| Mon 25 Jul 2005, 8:35 | | Results for the six months ended 30 June 2005 |
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Mutual & Federal Insurance Company Limited - Unaudited Financial Results
for the six months ended 30 June 2005
Mutual & Federal Insurance Company LimitedAuthorised Financial Services Provider
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
Unaudited Financial Results for the six months ended 30 June 2005ACCOUNTABILITY
RESPECT
PUSHING BEYOND BOUNDARIES
INTEGRITYPASSION
Income Statement Restated Restated
30/6/05 30/6/04 Change 31/12/04
R`m R`m % R`mGross premiums 3 962 3 592 10 7 360
Net underwriting surplus 301 335 (10) 659
Net investment income 544 113 1 023
Goodwill (19) (1) (2)Abnormal costs - - (30)
Income before taxation 826 447 85 1 650
Taxation (182) (135) (460)
Income after taxation 644 312 106 1 190Income attributable to
preference
shareholders in subsidiary
(note 2) (24) (19) (42)Income attributable to
minority shareholders (48)
Share of associated companies`
retained income 2 9 30Net income 574 302 90 1 178
Earnings per share
(a) Headline earnings per
share are calculated on netincome
adjusted for goodwill.
Determination of headline
earningsNet income 574 302 1 178
Goodwill 19 1 2
Headline earnings 593 303 1 180
Headline earnings per share(cents) 239 124 93 480
Diluted headline earnings per
share (cents) (note 4) 237 123 476
(b) Basic earnings per shareare based on net income.
Basic earnings per share
Basic earnings per share
(cents) 232 123 89 479Diluted basic earnings per
share (cents) (note 4) 230 122 475
Ordinary dividend per share
(cents) 40 25 60 105Combined ratio (%) (note 3) 91,4 89,3 90,2
Net asset value per share
(cents) 1 614 1 492 8 1 464
Number of shares in issue(million)
- at period end 248,1 245,6 247,4
- weighted average 247,8 245,3 245,9
- diluted weighted average(note 4) 249,8 247,3 248,0
Balance Sheet
Restated Restated
As at As at As at 30/6/05 30/6/04 31/12/04
R`m R`m R`m
Assets
Property and equipment 240 172 192Intangible assets 63 65 52
Investment property 8 6 7
Investments 4 429 3 723 4 015
Ordinary shares 3 417 2 688 3 228Government stock 34 66 48
Money market deposits and other 978 969 739
Investment in
associated companies 42 186 220Goodwill 121 142 140
Loans advanced 30 38 36
Technical assets 978 1 048 898
Trade and other receivables 1 042 572 625Cash and cash equivalents 2 055 1 667 1 428
Total assets 9 008 7 619 7 613
Equity and liabilities
Ordinary shareholders`capital and reserves 4 004 3 665 3 622
Interest of outside
shareholders in subsidiary 194 2 -
Interest of preferenceshareholders in subsidiary 69 55 78
Total shareholders` equity 4 267 3 722 3 700
Post retirement medical
aid provision 118 98 100Interest bearing loan 8 5 2
Deferred taxation 143 47 123
Technical provisions 3 936 3 391 3 288
Agents` balances, accountspayable and provisions 536 356 400
Total equity and liabilities 9 008 7 619 7 613
Statement of Changes in Equity
Attributable to ordinary shareholders of the company Foreign
Contin- currency Property
Share gency translation revaluation
R`m capital reserve reserve reserveBalance at 31 December
2003 139 523
Effect of first time
adoptionof IFRS (note 5) 23
Net income for the
period
Transfer to contingencyreserve 77
Current period movements (11) 6
Share based payments
chargeDividends paid
Issue of shares 4
Balance at 30 June 2004 143 600 (11) 29
Net income for theperiod
Transfer to contingency
reserve 57
Current period movements (4) (5)Share based payments
charge
Dividends paid
Issue of shares 10Balance at 31 December
2004 153 657 (15) 24
Arising on
consolidation of CGICBuy back of shares by
subsidiary
Net income for the
periodTransfer to contingency
reserve 40
Current period movements (2)
Share based paymentscharge
Dividends paid
Issue of shares 7
Balance at 30 June 2005 160 697 (17) 24 Preference
Retained Minority share-
R`m income interest holders Total
Balance at 31 December 2003 2 796 2 36 3 496Effect of first time adoption
of IFRS (note 5) 23
Net income for the period 302 19 321
Transfer to contingencyreserve (77) -
Current period movements (5)
Share based payments charge 1 1
Dividends paid (118) (118)Issue of shares 4
Balance at 30 June 2004 2 904 2 55 3 722
Net income for the period 876 23 899
Transfer to contingencyreserve (57) -
Current period movements (2) (11)
Share based payments charge 3 3
Dividends paid (923) (923)Issue of shares 10
Balance at 31 December 2004 2 803 - 78 3 700
Arising on consolidation of
CGIC 211 211Buy back of shares by
subsidiary (11) (11)
Net income for the period 574 48 24 646
Transfer to contingencyreserve (40) -
Current period movements (2)
Share based payments charge 1 1
Dividends paid (198) (54) (33) (285)Issue of shares 7
Balance at 30 June 2005 3 140 194 69 4 267
Cash Flow Statement
Restated Restated 30/6/05 30/6/04 31/12/04
R`m R`m R`m
Cash generated by operations 344 589 1 000
Net underwriting surplus 301 335 659Abnormal costs - - 5
Increase in net technical provisions 287 180 235
Depreciation of property and equipment 41 37 55
Profit on sale of property and equipment (4) - (4)Share based payments 1 1 2
(Increase)/decrease in other working
capital (282) 36 48
Investment income 192 162 327Cash generated by operating activities 536 751 1 327
Taxation paid (180) (115) (412)
Cash available from operating activities 356 636 915
Dividends paid (285) (118) (1 041)Cash generated by/(utilised in) operating
activities 71 518 (126)
Cash generated by/(utilised in) investing
activities 376 (15) 342Cash balances of subsidiary acquired 173
Decrease in funding requirements 620 503 216
Cash effects of financing activities
Proceeds from issue of shares 7 4 14Increase in cash and cash equivalents 627 507 230
NOTES TO THE FINANCIAL STATEMENTS
1. Statement of compliance
The condensed interim financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) for
interim financial statements. These are the group`s first IFRS condensed
consolidated interim financial statements for part of the period for which
Annual Financial Statements will be prepared in terms of IFRS. IFRS 1 `First-time adoption of International Financial Reporting Standards` has
been applied. The condensed consolidated interim financial statements do
not include all of the information required for full annual financial
statements. The first time application of IFRS 4 `Insurance contracts` did not have a
significant impact on the recognition and measurement of assets and
liabilities in respect of insurance contracts at 30 June 2005. The group`s
comprehensive consolidated financial statements for the year ending 31 December 2005 will present all additional disclosures required by this
standard for insurance contracts.
2. Preference shareholders
The group operates an insurance subsidiary which offers cell captive facilities to clients. Underwriting surpluses which accrue in respect of
these arrangements ultimately belong to clients and are therefore excluded
from group earnings.
3. Combined ratio This reflects the ratio of total insurance expenditure to net earned
premiums.
4. Diluted earnings per share
Diluted earnings per share are calculated using unadjusted earnings and the diluted weighted average number of ordinary shares in issue,
calculated on the assumption that all outstanding share options will be
exercised.
Notes to the financial statements (continued)5. Effect of first time adoption of IFRS
During the period the company changed its accounting policies with regard
to share based payments, goodwill, foreign exchange translation
differences and property valuations in order to comply with the accounting standards IFRS 2, IFRS 3, IAS 21 and IAS 16 respectively. The costs
associated with the company`s share option scheme which were not accounted
for previously, are now charged to the income statement over the 5 year
vesting period based on the fair value determined on grant date. Goodwill, which was previously carried at amortised cost is now assessed
only for impairment. Gains or losses arising on foreign exchange
translation of a foreign operation, which were previously charged to the
income statement are now taken directly to shareholders equity. Owner occupied buildings which were previously carried at depreciated historical
cost are now carried at depreciated fair value. Fair value adjustments are
taken directly to equity reserves.
The effect of the changes in accounting policies was to increase shareholders` funds at 31 December 2003 by R23 million in respect of
property revaluations to fair value. No adjustments to shareholders funds
at 31 December 2003 was required in respect of share options, goodwill or
foreign exchange translation. The effect on the net income is summarised below, whilst the effect on
shareholders` equity is shown in the statement of changes in equity:
Six months Year
ended ended 30/06/04 31/12/04
R`m R`m
Net income as previously reported 283 1 148
Share based payment charge (1) (4)Goodwill impairment 10 19
Foreign exchange translation adjustment 10 15
Restated net income 302 1 178
6. Segmental analysisDivisional segments Commer- Risk Personal Unall- Total
cial finance ocated
R`m R`m R`m R`m R`m
June 2004Gross premiums 1 719 393 1 480 3 592
Underwriting surplus 217 31 87 335
Total assets 1 410 127 342 5 740 7 619
Total liabilities 2 499 297 986 115 3 897December 2004
Gross premiums 3 306 1 116 2 938 7 360
Underwriting surplus 432 64 163 659
Total assets 1 236 98 322 5 957 7 613Total liabilities 2 348 277 1 050 238 3 913
June 2005
Gross premiums 1 918 484 1 560 3 962
Underwriting surplus 246 36 19 301Total assets 1 645 131 427 6 805 9 008
Total liabilities 2 876 313 1 203 349 4 741
Supplementary Income Statement
for the six months ended 30 June 2005(Reflecting long-term rate of return adjustment)
Restated Restated
30/6/05 30/6/04 Change 31/12/04
R`m R`m % R`mTechnical account (note A)
Gross premiums 3 962 3 592 10 7 360
Net premiums 3 568 3 198 12 6 691
Earned premiums net ofreinsurance 3 480 3 138 6 736
Claims incurred net of
reinsurance (2 234) (1 966) (4 198)
Acquisition expenses (643) (561) (1 316)Management expenses (302) (276) (563)
Net underwriting surplus 301 335 659
Attributable to ordinary
shareholders 272 308 (12) 605Attributable to preference
shareholders in subsidiary
(note 2) 29 27 54
Investment return on insurancefunds (note B) 118 109 8 201
General insurance result 419 444 (6) 860
Long-term investment return
on shareholders` funds (note B) 162 206 (21) 348Operating income based on
long-term investment return 581 650 (11) 1 208
Non-technical account (note A)
Short-term investmentfluctuations 264 (202) 474
Dividends, interest and
property income 192 162 327
Realised surplus on investments 441 20 99Unrealised (deficit)/surplus
on investments (89) (69) 597
Allocated investment return
transferred to technicalaccount (note B) (280) (315) (549)
Goodwill (19) (1) (2)
Abnormal costs - - (30)
Income before taxation 826 447 1 650Taxation (including secondary
tax on companies) (182) (135) (460)
Income after taxation 644 312 1 190
Income attributable topreference
shareholders in subsidiary
(note 2) (24) (19) (42)
Income attributable tominority shareholders (48)
Share of associated
companies` retained income 2 9 30
Net income 574 302 1 178Supplementary Income Statement(continued)
for the six months ended 30 June 2005
(Reflecting long-term rate of return adjustment)
Restated Restated 30/6/05 30/6/04 Change 31/12/04
R`m R`m % R`m
Operating earnings per share
Operating earnings per shareare calculated on net income
adjusted for goodwill,
abnormal costs, associated
company earnings,short-term investment
fluctuations net of taxation
and secondary tax on companies.
Determination of operatingearnings
Net income 574 302 1 178
Goodwill 19 1 2
Abnormal costs - - 30Share of associated companies`
retained income (2) (9) (30)
Short-term investment
fluctuations (264) 202 (474)Preference shareholders`
short-term investment
fluctuations (2) 1
Minority shareholders`short-term investment
fluctuations 14
Taxation effect of short-term
investment fluctuations 24 (19) 63Secondary tax on companies 30 6 117
Operating earnings 393 483 (19) 887
Operating earnings per share
(cents) 159 197 (19) 361Diluted operating earnings per
share (cents) (note 4) 157 195 358
NOTES TO THE SUPPLEMENTARY INCOME STATEMENT
A. Presentation The results for the year are shown in the income statement. To present these
in a meaningful way, a supplementary income statement is provided and
separated into:
(a) A technical account The technical account includes a long-term investment return of 11,1%
(2004: 12,5%) on both:
(1) funds generated by the insurance activities;
(2) shareholders` funds (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 income before tax. 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.
CommentsThe company produced pleasing financial results during the period. The
underwriting surplus was most satisfactory and the favourable result in the
commercial division reflects the relatively low level of commercial and
industrial claims. This outturn was also positively influenced by the resultsof Credit Guarantee Insurance Corporation (`CGIC`) which, with effect from 1
January 2005, have been consolidated for the first time.
The profitability in the personal division declined sharply due to increased
claims following adverse weather conditions and downward pressure on premiumlevels. This decline in profitability was most noticeable in the motor account
which was impacted by an increase in the incidence of motor vehicle accidents.
The 10% growth in premiums was influenced by the inclusion of CGIC and
excluding CGIC, the growth in net premiums is 5%. The generally low levels ofpremium growth reflect the intense levels of competition as some insurers seek
to gain market share without regard to profitability.
Interest income increased following favourable cash flows whilst investment
gains increased substantially following an improvement in the value of listedequities. The net asset value per share increased by 8% to 1 614 cents whilst
the solvency margin (being the ratio of net assets to net premiums) remained
strong and was in excess of 55% at the end of the period.
Although certain sectors of the insurance environment remain profitable, thehigh levels of competition will continue to place pressure on underwriting
margins and growth. It should furthermore be noted that underwriting
performance fluctuates and the results for the first six months are not
necessarily indicative of the outturn for the remainder of the year.POST BALANCE SHEET EVENT: BEE TRANSACTION
At a general meeting of shareholders on 22 July 2005 the members approved the
Black Economic Empowerment transaction, the details of which were contained in
the circular dated 15 June 2005.In terms of this transaction 11% of the shareholding of Mutual & Federal will
be placed into Black hands.
The total cost of the transaction is expected to amount to R160 million of
which an estimated R112 million will be incurred in the second half of 2005.COMPLIANCE
The company complies in all material respects with the JSE Listings
Requirements and the King Report Code of Corporate Practices and Conduct.
Declaration of Cash Dividend with Capitalisation Award Election (Number 71)An interim dividend of 40 cents per share has been declared payable to
shareholders in respect of the six months to 30 June 2005.
Following the changes made to implement the BEE transaction, shareholders will
be entitled to elect to receive fully paid ordinary shares in the company as acapitalisation award in lieu of the cash dividend. The cash dividend will be
paid to those shareholders who do not elect to receive the aforementioned new
shares in respect of all or part of their shareholding.
The relevant dates for the cash dividend and the election are as follows:Last day to trade to participate in the cash
dividend Friday, 26 August 2005
Shares trade ex dividend Monday, 29 August 2005
Listing of the maximum number of new ordinaryshares from the commencement of business Monday, 29 August 2005
Record date Friday, 2 September 2005
Last day to elect the capitalisation
award by 12:00 Friday, 2 September 2005Share certificates and dividends posted to
certificated shareholders and custody accounts
credited and/or updated with the CSDP
or broker in respect of shareholderswho have dematerialised their holdings Monday, 5 September 2005
Shares may not be dematerialised or rematerialised between
Monday, 29 August and Friday, 2 September 2005, both days inclusive.
In the event that a shareholder chooses the capitalisation award election, thenumber of capitalisation shares to which shareholders are entitled will be
determined in the ratio that 40 cents per ordinary share bears to the offer
price per share, being the 30 day volume weighted average price as at 18 August
2005.Documentation setting out the full terms of the cash dividend and
capitalisation award will be posted to shareholders on or about 12 August 2005.
On behalf of the Board
K T M Saggers (Chairman) B Campbell (Managing Director)22 July 2005
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
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
Website: www.mf.co.za
E-mail: investor@mf.co.zaDate: 25/07/2005 08:05:05 AM Produced by the JSE SENS Department
