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AFP
AFP
AFP - Alexander Forbes - Audited results for the year ended 31 March 2011
ALEXANDER FORBES PREFERENCE SHARE INVESTMENTS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 2006/031561/06)
ISIN code: ZAE000098067
Share code: AFP
("AF Pref" or "the company" or "the group")
AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2011
- Headline earnings per linked unit increases by 56% from 80 cents to 125 cents
per linked unit
- Headline loss per preference share reduces from 10 cents to 0 cents per
preference share
- Investment income increases by 51% to R311 million
- Equity accounted share of loss of Alexander Forbes Equity Holdings reduces by
47% from R34 million to R18 million
REVIEW OF ACTIVITIES
Introduction
Alexander Forbes Preference Share Investments Limited ("AF Pref") was
incorporated on 10 October 2006. The sole purpose of the company is to
incorporate the special purpose vehicle through which certain existing
shareholders of Alexander Forbes Limited could remain invested following the
private equity buyout of the Alexander Forbes group with effect 26 July 2007.
AF Pref holds 26.5% of the ordinary shares in Alexander Forbes Equity Holdings
(Proprietary) Limited ("AFEH") and also holds 31,8% of the preference shares in
AFEH. In addition AF Pref holds 100% of the Pay-in-Kind ("PIK") debentures
issued by a subsidiary of AFEH, Alexander Forbes PIK Funding (Proprietary)
Limited ("AF PIK"), as well as 26.5% of the High-yield Term Loan and relevant
assets ("HYTL") issued by Alexander Forbes Funding (Proprietary) Limited ("AF
Funding").
Results for the year
This announcement should be read in conjunction with the announcement made
available by AFEH which provides an overview of the results of the AFEH group
for the year ended 31 March 2011. In summary, AFEH`s consolidated revenue, net
of direct product cost, increased by 3% to R4.6 billion compared to the prior
year and profit from operations before non-trading and capital items increased
by 8% to R1.1 billion. The loss attributable to AFEH equity holders (i.e. after
finance cost related to the funding structure and after tax) reduced by 42% to
R75 million from an attributable loss of R129 million in the previous financial
year. AF Pref`s share of this net loss amounts to R18 million which is equity
accounted in these financial statements and is the main contributor to the loss
reported by AF Pref for the year ended 31 March 2011 of R8 million.
In addition to the investment in the equity of AFEH, AF Pref also owns certain
debt instruments issued by the group as described above. Investment income
increased by 51% to R311 million as the full year`s interest income is
recognised following the acquisition of 26.5% of the HYTL issued by Alexander
Forbes Funding (Pty) Limited following a rights offer during the previous
financial year. This investment income is largely mirrored in the interest
expense on the debentures issued in turn by AF Pref and which form part of the
linked unit in issue.
Changes in directorate
With effect from 18 August 2010, Mr S Gaskell resigned as a director of the
company and was replaced by his alternate, Mr B Harmse. Mr Gaskell was appointed
Mr Harmse`s alternate director on the same date. With effect from 10 June 2011,
Mr John Doidge has resigned as alternate director and been appointed as Director
and Chairman of the Board and Mr Jan Wandrag as his alternate director. On the
same date, Mr Sean Gaskell resigned as alternate director. The board would like
to thank Mr Gaskell for his valuable contribution to the company, first as
director and later as alternate director, and welcomes and thanks Messrs Doidge
and Wandrag who have accepted their new roles.
The company is further reviewing the composition of the board in light of the
recently amended requirements of the Companies Act 71 of 2008.
Cautionary announcement
We draw shareholders` attention to the cautionary announcement issued on 3 May
2011 wherein shareholders were advised that AFEH is in discussions with an
interested party regarding a potential transaction affecting a portion of its
Risk Services business. Shareholders should continue to exercise caution in
dealing in AF Pref securities until further announcement is made. Shareholders
will be advised of further developments in this regard as and when they occur.
As mentioned above, this results announcement should be read in conjunction with
the results announcement made available to AF Pref shareholders by AFEH.
B Harmse TJ Fearnhead
Director Director
14 June 2011
SUMMARY INCOME STATEMENT
for the year ended 31 March 2011
31 Mar 31 Mar
2011 2010
Notes Rm Rm
Investment income 2 311 206
Operating expenses (3) (2)
Finance cost 3 (298) (199)
Share of net loss of associate (net of (18) (34)
income tax)
Loss before taxation (8) (29)
Income tax expense 4 - (1)
Loss for the year (8) (30)
Loss attributable to:
Equity holders 5 - -
Preference shareholders 5 (8) (30)
Loss for the year (8) (30)
Headline earnings/(loss) (cents)
- per ordinary share 6 - -
- per preference share 6 (0) (10)
- per debenture 6 125 90
- per linked unit 6 125 80
Basic earnings/(loss) (cents)
- per ordinary share 6 - -
- per preference share 6 (3) (13)
- per debenture 6 125 89
- per linked unit 6 122 76
SUMMARY STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 March 2011
Loss for the year (8) (30)
Share of post-acquisition non-distributable 13 (74)
reserves of associate
Other comprehensive income/(loss) for the 13 (74)
year (net of income tax)
Total comprehensive income/(loss) for the 5 (104)
year
Total comprehensive income/(loss)
attributable to:
Equity holders - -
Preference shareholders 5 (104)
Total comprehensive income/(loss) for the 5 (104)
year
SUMMARY STATEMENT OF FINANCIAL POSITION
at 31 March 2011
31 Mar 31 Mar
2011 2010
Notes Rm Rm
ASSETS
Investment in associate 7 711 710
Financial assets 8 1 787 1 504
Other receivables 1 1
Cash and cash equivalents 7 16
Total assets 2 506 2 231
EQUITY AND LIABILITIES
Ordinary shareholders` equity - -
Preference shareholders` interest - 1 037 1 037
component of linked units
Non-distributable reserve (105) (118)
Accumulated loss (195) (187)
Total equity 737 732
Debentures - component of linked units 1 769 1 499
Total equity and liabilities 2 506 2 231
Total equity attributable to ordinary 0 0
shareholders
Number of ordinary shares in issue (`000s) 1 1
Net asset value per ordinary share (Rand) 0 0
Total equity attributable to preference 737 732
shareholders
Number of preference shares in issue 237 237
(million)
Net asset value per preference share (Rand) 3.11 3.09
Total equity attributable to linked unit 737 732
holders
Value of debentures attributable to linked 1 769 1 499
unit holders
Total asset value attributable to linked 2 506 2 231
unit holders
Number of linked units in issue (million) 237 237
Net asset value per linked unit (Rand) 10.57 9.41
SUMMARY STATEMENT OF CASH FLOWS
for the year ended 31 March 2011
31 Mar 31 Mar
2011 2010
Rm Rm
CASH FLOWS FROM OPERATING ACTIVITIES
Cash (utilised)/generated from operations (2) 3
Taxation paid - (2)
Net cash (outflow)/inflow from operating (2) 1
activities
CASH FLOWS FROM INVESTING ACTIVITIES
(Decrease)/Increase in loan from associate (6) 6
Interest received on High-yield term loan 27 -
Investment in High-yield term loan and - (311)
relevant assets
Net cash inflow/(outflow) from investing 21 (305)
activities
CASH FLOWS FROM FINANCING ACTIVITIES
Debentures issued - 309
Payment of interest on debentures (28) -
Capital distribution to preference - (85)
shareholders
Net cash (outflow)/inflow from financing (28) 224
activities
Net movement in cash and cash equivalents (9) (80)
Cash and cash equivalents at beginning of 16 96
year
CASH AND CASH EQUIVALENTS AT END OF YEAR 7 16
SUMMARY STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2011
Ordinary Preference Non- Accumu- Total
share- share- distributable lated equity
holders` holders` reserve loss
equity interest
Rm Rm Rm Rm
At 31 March 2009 - 1 122 (44) (157) 921
Loss for the year - - - (30) (30)
Other comprehensive - - (74) - (74)
loss
Total comprehensive - - (74) (30) (104)
loss
Distribution to - (85) - - (85)
preference share
holders
At 31 March 2010 - 1 037 (118) (187) 732
Loss for the year - - - (8) (8)
Other comprehensive - - 13 - 13
income
Total comprehensive - - 13 (8) 5
income/(loss)
At 31 March 2011 - 1 037 (105) (195) 737
NOTES
1. Basis of preparation
These summary preliminary financial statements have been derived from the
audited annual financial statements in accordance with the requirements
of Section 8.57 of the JSE Limited Listings Requirements. The annual
financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS) and in the manner
required by the Companies Act of South Africa. These summary
preliminary financial statements have been prepared in terms of IAS34,
Interim Financial Reporting
The accounting policies applied in the preparation of these preliminary
results are consistent with those detailed in the annual financial
statements issued by AF Pref for the year ended 31 March 2010. During
the year, the company adopted all the IFRS and interpretations being
effective and deemed applicable to the company. None of these had a
material impact on the results of the company.
The results have been audited by PricewaterhouseCoopers Inc and a copy of
their unqualified audit opinion is available at the company`s
registered office.
31 Mar 31 Mar
2011 2010
Rm Rm
2. Investment income
Interest & investment income on held-
to-maturity financial assets:
PIK Debentures 207 171
High Yield term loan 88 26
Put & call option agreement 14 5
Amendment fee 1 -
Interest on cash balances 1 4
311 206
3. Finance costs
Interest cost on financial liability (298) (199)
held at amortised cost (debentures)
4. Income tax expense
South African income tax
Current tax - (1)
The standard South African income tax
rate for companies is reconciled to
the company`s actual tax rate as
follows:
Income tax rate for companies 28.0% 28.0%
Adjusted for the effect of:
Share of net loss of associate (net (62.5%) (33.4%)
of income tax)
Exempt income 50.1% 4.0%
Deferred tax asset not recognised (15.6%) -
Effective tax rate 0% (1.4%)
5. Loss attributable to equity holders and preference shareholders
The economic rights to return of capital and dividends for equity holders
and preference shareholders are detailed in section 5 of the pre-
listing statement issued by AF Pref on 10 July 2007 and in the
published annual financial statements.
6. Earnings per share
The preference shareholders have the economic rights to return
of capital and dividends and as such earnings and headline
earnings per share are all attributable to preference
shareholders and are nil for ordinary shareholders. Basic and
headline earnings per share for ordinary shareholders is
therefore zero.
6.1 Basic loss per preference share
Basic loss per share is calculated by dividing the loss for
the year attributable to equity holders by the weighted
average number of preference shares in issue during the year.
6.2 Headline loss per preference share
Headline loss per preference share is calculated by excluding
all impairment charges and capital gains and losses from the
loss attributable to shareholders and dividing the resultant
headline earnings by the weighted average number of preference
shares in issue during the year. Headline earnings are defined
in Circular 3/2009 issued by the South African Institute of
Chartered Accountants.
6.3 Calculation of earnings per share and per
linked unit
31 Mar 31 Mar
2011 2010
Loss for the year (R (a) (8) (30)
million)
Earnings attributable to (b) 298 199
debenture holders (R
million)
Headline adjusting items:
Share of impairment charge (c) 6 7
and other capital items of
associate
Weighted average number of (d) 237 237
preference shares in issue
(millions)
Weighted average number of (e) 237 221
linked units and debentures
in issue (millions)
Basic loss per preference (a)/(d) (3) (13)
share (cents)
Headline loss per preference (a+c)/(d) (0) (10)
share (cents)
Basic earnings per linked (a+b)/(e) 122 76
unit (cents)
Headline earnings per linked (a+b+c)/(e) 125 80
unit (cents)
31 Mar 31 Mar
2011 2010
Rm Rm
7. Investment in associate
Cost 1 038 1 038
Share of cumulative post - (105) (118)
acquisition movement in equity
Share of cumulative post - (222) (204)
acquisition losses
Loan from associate - (6)
Carrying value in balance sheet 711 710
Directors` valuation of associate 990 982
In terms of the South African Companies Act No. 61 of 1973
directors are required to provide a valuation of the associate
investment in Alexander Forbes Equity Holdings (Proprietary)
Limited. Shareholders are alerted to the fact that this valuation
is particularly sensitive to the relevant valuation assumptions
that are required to be made in performing such valuation. At 31
March 2011, the directors are of the opinion that the value of the
investment in AFEH is R990 million.
8. Financial assets
Opening balance 1 504 991
High-yield term loan (27) 279
(repaid)/acquired
Put and call option asset acquired - 31
Interest accrued 296 198
Fair value adjustment 14 5
Closing balance 1 787 1 504
Analysed as follows:
High-yield term loan receivable 367 305
Put and call option asset 50 36
Investment in PIK debentures 1 370 1 163
1 787 1 504
9. Debenture interest
Interest on debentures issued by AF Pref accrues on a daily basis
and will, subject to the terms of the debenture agreement, be
capitalised semi-annually on the last day of each interest period.
In terms of the debenture agreement, AF Pref is entitled at its
election to either pay the accrued interest in respect of each
interest period or capitalise such interest not paid in cash by
adding it to the principal outstanding. Such distributions are
entirely dependent upon whether AF Pref is in receipt of any cash
payments made in respect of the underlying debt instruments it
holds.
The terms of the PIK debentures held by the company anticipate the
roll-up of interest until exit date of the private equity holding
or refinance date and therefore no cash is received in this regard.
In respect of the HYTL, the company received R27 million of
interest in cash during the year being its portion of the R100
million paid by AF Funding and in turn the company paid R28 million
to debenture holders on 10 January 2011.
All remaining accrued interest on the debentures has been
capitalised and added to the principle amount outstanding. The
announcement issued by AFEH highlights the impact of the
introduction by the Financial Services Board of the new capital
adequacy requirements for long-term insurance companies, with
effect 30 June 2010, as well as in respect of registered financial
advisors and intermediaries with effect 31 December 2010. These
changes resulted in a significant increase in regulatory capital to
be held by various regulated entities within the AFEH group thereby
reducing the free cash resources available for distribution by the
AFEH group. The effect of this on the interest payments in respect
of the HYTL is discussed in more detail in the results announcement
issued by AFEH. Given the payment made in December 2010,
indications are that the HYTL interest payment in respect of June
2011 will be rolled up.
Independent directors: JRP Doidge (Chairman), TJ Fearnhead, B Harmse, J Wandrag
(Alternate)
Company secretary and Investor relations: JE Salvado
Transfer secretaries:
Computershare Investor Services (Pty) Limited
Ground Floor, 70 Marshall Street, Johannesburg
PO Box 61051, Marshalltown, 2107
Registered office: 5th Floor, The Terraces, 25 Protea Road
Claremont, 7708
Sponsor: RAND MERCHANT BANK (a division of FirstRand Bank Limited)
1 Merchant Place, corner Fredman Drive and Rivonia Road, Sandton, 2196
Independent auditors: PricewaterhouseCoopers Inc.
2 Eglin Road, Sunninghill, 2157
Date: 14/06/2011 13:01:01 Produced by the JSE SENS Department.
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