effects of financing (58) (354) (1 094)
activities
Dividends paid (68) (381) (1 105)
Proceeds from issue of shares 10 27 11
Decrease in cash and cash (27) (80) (17)
equivalents
Cash and cash equivalents at 1 142 1 159 1 159
beginning of year
Effect of exchange rate movements - 3 -
on cash and cash equivalents
Cash and cash equivalents at end of 1 115 1 082 1 142
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 (IAS34). 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 2007.
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
Divisional segments R`m R`m R`m
June 2007
Gross premiums 2 191 665 1 738
Profit/(loss) before taxation 120 6 (28)
Total assets 1 628 443 670
Total liabilities 3 431 473 1 569
December 2007
Gross premiums 4 467 1 346 3 510
Profit/(loss) before taxation 325 12 29
Total assets 1 689 316 655
Total liabilities 3 389 491 1 558
June 2008
Gross premiums 2 426 572 1 691
Profit before taxation 15 5 (43)
Total assets 2 062 304 797
Total liabilities 3 688 502 1 536
Investment
Activities Unallocated Total
Divisional segments R`m R`m R`m
June 2007
Gross premiums 4 594
Profit/(loss) before taxation 574 (20) 652
Total assets 5 525 1 092 9 358
Total liabilities 143 5 616
December 2007
Gross premiums 9 323
Profit/(loss) before taxation 850 (40) 1 176
Total assets 4 995 1 252 8 907
Total liabilities 124 5 562
June 2008
Gross premiums 4 689
Profit before taxation 278 (5) 250
Total assets 5 166 999 9 328
Total liabilities 125 5 851
Supplementary Income Statement
30 June 30 June 31 December
2008 2007 Change 2007
(Reflecting long-term rate of R`m R`m % R`m
return adjustment)
Technical account (note A)
Gross premiums 4 689 4 594 2 9 323
Net premiums 4 026 3 927 3 8 003
Earned premiums net of 3 914 3 813 7 948
reinsurance
Claims incurred net of (2 793) (2 620) (5 235)
reinsurance
Acquisition expenses (745) (715) (1 548)
Management expenses (399) (380) (799)
Net underwriting (23) 98 366
(deficit)/surplus
Investment return on 233 211 10 429
insurance funds (note B)
General insurance result 210 309 (32) 795
Long-term investment return 228 207 10 482
on shareholders` funds (note
B)
Operating income based on 438 516 (15) 1 277
long-term investment return
Non-technical account (note
A)
Short-term investment (183) 156 (61)
fluctuations
Dividends, interest and 229 169 384
rentals
Realised surplus on 104 326 1 006
investments
Unrealised (55) 79 (540)
(deficit)/surplus on
investments
Allocated investment (461) (418) (911)
return transferred to
technical account (note B)
Impairment of goodwill (3) (20) (40)
Non-operational items (2) - -
Profit before taxation 250 652 1 176
Taxation (including dividend (78) (151) (359)
tax)
Profit after taxation 172 501 817
Profit attributable to (25) (54) (84)
minority shareholders
Share of profit of associate - 2 -
company
Profit attributable to equity 147 449 733
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 147 449 733
equity holders of the company
Impairment of goodwill 3 20 40
Non-operational items 2 - -
Share of associate - (2) -
company`s profits
Short-term investment 183 (156) 61
fluctuations
Minority shareholders` (11) 14 (11)
short-term investment
fluctuations
Taxation effect of short- (10) 16 (45)
term investment fluctuations
Dividend tax 11 42 134
Operating earnings 325 383 (15) 912
Operating earnings per 126 150 (16) 357
share (cents)
Diluted operating earnings 121 143 337
per share (cents) (note 2)
Combined ratio (%) (note C) 100,6 97,4 95,4
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 results 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 15,6% in 2007 to 16,6% in 2008 in
accordance with the approach adopted by the holding company, Old Mutual plc.
This change in rate increased operating income by R28 million in 2008.
(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
The underwriting result declined during the first six months of 2008 and a
deficit of R23 million was recorded. This compares to a surplus of R98 million
in the comparable period in 2007 which was favourably impacted by a R48 million
reduction in technical reserves. The deterioration reflects a significant
increase in the number of commercial and industrial fire claims and ongoing
difficulties with the motor section of the group schemes portfolio, and
management have already taken corrective action to remedy the situation.
Gross premiums grew by 2% and whilst growth within the commercial portfolio was
in line with inflation, the personal portfolio contracted following the
cancellation of a number of underperforming group schemes. Risk finance premiums
also declined following lower levels of reinsurance received from insurers in
the retail sector.
Investment income declined significantly following substantially lower returns
on listed equities and reduced holdings following the disposal of investments to
pay a special dividend of approximately R600 million in December 2007.
In the light of the above adverse trading conditions, profit for the period
declined substantially. The Board however recognises the cyclical nature of
short-term insurance results and is satisfied that appropriate correctional
measures have been taken to improve underwriting results. They accordingly
remain optimistic that this, together with a general improvement in the medium-
term investment climate, will result in a return to more favourable financial
results.
Despite the payment of a dividend of R1,35 per share, the net asset value per
share declined only slightly during the period from R12,55 to R12,23 at 30 June
2008. The solvency margin remains strong, and at that date on an international
basis (being the ratio of net assets to net premiums) was 43% which is in
accordance with the company`s long-term objective.
As announced recently, the company is undertaking a review of the overall
structure and operations with a view to improving efficiency and profitability.
It is envisaged that this exercise could result in additional expenditure of
between R30 million and R60 million in the second half of 2008. The company is
presently engaged in a process of consultation in this regard.
COMPLIANCE
The company complies in all material respects with the JSE Listings Requirements
and the King Report Code of Corporate Practices and Conduct.
CAUTIONARY ANNOUNCEMENT
Shareholders are advised that the board of Mutual & Federal ("the company") has
been informed by Old Mutual plc ("Old Mutual"), the company`s controlling
shareholder, of Old Mutual`s intention to initiate a competitive sale process in
September 2008 to dispose of its entire shareholding in the company.
Accordingly, shareholders are advised to exercise caution when dealing in the
company`s shares until a further announcement is made in this regard.
CAPITALISATION AWARD WITH A CASH DIVIDEND ALTERNATIVE (NUMBER 78)
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, 5 September
2008 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:
2008
Last day to trade to receive the cash Friday, 29 August
dividends or participate in the
capitalisation award
Shares commence trading ex the cash Monday, 1 September
dividends and the capitalisation award
Listing of the maximum number of new
ordinary shares to be taken up in terms of
the capitalisation award Monday, 1 September
Last day to elect to receive Friday, 5 September
capitalisation award shares by no later
than 12h00
Record date to participate in the Friday, 5 September
capitalisation award or receive the cash
dividend alternative
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, 8 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 Monday, 8 September
shareholding
The maximum number of new shares listed in
terms of the capitalisation award adjusted
to
reflect the actual number of shares issued Thursday, 11 September
in terms of the capitalisation award on or
about
Note:
1. Shares may not be dematerialised or rematerialised between Monday, 1
September 2008 and Friday, 5 September 2008, 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, 21 August 2008. Details of the ratio will be published on
SENS not later than Friday, 22 August 2008 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.
3. The right to capitalisation shares in jurisdictions other than the Republic
of South Africa and Namibia may be restricted by law and a failure to comply
with any of those restrictions may constitute a violation of the securities laws
of any such jurisdictions. Shareholders` rights to capitalisation shares are not
being offered, directly or indirectly, in the United States of America, the
United Kingdom, Canada, Australia or Japan, unless certain exemptions from the
requirements of those jurisdictions are applicable.
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 KN Kennedy
(Chairman) (Managing Director)
5 August 2008
Registered Office:
19th Floor, Mutual & Federal Centre, 75 President Street, Johannesburg, 2001
Transfer Secretaries:
Computershare Investor Services (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: 05/08/2008 08:00:01 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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