| Wed 14 Sep 2011, 16:00 | | RMI - Rand Merchant Insurance Holdings Limited - Summarised audited results |
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RMI
RMI
RMI - Rand Merchant Insurance Holdings Limited - Summarised, audited results
announcement and cash dividend declaration for the period ended 30 June 2011
RAND MERCHANT INSURANCE HOLDINGS LIMITED
(formerly Main Street 796 (Proprietary) Limited)
(Incorporated in the Republic of South Africa)
(Registration number 2010/005770/06)
JSE Ordinary share code: RMI
ISIN: ZAE000153102
("RMI Holdings")
SUMMARISED, AUDITED RESULTS ANNOUNCEMENT AND CASH DIVIDEND DECLARATION FOR THE
PERIOD ENDED 30 JUNE 2011
R0,6 billion
or 128,4 cents
Normalised earnings
R0,6 billion
or 56,5 cents
Dividend
R19,6 billion
or 1 318 cents
Intrinsic Value
Group restructuring
Having obtained the requisite shareholder and regulatory approval, RMB
Holdings Limited ("RMBH") implemented a far reaching restructuring on 7 March
2011. In the context of Rand Merchant Insurance Holdings Limited ("RMI
Holdings"), this included, inter alia, the following steps:
the separation of RMBH`s insurance and banking interests, through the
transfer of RMBH`s insurance interests to RMI Holdings (then a wholly-
owned subsidiary); and
the unbundling of RMI Holdings to RMBH`s ordinary shareholders on a one-
for-one basis and the separate listing of RMI Holdings on the JSE as an
insurance-focused investment entity.
After the restructuring and further subsequent acquisitions, the interests of
RMI Holdings comprise an investment portfolio of South Africa`s premier
insurance brands:
25% of Discovery;
26% of MMI;
90% of OUTsurance; and
76% of RMB-SI.
RMI Holdings was incorporated on 24 March 2010. The effective date of the
transfer of the investments from RMBH was 1 March 2011. Thus, while this
maiden financial report of RMI Holdings covers the fifteen month period to 30
June 2011, it was effectively dormant for the first eleven months of the
period and its financial results only include income from the underlying
investments for the four months ended on that date.
Overview of results
Global economic growth started to moderate in the first half of 2011,
particularly in highly-indebted, developed economies and sentiment was further
dampened by increased concern over the fiscal health of certain peripheral
Eurozone nations.
Factors that weighed on global economic activity included the devastating
Japanese earthquake (resulting in the disruption of global supply chains);
political unrest in North Africa and the Middle East; adverse weather
conditions; and growing demand from emerging market economies (pushing oil and
grain prices upwards).
Against this uncertain global economic backdrop, the South African economy
continued on its tentative recovery path, registering quarterly growth rates
above 2,5% during the financial year. South African consumers, who benefited
from low debt service costs and robust real income growth, were the main
drivers behind this expansion. In addition, increased global commodity prices
provided support to the South African export sector. However, employment
growth, demand for credit and investment spending by the private sector
remained sluggish. Inflation tracked within the South African Reserve Bank`s
("SARB") target band.
Notwithstanding such economic uncertainty, all of the businesses in which RMI
Holdings are invested, produced excellent results, with strong positive to
exceptional growth being recorded in (unaudited) core or normalised earnings:
Discovery +31% to R2 028 million
MMI +12% to R2 588 million
OUTsurance +39% to R807million
RMB-SI >100% to R92 million
In this, its maiden financial report, RMI Holdings only accounts for income
from its investments for the four months ended 30 June 2011. Consequently, it
is not possible to present full year results (or comparatives) at group level.
The following outcome arises:
R million Cents
per
share
Attributable earnings 570 115,6c
Headline earnings 525 106,4c
Normalised earnings 636 128,4c
RMI Holdings already held its investments in the underlying entities at the
stage that the interim dividends were paid. Accordingly, shareholders receive
the benefit of both interim and final dividends for the period. Total ordinary
dividends payable to RMI Holdings shareholders for the period ended 30 June
2011 amounts to 56,5 cents per share.
The group`s underlying intrinsic value at 30 June 2011 can be compared to its
market value as follows:
R million Cents
per
share
Intrinsic value 19 579 1 318c
Market Capitalisation 18 348 1 235c
Discount (6,3%)
Sources of income
Predominantly sourced from Southern Africa, RMI Holdings` well-diversified
income stream is drawn from the full spectrum of insurance business:
Health 13%
Life 30%
Short term 40%
Asset management 2%
Income on insurance capital 15%
Group borrowings and capital position
At the end of June 2011, RMI Holdings` net borrowings at holding company level
amounted to some R 0,53 billion. We anticipate that the borrowings which was
raised in part to finance the acquisition of our enlarged interest in
OUTsurance, can be maintained at this level.
The intrinsic value of the RMI Holdings` investment at 30 June 2011 was as
follows:
R
million
Market value of interest in:
- Discovery 5 707
- MMI 6 654
Directors valuation of interest in:
- OUTsurance 7 500
- RMB-SI 254
Total market and directors valuation 20 115
Net borrowings 536
Total Intrinsic Value 19 579
Per RMI Holdings` share (cents) 1 318c
At 30 June 2011, RMI Holdings` market capitalisation amounted to R18 348
million or 1 235c per share, representing a 6,3% discount to the group`s
underlying intrinsic value.
Dividend payment
We have continued with our stated practice of paying out to shareholders
substantially all dividends received from our underlying investments, after
servicing funding and other commitments that we may have at the centre.
Consequently, the Board resolved to declare a final dividend of 33,7 cents per
share. Such final dividend, together with the interim dividend of 22,8 cents
brings the total dividends for the period to 30 June 2011 to 56,5 cents. Such
dividend is covered 2,3 times by the normalised earnings 128,4 cents of per
share.
A shareholder who has retained both his RMBH and RMI Holding shares would have
received the following ordinary dividends post the unbundling:
2011 2010 %
Interim Final Total Total change
RMBH 42,7 58,3 101,0 124,0
RMI Holdings 22,8 33,7 56,5 -
Total 65,5 92,0 157,5 124,0 +27%
Industry and regulatory environment
The South African insurance market is set to undergo significant regulatory
changes in the medium term with considerable policy debate taking place at
present.
Solvency Assessment and Management ("SAM") will be the new regulatory regime
to be adopted by the Financial Services Board ("FSB") from 2014 which will
govern the economic capital requirements of the group`s insurance undertakings
as well as prescribe certain minimum standards of risk management and
governance. Significant effort is being expended throughout the group to
ensure that all the companies in which we are invested are adequately prepared
to meet the new capital regime.
The FSB also plans to introduce a "Treating Customers Fairly" regulatory
framework which is aimed at ensuring that customer relationships are managed
on an unbiased and reasonable manner. Given the high standards being envisaged
by FSB, it can be expected that the industry as a whole will have differing
levels of maturity in this regard. The group is in a period of self assessment
to ensure that we will be able to move towards the level of outcomes desired.
The Department of Health has released a green paper on National Health
Insurance providing more information on the scheme which will be phased in
over a number of years. While the proposals could have far reaching effects on
the health businesses in which we are invested, we remain confident that our
businesses will have a continuing role to play in this emerging environment.
Our regulatory teams are well positioned to ensure that the group entities
will comply with the changing regulations. Our management also engages on the
various industry and FSB forums to positively contribute to the outcome of new
regulations.
Outlook for the coming year
Significant disquiet in global markets results in a highly uncertain outlook.
We expect that domestic economic conditions will remain subdued in the current
financial year. It is evident that the path toward economic recovery will be
protracted with the fair likelihood of experiencing further recessionary dips
in economic activity along the way. The South African economy has
unfortunately not escaped the contagion of slow growth, high unemployment and
continued high levels of consumer indebtedness, factors which directly impede
on the growth of the industry sectors in which we are invested.
However, the quality of our operating franchises and their respective
strategies, domestically and outside South Africa, should underpin the group`s
ability to provide us, as shareholders, with sustainable superior returns.
For and on behalf of the Board
GT Ferreira P Cooper
Chairman Chief executive officer
Sandton
14 September 2011
Dividend declaration
Notice is hereby given that a final dividend of 33,7 cents per share was
declared on 14 September 2011 in respect of the financial period ended 30 June
2011.
Shareholders` attention is drawn to the following important dates:
Last day to trade in order to
participate in this dividend Friday, 7 October 2011
Shares commence trading "ex dividend"
on Monday, 10 October 2011
The record date for the dividend
payment will be Friday,14 October 2011
Dividend payment date Monday,17 October 2011
No dematerialisation or rematerialisation of share certificates may be done
between Monday, 10 October 2011 and Friday, 14 October 2011 (both days
inclusive).
By order of the Board
A L Maher
Company secretary
14 September 2011
Review of Investments
Discovery Group
The year under review was a seminal one for Discovery - it achieved
considerable success in the context of growth, innovation and quality across
all areas of its business with all of its businesses performing better than
expected.
it acquired Standard Life Healthcare, the UK`s fourth largest health
insurer and began its integration into PruHealth;
it revitalized the Vitality business in the United States; and
it entered the South African short term insurance market through
Discovery Insure.
Discovery`s existing businesses performed well, with a focus on quality that
manifested in strong embedded value growth, improved new business margins and
positive variance experience. Discovery`s emerging businesses (PruHealth,
PruProtect and Discovery Invest) performed better than expected, with all
three generating profits.
This translated into a financial performance that exceeded expectations, with
new business of R7,5 billion while operating profit increased by 32% to R2,8
billion. Normalised headline earnings increased by 31% to R2,0 billion.
Embedded value increased by 19% to R26,9 billion.
RMI Holdings included R165 million of Discovery`s earnings in its normalised
earnings for the four month period.
For an in-depth review of Discovery`s performance, RMI Holdings` shareholders
are referred to www.discovery.co.za.
MMI Holdings
MMI`s maiden set of full year results reflect strong new business growth
despite the potential distractions of merger integration. The integration,
which is progressing well, has created new energy and opportunities.
Significant progress has been made with the integration of the group`s
business divisions. Synergistic cost savings over time of R500 million per
annum have been identified and will be reflected in future years` results.
Total new business increased by 15% to R5,8 billion and was accompanied by a
strong improvement in new business margins. Embedded value increased to R31
billion, while core headline earnings increased by 12% to R2,6 billion.
RMI Holdings included R223 million of MMI`s earnings in its normalised
earnings for the four month period.
For an in-depth review of MMI`s performance, RMI Holdings` shareholders are
referred to www.mmiholdings.com.
OUTsurance
OUTsurance delivered a pleasing performance for the year under review. Group
headline earnings attributable to ordinary shareholders grew by 39% to R806,5
million.
The key drivers behind the growth were a favourable claims environment, double
digit premium growth and a significant decrease in Youi`s start-up loss.
A significant contributor to the earnings performance was the favourable
claims environment in South Africa, characterised by benign weather
conditions, a decrease in crime-related claims and a strong Rand translating
into lower replacement car part prices. The South African short term insurance
operation continued to expand market share. The top line growth is
satisfactory in light of the relatively weak South African economy, soft new
vehicle sales and the ever increasing competitive landscape.
During August 2010, OUTsurance Life introduced a fully underwritten product to
the South African market. The risk-only product offers high quality death,
disability and critical illness benefits directly to the market. OUTsurance
believes direct life insurers will continue to penetrate this traditionally
broker dominated market by offering less complex products and more competitive
premiums on the back of lower acquisition costs.
Youi, the start-up venture in Australia, continued to entrench both its brand
and its personal lines product offering in the competitive Australian market,
where over ninety percent of short term insurance is sold direct. The group`s
scientific approach to underwriting and pricing has started to bear fruit, as
Youi`s claims ratio continues to trend down to below industry averages. The
high frequency of severe natural disasters in Australia is a risk to Youi`s
claims experience, which is managed via adequate reinsurance cover. The
business continues to track expectations and is expected to achieve break-even
during the 2013 financial year.
Subsequent to the year end, the company reached an agreement to sell an
effective interest of 6,8% in the ordinary share capital of OUTsurance to the
management team of OUTsurance for a purchase consideration of R552 million.
RMI Holdings will facilitate the transaction by providing term funding to the
management group for part of the purchase consideration. This transaction is
in the process of being implemented.
RMI Holdings included R203 million of OUTsurance`s earnings in its normalised
earnings for the four month period.
For an in-depth review of OUTsurance`s performance, RMI Holdings` shareholders
are referred to www.outsurance.co.za.
RMB Structured Insurance
In 2011, RMB-SI recovered from the setback that it suffered during 2009/2010
as a result of losing a major retail client and it reported a significant
improvement in profits for the year ended 30 June 2011. Shareholder profit
after tax for June 2011 amounted to R92,5 million (2010: R12,7 million).
The main driver of the improved results was the release of insurance reserves
in the offshore business as a result of an overfunded position on a long tail
liability policy.
Over the last five years, RMB-SI have focused on a diversified business
strategy to bolster its retainer base income on the back of the more
traditional insurance business. This is beginning to bear fruit and the
business mix is trending in the right direction.
RMI Holdings included R48 million of RMB-SI`s earnings in its normalised
earnings for the four month period.
Summarised consolidated income statement
For the period ended 30 June 2011
R million Audited
Share of after tax results in associate companies 318
Earned premiums net of reinsurance 2 071
Commission and fee income 50
Investment income (58)
Income 2 381
Net claims paid (306)
Investment contract benefits and insurance provisions (323)
Acquisition, marketing and administration expenses (649)
Operating profit 1 103
Net finance costs (46)
Profit before tax 1 057
Taxation (342)
Profit for the period 715
Attributable to:
Equity holders of RMI Holdings 570
Non-controlling interests 145
715
Computation of headline earnings
For the period ended 30 June 2011
R million Audited
Earnings attributable to equity holders 570
Adjustment for:
Share of adjustment made by associates:
Profit on sale of available-for-sale financial assets (1)
Realised profit on intellectual property (15)
Realised profit on investment property (29)
Headline earnings attributable to equity holders 525
Sources of headline earnings
For the period ended 30 June 2011
R million Audited
Headline earnings from:
MMI Holdings 98
Discovery 173
OUTsurance 207
RMB Structured Insurance 50
528
?Funding costs (3)
Headline earnings 525
Computation of earnings per share
For the period ended 30 June 2011
R million Audited
Earnings attributable to equity holders 570
Headline earnings attributable to equity holders 525
Number of shares in issue (millions) 1 486
Weighted average number of shares in issue (millions) 493
Earnings per share (cents) 115,6
Diluted earnings per share (cents)* 114,2
Headline earnings per share (cents) 106,4
Diluted headline earnings per share (cents)* 105,0
Dividend per share (cents)
Interim 22,8
Final 33,7
Total 56,5
Dividend cover (relative to headline earnings) 1,9
* The diluted earnings calculations give cognisance to the
adjustments made by Discovery and MMI Holdings in similar
calculations. These adjustments have no impact on RMI Holding`s
diluted weighted average number of shares.
Summarised statement of comprehensive income
For the period ended 30 June 2011
R million Audited
Profit for the period 715
Other comprehensive income, net of tax
Currency translation differences 8
Available-for-sale financial assets (3)
Share of other comprehensive income of associates (31)
Other comprehensive income for the period (26)
Total comprehensive income for the period 689
Total comprehensive income attributable to:
Equity holders of RMI Holdings 542
Non-controlling interests 147
689
Summarised consolidated statement of financial position
as at 30 June 2011
R million Audited
ASSETS
Property and equipment 211
Goodwill and other intangible assets 32
Investment in associate companies 9 274
Financial assets 6 287
Receivables and prepayments 886
Reinsurers` share of insurance provision 239
Cash and cash equivalents 2 456
Total assets 19 385
EQUITY
Share capital and premium 13 571
Reserves (2 549)
Capital and reserves attributable to equity holders of 11 022
the company
Non-controlling interests 281
Total equity 11 303
LIABILITIES
Financial liabilities 3 338
Insurance contract provisions 4 018
Payables and provisions 726
Total liabilities 8 082
Total equity and liabilities 19 385
Summarised consolidated statement of cash flows
For the period ended 30 June 2011
R million Audited
Cash available from operating activities 829
Dividends paid (339)
Investment activities (4 214)
Financing activities 3 625
Net decrease in cash and cash equivalents (99)
Unrealised foreign currency translation adjustments 24
Cash and cash equivalents acquired* 2 531
Cash and cash equivalents at the end of the period 2 456
* Cash and cash equivalent acquired relate to cash balances held
by subsidiaries acquired.
Summarised statement of changes in equity
R million Share Treasury Equity Increased
capital shares accounted subsidiar
and reserve reserves y
premium interest
Shares issued 13 657 - - -
Recognition of non- - - - -
controlling interest
Increase in interest - - - (2 657)
of subsidiary
Total comprehensive - - (31) -
income for the year
Dividend paid - - - -
Income of associated - - 9 -
companies retained
Reserve movements - - - -
relating to
subsidiaries
Movement in treasury - (86) 1 -
shares
Reserve movements - - (96) -
relating to associates
Balance at 30 June 13 657 (86) (117) (2 657)
2011 (audited)
R million Non- Retain Total Non- Total
distri- ed equity Con- equity
butable earnin holder trolling
reserve gs s` interest
s funds s
Shares issued - - 13 - 13 657
657
Recognition of non- - - - 1 592 1 592
controlling interest
Increase in interest - - (2 (1 352) (4 009)
of subsidiary 657)
Total comprehensive 3 570 542 147 689
income for the year
Dividend paid - (339) (339) (104) (443)
Income of associated - (9) - - -
companies retained
Reserve movements 20 (20) - (2) (2)
relating to
subsidiaries
Movement in treasury - - (85) - (85)
shares
Reserve movements - - (96) - (96)
relating to
associates
Balance at 30 June 23 202 11 022 281 11 303
2011 (audited)
Computation of normalised earnings
The group believes that normalised earnings more accurately reflects
operational performance. Headline earnings are adjusted to take into account
non-operational and accounting anomalies.
For the period ended 30 June 2011
R million Unaudite
d
Headline earnings attributable to equity holders 525
RMI Holdings` share of normalised adjustments made
by associates:
Net realised and fair value losses on excess 19
Basis and other changes and investment variances 47
Amortisation of intangible assets relating to 50
business combinations
Other 12
Treasury shares -
IFRS 2 share based expenses 1
Normalised earnings after normalised adjustments of 654
associates
Adjustment for:
Group treasury shares (18)
Normalised earnings attributable to equity holders 636
Weighted average number of shares in issue 495
(millions)
Normalised earnings per share (cents) 128,4
Diluted normalised earnings per share (cents) 125,6
Dividend cover (relative to normalised earnings) 2,3
Sources of normalised earnings
For the period ended 30 June 2011
R million Unaudite
d
Normalised earnings from:
MMI Holdings 223
Discovery 165
OUTsurance 203
RMB Structured Insurance 48
Normalised earnings before funding costs 639
Funding costs (3)
Normalised earnings 636
Basis of preparation of results
The accompanying summarised results for the period ended 30 June 2011 reflect:
the consolidation of the operations of RMI Holdings and its
subsidiaries including OUTsurance and RMB-SI; and
RMI Holdings` proportionate interest in its associates, MMI Holdings
and Discovery, which have been equity accounted.
The financial statements for the period ended 30 June 2011, to which the
profit announcement relates, were prepared in accordance with:
International Financial Reporting Standards ("IFRS"), including IAS 34:
Interim Financial Reporting;
the requirements of the South African Companies Act, Act 71 of 2008, as
amended; and
the Listings Requirements of the JSE Limited ("the JSE").
These financial statements were audited by PricewaterhouseCoopers Inc. A copy
of their unqualified audit opinion is available for inspection at RMI
Holding`s registered office.
*RMI Holdings` effective interest in these group entities is different from
the actual holdings as a result of the following consolidation adjustments:
treasury shares held by these entities;
shares held in them by their staff share incentive trusts;
"deemed" treasury shares arising from BEE transactions entered into;
and
"deemed" treasury shares held in them by policyholders and mutual funds
managed by them.
At 30 June 2011 the effective interest held as recorded above can be compared
to the actual interest of RMI Holdings in the statutory issued share capital
of the companies as follows:
Effectiv Actual
e
* Discovery 26,7% 25,0%
* OUTsurance 92,8% 90,1%
* MMI 26,3% 26,0%
* RMB-SI 80,5% 76,4%
Rand Merchant Insurance Holdings Limited
(formerly Main Street 796 (Proprietary) Limited) ("RMI Holdings")
Registration number: 2010/005770/06
JSE ordinary share code: RMI ISIN code: ZAE000153102
Directors: GT Ferreira (Chairman), P Cooper (CEO), LL Dippenaar, JW Dreyer, JJ
Durand, PM Goss, PK Harris, TV Mokgatlha, KC Shubane, (Ms) SEN Sebotsa and MH
Visser.
With the exception of TV Mokgatlha, who was appointed 25 May 2011, all the
directors were appointed on 8 December 2010.
Secretary: AL Maher
Registered office and 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 1010 Telefax: +27 86 632 0963
Web address: www.rminsurance.co.za
Sponsor: (in terms of JSE Limited 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 2004 (Pty) Limited Physical address: Ground
Floor, 70 Marshall Street, Johannesburg, 2001
Postal address: PO Box 61051, Marshalltown, 2107 Telephone: +27 11 370 5000
Telefax: +27 11 688 5221
THE RMI HOLDINGS
GROUP AT A GLANCE
RMI Holdings is a significant investor in some of Southern Africa`s most
prominent insurance groups. Our interests include:
Effective interest 26,7%*
Discovery Holdings Limited ("Discovery")
Discovery services the health care funding and insurance markets in South
Africa, the United Kingdom, United States and China. It is a pre-eminent
developer of integrated financial services products and operates under the
Discovery Health, Discovery Life, Discovery Card, Vitality, PruHealth and
PruProtect brand names.
Effective interest 26,3%*
MMI Holdings Limited ("MMI")
MMI was formed from the merger of Metropolitan and Momentum, both sizeable
insurance-based financial services players in South Africa and is South
Africa`s third largest insurer. The core businesses of MMI are long-term
insurance, asset management, investment, health-care administration and
employee benefits. Product solutions are provided to all market segments. MMI
operates in 12 countries outside of South Africa. It provides for the
assurance needs of individuals in the lower, middle and upper income markets,
principally under the Momentum and Metropolitan brand names.
Effective interest 92,8%*
OUTsurance Holdings Limited ("OUTsurance")
OUTsurance is a direct personal lines and small business short-term insurer.
Pioneers of the OUTbonus concept, it has grown rapidly by applying a
scientific approach to risk selection, product design and claims management.
Youi, its direct personal lines initiative in Australia, and its South African
direct life insurance businesses are still in a start-up phase.
Effective interest 80,5%*
RMB Structured Insurance Limited ("RMB-SI")
RMB-SI holds both short-term and life assurance licenses. It creates bespoke
insurance and financial risk solutions for South Africa`s large corporations
by using sophisticated risk techniques and innovative financial structures. In
addition it part owns a portfolio of underwriting management agencies.
www.rminsurance.co.za
Date: 14/09/2011 16:00:25 Produced by the JSE SENS Department.
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