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AFP
AFP
AFP - Alexander Forbes Preference Share Investments Limited - Audited results
for the year ended 31 March 2012
Alexander Forbes Preference Share Investments Limited
Registration number: 2006/031561/06
Share code: AFP
ISIN code: ZAE000098067
("AF Pref" or "the company")
AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2012
- Headline earnings per linked unit increases by 11% from 125 cents to 139
cents per linked unit
- Headline loss per preference share increases from 1 cent per preference
share to 10 cents per preference share
- Investment income increases by 18% to R 367 million
- Equity accounted share of loss of Alexander Forbes Equity Holdings
increased by 89% from R 18 million to R 34 million
REVIEW OF ACTIVITIES
Introduction
AF Pref was incorporated on 10 October 2006 following the bid by a private
equity consortium to take private the then listed Alexander Forbes Group. The
purpose of the company is to serve as the special purpose vehicle through which
certain existing shareholders of Alexander Forbes Limited could remain invested
following the private equity buyout of the Group with effect 26 July 2007. The
ultimate holding company of the Alexander Forbes Group is now Alexander Forbes
Equity Holdings Proprietary Limited ("AFEH").
AF Pref issued linked units that are listed on the JSE Limited and these consist
of preference shares issued by AF Pref (effectively representing an interest in
the ordinary and preference equity of AFEH) and debentures (effectively
representing an interest in the debt instruments issued by subsidiaries of
AFEH).
AF Pref holds 26.5% of the issued ordinary shares in AFEH and also holds 31.8%
of the issued preference shares issued by 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
T
his 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 2012. In summary, AFEH`s revenue from continuing
operations, net of direct product cost, increased by 10% to R 4.3 billion, and
profit from continuing operations before non-trading items increased by 9% to
R 1.1 billion. These results are in respect of the continuing operations of AFEH
following the sale of its Risk Services businesses (corporate insurance broking)
in South Africa and the rest of Africa. The most material component of this
transaction (the Threshold Transaction) was implemented with effect 1 January
2012, while the sales of smaller entities in the rest of Africa are being
finalised.
The loss attributable to AFEH equity holders (i.e. after amortisation of
intangible assets, finance cost related to the funding structure and after tax)
increased by 72% to R 129 million, from a loss of R 75 million in the previous
financial year. AF Pref`s share of this net loss amounts to R 34 million, which
is equity accounted in the financial statements, and is the main contributor to
the loss reported by AF Pref for the year ended 31 March 2012 of R 28 million.
In addition to the investment in the equity of AFEH, AF Pref also owns certain
debt instruments and related assets issued by subsidiaries of AFEH as described
above. The investment income represents income earned on these various
instruments and is largely offset by interest expense on the debentures issued
in turn by AF Pref and which form part of the linked unit in issue. Investment
income for the year of R 367 million is 18% higher than the previous financial
year. The corresponding finance cost paid or payable to debenture holders
(linked unit holders) amounts to R 353 million, also 18% up on the previous
year.
Further detail of the results of AFEH and its subsidiaries for the year ended 31
March 2012 is contained in the results announcement made available to AF Pref
linked unit holders by AFEH.
Change in directorate
There has been one change to the board of directors since the publication of our
interim results on 28 November 2011. We welcomed Mr DM Viljoen to the board as a
non-executive director. Mr Viljoen is the Chief Financial Officer of AFEH.
On behalf of the board of directors:
JRP Doidge TJ Fearnhead
Director Director
Johannesburg Johannesburg
12 June 2012 12 June 2012
INCOME STATEMENT
for the year ended 31 March 2012
2012 2011
Notes Rm Rm
Investment income 2 367 311
Operating expenses (2) (3)
Finance cost 3 (353) (298)
Share of net loss of associate (net of income tax) (34) (18)
Loss before taxation (22) (8)
Income tax expense 4 (6) -
Loss for the year (28) (8)
Loss attributable to:
- Ordinary shareholders 5 - -
- Preference shareholders 5 (28) (8)
(28) (8)
Headline earnings / (loss) (cents)
- per ordinary share 6 - -
- per preference share 6 (10) (1)
- per debenture 6 149 126
- per linked unit 6 139 125
Basic earnings / (loss) (cents)
- per ordinary share 6 - -
- per preference share 6 (12) (3)
- per debenture 6 149 126
- per linked unit 6 137 123
STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 March 2012
2012 2011
Notes Rm Rm
Loss for the year (28) (8)
Share of other comprehensive income of associates 28 13
Other comprehensive income for the year (net of income 28 13
tax)
Total comprehensive income for the year - 5
Total comprehensive income attributable to:
- Ordinary shareholders - -
- Preference shareholders - 5
Total comprehensive income for the year - 5
STATEMENT OF FINANCIAL POSITION at 31 March 2012
2012 2011
Notes Rm Rm
ASSETS
Investment in associate 7 710 711
Financial assets 8 2 050 1 787
Other receivables 1 1
Cash and cash equivalents 6 7
Total assets 2 767 2 506
EQUITY AND LIABILITIES
Ordinary shareholders` equity - -
Preference shareholders` interest - component of linked 1 037 1 037
units
Non-distributable reserve (77) (105)
Accumulated loss (218) (195)
Total equity 742 737
Debentures - component of linked units 2 019 1 769
Deferred tax liability 6 -
Total liabilities 2 025 1 769
Total equity and liabilities 2 767 2 506
Total equity attributable to ordinary shareholders - -
Number of ordinary shares in issue (`000s) 1 1
Net asset value per ordinary share (Rand per share) - -
Total equity attributable to preference shareholders 742 737
Number of preference shares in issue (million) 237 237
Net asset value per preference share (Rand per share) 3.13 3.11
Total equity attributable to linked unit holders 742 737
Value of debentures attributable to linked unit holders 2 019 1 769
Total asset value attributable to linked unit holders 2 761 2 506
Number of linked units in issue (million) 237 237
Net asset value per linked unit (Rand per unit) 11.65 10.57
STATEMENT OF CASH FLOWS for the year ended 31 March 2012
2012 2011
Rm Rm
Cash flow from operating activities
Cash utilised from operations (1) (2)
Payment of interest on debentures (104) (28)
Taxation paid - -
Investment income on high-yield term loan and relevant assets 104 27
Net cash outflow from operating activities (1) (3)
Cash flows from investing activities
Repayment of loan from associate - (6)
Net cash outflow from investing activities - (6)
Cash flows from financing activities
Net cash outflow from financing activities - -
Net movement in cash and cash equivalents (1) (9)
Cash and cash equivalents at beginning of year 7 16
Cash and cash equivalents at end of year 6 7
STATEMENT OF CHANGES IN EQUITY for the year ended 31 March 2012
Ordinary Preference Non- Accumulated Total
shareholders` shareholders` distributable loss equity
equity interest reserve
Rm Rm Rm Rm Rm
At 31 March - 1 037 (118) (187) 732
2010 *
Loss for the - - - (8) (8)
year
Other - - 13 - 13
comprehensive
income
Total - - 13 (8) 5
comprehensive
loss
At 31 March - 1 037 (105) (195) 737
2011 *
Loss for the - - - (28) (28)
year
Other - - 28 - 28
comprehensive
income
Other - - - 5 5
movements in
minority
interest of
associates
Total - - 28 (23) 5
comprehensive
income/(loss)
At 31 March - 1 037 (77) (218) 742
2012 *
* The issued ordinary share capital of the company at 31 March 2010, 31 March
2011 and 31 March 2012 was R 1 000
NOTES
for the year ended 31 March 2012
1. Basis of preparation
These results have been prepared in accordance with, and comply with,
International Financial Reporting Standards ("IFRS"), and comply with IAS 34
Interim Financial Reporting, the listing requirements of the JSE Limited and the
South African Companies Act No 71 of 2008.
The accounting policies applied in the preparation of these results are
consistent with those applied in the annual financial statements for the year
ended 31 March 2012.
These financial statements were compiled under the supervision of Deon Viljoen,
CA (SA), the Group Chief Financial Officer of AFEH, in his capacity as director
of Alexander Forbes Group and Technology Services Proprietary Limited, which is
providing accounting and other services to the company.
The results have been audited by PricewaterhouseCoopers Inc. and a copy of their
unqualified audit opinion is available for inspection at the company`s
registered office.
2012 2011
Rm Rm
2. Investment income
Interest & investment income on held-to-maturity
financial assets:
- PIK Debentures 243 207
- High Yield term loan 106 88
- Put & call option agreement 15 14
- Amendment fee 2 1
Interest on cash balances 1 1
367 311
3. Finance costs
Interest cost on financial liability held at (353) (298)
amortised cost (debentures)
4. Income tax expense
South African income tax
Deferred tax
Current year (4) -
Prior year adjustment (2) -
(6) -
The deferred tax balance has been adjusted for the
increase in the fair value adjustment from the
revaluation of the Put and Call option asset.
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 of income tax) (41.6%) (62.5%)
Exempt income and disallowed expenditures 13.6% 50.1%
Future tax payable at Capital Gains Tax rate 8.7% 0.0%
Prior year adjustment 17.5% 0.0%
Deferred tax asset not recognised 0.0% (15.6%)
Effective tax rate 26.2% 0.0%
5. Loss attributable to ordinary shareholders and preference shareholders
The economic rights to return of capital and dividends for ordinary
shareholders, preference shareholders and debenture holders 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
Loss for the year (R million) (a) (28) (8)
Earnings attributable to (b) 353 298
debenture holders (R million)
Headline adjusting items:
Share of impairment charge (c) 4 6
and other capital items of
associate
Weighted average number of (d) 237 237
preference shares in issue
(millions)
Weighted average number of (e) 237 237
linked units and debentures
in issue (millions)
Basic loss per preference (a)/(d) (12) (3)
share (cents)
Headline loss per preference (a+c)/(d) (10) (1)
share (cents)
Basic earnings per linked (a+b)/(e) 137 123
unit (cents)
Headline earnings per linked (a+b+c)/(e) 139 125
unit (cents)
7. Investment in associate
Cost 1 038 1 038
Share of cumulative post-acquisition movement in non- (77) (105)
distributable reserves of associate
Share of cumulative post-acquisition losses of (251) (222)
associate
Carrying value in balance sheet 710 711
Valuation of investment in associate 1 060 990
The directors provide a valuation of the associate investment in AFEH.
Shareholders` attention is drawn 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 2012, the
directors are of the opinion that the value of the investment in AFEH is R
1 060 million.
8. Financial assets
Opening balance 1 787 1 504
Interest received (104) (27)
Interest accrued 352 296
Fair value adjustment 15 14
Closing balance 2 050 1 787
Analysed as follows:
High-yield term loan receivable 372 367
Put and call option asset 65 50
Investment in PIK debentures 1 613 1 370
2 050 1 787
9. Debenture interest
Interest on debentures 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.
The terms of the PIK debentures held by the company anticipate the roll-up
of accrued interest until exit date of the private equity holding or
refinance date while the High Yield term loan held may either service
interest in cash or capitalise such interest from time to time.
The most recent scheduled interest payment date of the High Yield term
loan, of which AF Pref owns 26.5%, was 18 December 2011 and was serviced
in full. Linked unit holders were previously informed that agreement was
reached with Senior Preference Shareholders to allow a portion of proceeds
receivable from the sale of the Risk Services business to be applied to
pay arrears interest on the High Yield term loan. These cash flows are
occurring in tranches, firstly on the closure date of the Threshold
Transaction followed by the closing of subsidiary disposals within the
rest of Africa. As a result, an additional special interest payment was
made on 9 January 2012 in respect of the proceeds from the Threshold
Transaction, and another special interest payment is to be made on 25 June
2012 from the proceeds of the sale of the Risk Services business in
Uganda. Further payments are expected to follow over the next number of
months as the remaining sales transactions in respect of smaller African
territories are concluded.
The next scheduled interest payment date is 18 June 2012. However, the
normal interest payment due on that date is to be deferred in order to
fund further increases in regulatory capital requirements of the long term
and short term insurance entities as well as regulatory liquidity
requirements of various Financial Advisory and Intermediaries Services Act
(FAIS) registered entities.
10. Dividends
In line with the original expectations of the entity, no dividends are
proposed for the foreseeable future.
Independent directors: JRP Doidge (Chairman)
TJ Fearnhead
B Harmse
J Wandrag (Alternate)
Non-executive director: DM Viljoen
Company secretary and Investor JE Salvado (Ms)
relations:
Transfer secretaries: Computershare Investor Services Proprietary
Limited
Ground Floor
70 Marshall Street
Johannesburg
PO Box 61051
Marshalltown
2107
Registered office: 3rd Floor
200 On Main
Corner Main and Bowwood Roads
Claremont
7708
Sponsor: Rand Merchant Bank, a division of FirstRand
Bank Limited
1 Merchant Place
Corner Fredman Drive and Rivonia Road
Sandton
2196
Website: www.alexanderforbes.co.za
Date: 13/06/2012 08:08:01 Produced by the JSE SENS Department.
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