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Santam Limited And Its Subsidiaries - Transition To International Financial
Release Date: 24/08/2005 08:01:36 Code(s): SNT
Santam Limited and its Subsidiaries - Transition to International Financial
Reporting Standards (`IFRS`)
Santam Limited
Registration number 1918/001680/06
ISIN ZAE000006854
JSE share code: SNT
NSX share code: SNM
Santam Limited and its Subsidiaries
Transition to International
Financial Reporting
Standards (`IFRS`)
Restatement of financial information for the year ended 31 December 2004 and the
six months ended 30 June 2004 under International Financial Reporting Standards
(`IFRS`)
Consolidated balance sheets At At At
31 30 June 1 January
December 2004 2004
2004
R million R million R million
ASSETS
Non-Current assets
Property and equipment 55 69 70
Goodwill 87 88 110
Deferred income tax 10 17 14
Investments in associates 230 173 166
Financial assets
Equity securities:
- at fair value through 3 574 2 774 2 727
income
Debt securities:
- at fair value through 1 613 883 936
income
Current assets
Reinsurance contracts 1 833 1 812 2 148
Deferred acquisition costs 146 129 154
Loans and receivables 1 098 944 1 199
including insurance
receivables
Cash and cash equivalents 3 927 3 843 3 203
Total assets 12 573 10 732 10 727
EQUITY
Capital and reserves
attributable to the
company`s equity holders
Share capital 1 171 1 161 1 130
Other reserves 636 593 577
Distributable reserves 3 642 2 630 2 267
5 449 4 384 3 974
Minority interest 60 43 53
Total equity 5 509 4 427 4 027
LIABILITIES
Non-Current liabilities
Cell owners` interest 47 - -
Deferred income tax 160 55 135
Current liabilities
Insurance contracts 5 083 4 873 5 025
Deferred reinsurance 115 90 131
acquisition revenue
Financial liabilities
- at fair value through 4 - -
income
Provisions for other 113 46 60
liabilities and charges
Trade and other payables 1 161 904 1 182
Current income tax 381 337 167
liabilities
Total liabilities 7 064 6 305 6 700
Total shareholders` equity 12 573 10 732 10 727
and liabilities
Consolidated income statements Six
months
Year to ended
31 December 30 June
2004 2004
R million R million
Gross written premium 9 735 4 414
Less: reinsurance premium 1 892 724
Net premium 7 843 3 690
Less: change in unearned premium
Gross amount (102) (90)
Reinsurers` share (226) (184)
Net insurance premium revenue 7 719 3 596
Investment income 477 220
Income from reinsurance contracts 487 245
ceded
Net realised gains on financial 202 77
assets
Net fair value gains on assets at 596 (35)
fair value through income
Other operating income 5 7
Net income 9 486 4 110
Insurance claims and loss 5 015 2 251
adjustment expenses
Insurance claims and loss
adjustment expenses recovered
from reinsurers
(618) (254)
Net insurance benefits and claims 4 397 1 997
Expenses for the acquisition of 1 429 680
insurance contracts
Expenses for marketing and 1 222 590
administration
Expenses for asset management 41 21
services rendered
Other operating expenses 2 1
Expenses 7 091 3 289
Results of operating activities 2 395 821
Finance costs (14) -
Share of profit/(loss) of 37 (17)
associates
Cell owners` interest (25) -
Profit before tax 2 393 804
Income tax expense (615) (230)
Profit for the year 1 778 574
Attributable to:
- equity holders of the Company 1 754 569
- minority interest 24 5
1 778 574
Reconciliation of Income Six months
Statements
Year to ended
31 December 30 June
2004 2004
Net Profit after Tax R million R million
As previously reported under SA 1 734 561
GAAP
Goodwill amortisation reversed 49 32
Impairment of goodwill included (2) (1)
in other operating expenses
Impairment of goodwill included (19) (20)
in share of profit of associates
Share-based payments (8) (3)
As reported under IFRS 1 754 569
Headline earnings reconciliation
Profit attributable to ordinary 1 754 569
shareholders for the period
Adjusted for: non-trading items
Impairment of goodwill included 2 1
in other operating expenses
Impairment of goodwill included 19 20
in share of profit of associates
Headline earnings 1 775 590
COMMENTS
From 2005 onwards the Santam Group (`Group`) is required to prepare its
consolidated financial statements in accordance with IFRS and JSE Limited`s
(`JSE`) Listing Requirements. This change applies to all financial reporting for
accounting periods beginning on or after 1 January 2005 and consequently the
Group`s first published IFRS results will be its interim results for the six
months ended 30 June 2005. The Group`s first published full set of financial
statements under IFRS will be for the year ending 31 December 2005. As the Group
publishes comparative information for one year in its financial statements, the
date for the transition to IFRS is 1 January 2004, which represents the start of
the earliest period of comparative information.
In order to explain how Santam`s reported performance and financial position are
impacted by IFRS, the Group has restated information previously published under
SA GAAP to the equivalent basis under IFRS. This restatement follows the
guidelines set out in IFRS 1, First-time Adoption of International Financial
Reporting Standards. The adoption of IFRS has resulted in certain adjustments to
comparative information that may not be repeated in future reporting periods.
It is important to note that this financial information has been prepared in
accordance with IFRS statements that are expected to be effective at 31 December
2005. These are subject to ongoing review and possible amendment by interpretive
guidance from the International Accounting Standards Board (`IASB`) and may
therefore be subject to change. It should further be noted that the ultimate
presentation as well as income statement and balance sheet captions could also
change.
This document includes the following:
* Basis of preparation and explanation of transitional arrangements and material
adjustments
* Consolidated Balance Sheets at 1 January 2004, 30 June 2004 and 31 December
2004
* Consolidated Income Statements for the six months ended 30 June 2004 and the
year ended 31 December 2004
* Reconciliation of Shareholders equity at 1 January 2004,
30 June 2004 and 31 December 2004
* Reconciliation of Income Statements for the six months ended
30 June 2004 and the year ended 31 December 2004
* Reconciliation of total assets, liabilities and equity as at
1 January 2004, 30 June 2004 and 31 December 2004
Basis of preparation
The Group has prepared the consolidated preliminary balance sheet at 31 December
2004 and the consolidated preliminary income statement for the year then ended,
in accordance with IFRS, to establish the financial position and results of
operations of the Group necessary to provide the comparative information
expected to be included in the Group`s first set of IFRS financial statements
for the year ending 31 December 2005.
The Board acknowledges its responsibility for the preparation of the preliminary
financial information which has been prepared in accordance with IFRS and
policies expected to be adopted when the Board prepares the Group`s first set of
IFRS financial statements for the year ending 31 December 2005.
Transitional arrangements
The date of transition to IFRS for the Group is 1 January 2004. The Group`s
opening balance sheet at 1 January 2004 has been restated to reflect all
existing IFRS`s expected to be applicable at 31 December 2005. At transition,
IFRS 1 allows a number of exemptions to the retrospective application principle.
The Group made the following elections relating to the transitional
arrangements:
Cumulative translation differences
The Group has elected that the cumulative translation differences on foreign
operations be deemed zero at the date of transition.
Business combinations
The Group has elected not to apply the retrospective application requirements of
IFRS 3, Business Combinations for combinations that occurred prior to 1 January
2004. Adjustments to goodwill were made in terms of IFRS 3. Refer to discussion
below.
Property, plant and equipment
There were no adjustments to the value of property, plant and equipment as the
residual values and useful lives of the assets were considered reasonable in
terms of IAS 16, Property, Plant and Equipment.
Share-based payments
The Group has elected not to apply the provisions of IFRS 2, Share-based
Payments to employee share option scheme awards granted on or before 7 November
2002.
Designation of previously recognised financial instruments
The Group has elected to designate certain financial instruments to be
classified as `at fair value through income` at transition date.
Hedge accounting
As the Group does not actively hedge, and did not have any open hedges in 2004,
this is therefore not applicable to the Group.
Comparatives
The Group has not taken advantage of the exemption within IFRS 1 that allows
comparative information presented in the first year of adoption of IFRS not to
comply with IAS 32, Financial Instruments: Disclosure and Presentation, IAS 39,
Financial Instruments: Recognition and Measurement and IFRS 4, Insurance
Contracts.
Estimates
Where estimates have previously been made under SA GAAP, consistent estimates
have been made on transition to IFRS.
Cash flow statement
There have been no material adjustments to the cash flow statement in respect of
cash utilised by operating activities before taxation (although the composition
has changed), cash flows from investing activities and cash flows from financing
activities as a result of the adoption of IFRS.
Further changes
The possibility exists that the preliminary financial information may require
adjustment before its inclusion in the Group`s first IFRS financial statements
for the year ending 31 December 2005 because of revisions or changes to
standards issued by the IASB, and interpretations or guidance on the application
of IFRS in a particular industry.
Material adjustments
The basis of the material adjustments between SA GAAP and IFRS, as shown in the
Reconciliation of Equity and Reconciliation of Income Statement tables, is noted
below. Note that the adjustments are net of associated tax impact where
applicable.
Goodwill
Under SA GAAP, the Group recognised acquired goodwill at cost and amortised it
on a straight-line basis over its expected useful life, not exceeding five
years. Under IFRS, goodwill is not amortised and is subject to impairment
reviews both annually and when there are indications that the carrying value may
not be recoverable.
Under IFRS 1, the SA GAAP goodwill balance at 1 January 2004 has been increased
with the release of negative goodwill of R2 million in distributable reserves.
The amortisation charge of R49 million for the year ended 31 December 2004 has
been reversed. Included in the amortisation charge of R49 million was an amount
of R23 million that was reversed against the carrying value of investments in
associated companies.
The result of an impairment test on the restated balance of goodwill as at 31
December 2004, was an impairment charge of R2 million for 2004 as well as an
impairment of a foreign associate amounting to R19 million. This amount was
previously included in the amortisation charge.
Cumulative translation differences
Under SA GAAP the Group classified the investment in foreign subsidiaries as
foreign entities. The foreign currency adjustments arising from the translation
of foreign entities were recognised directly in equity, constituting the Foreign
Currency Translation Reserve.
The distinction between foreign entities and integrated foreign operations based
on the intention of management has been removed. IFRS requires the Group to
determine the currency of the primary economic environment in which the entity
operates. An entity, which has a non-rand functional currency, is translated at
the closing exchange rate and the differences arising are reported directly in
equity, whilst all other entities classified as having rand functional currency
report foreign currency translation differences in the Income Statement.
In terms of IFRS 1, the Group has elected to transfer the cumulative translation
losses of R67 million for foreign operations as at 1 January 2004 to retained
income.
Share-based payments
The Group grants share options to employees under an employee share incentive
scheme. Previously, under SA GAAP no costs were recognised in the Income
Statement.
In accordance with the requirements of IFRS, the Group adjusted its retained
income balance on transition date by R3 million and has recognised an expense in
the Income Statement of R8 million for 2004, with a corresponding increase in
the share-based payment reserve. The options are measured at fair value at grant
date. The fair value is recognised over the vesting period.
Reclassifications
The Group has reclassified certain financial assets as `at fair value through
income`, which was classified under SA GAAP as available-for-sale. This was
merely a balance sheet reclassification as the Group previously did take all
fair value adjustments through the Income Statement. This reclassification had
no impact on equity or the Income Statement.
The fair value adjustments recognised in the Income Statement on `at fair value
through income` financial instruments, are transferred to a separate
distributable reserve called `Fair Value Adjustment Reserve` in line with the
investment management philosophy.
Audit opinion on 2004 Restated Financial Information
This restatement of financial information for the year ended 31 December 2004
has been audited by the Group`s auditors, PricewaterhouseCoopers Inc. and their
opinion is available for inspection at the Group`s registered office. Their
report includes an emphasis of matter that amendments to the interpretive
guidance issued by the IASB, between the date of this announcement and the
finalisation of the financial statements for the year ending 31 December 2005,
may result in changes to the restatements published.
Reconciliation of total Assets, Liabilities and Equities
Assets Liabilities
At At At At At At
31 30 June 1 31 30 June 1
December January December January
2004 2004 2004 2004 2004 2004
R million R R R R R
million million million million million
As previously
reported
under SA GAAP 12 529 10 703 10 709 7 017 6 305 6 700
Reclassificati 47
on of cell
owners
interest
Adjustments
for:
Goodwill 28 13 2
Share of 16 16 16
profit from
associate
As reported 12 573 10 732 10 727 7 064 6 305 6 700
under IFRS
Reconciliation of total Assets, Liabilities and Equities (continued)
Equity
At At At
31 December 30 June 1 January
2004 2004 2004
R million R million R million
As previously reported
under SA GAAP 5 512 4 398 4 009
Reclassification of cell (47)
owners interest
Adjustments for:
Goodwill 28 13 2
Share of profit from 16 16 16
associate
As reported under IFRS 5 509 4 427 4 027
Reconciliation of changes in shareholders` equity
Other reserves
Share Translation Contingency Unrealised
capital reserve reserve surplus
R million R million R million R million
1 January 2004
As previously
reported
under SA GAAP 1 130 (67) 577 454
Reclassifications (454)
Adjustments for:
Goodwill
Share-based
payments
Translation 67
reserve
Share of profit
from associate
As reported under 1 130 - 577 -
IFRS
30 June 2004
As previously
reported
under SA GAAP 1 161 (92) 618 436
Reclassifications (436)
Adjustments for:
Goodwill
Share-based
payments
Translation 67
reserve
Share of profit
from associate
As reported under 1 161 (25) 618 -
IFRS
31 December 2004
As previously
reported
under SA GAAP 1 171 (115) 686 939
Reclassifications (939)
Adjustments for:
Goodwill
Share-based
payments
Translation 65
reserve
Share of profit
from associate
As reported under 1 171 (50) 686 -
IFRS
Reconciliation of changes in shareholders` equity (continued)
Distributable Reserve
Share- Fair value Minority
based
payment Retained adjustment shareholders`
reserve earnings reserve interest
R million R million R million R million
1 January 2004
As previously
reported
under SA GAAP 1 862 53
Reclassificatio 454
ns
Adjustments
for:
Goodwill 2
Share-based 3 (3)
payments
Translation (67)
reserve
Share of profit 16
from associate
As reported 3 1 810 454 53
under IFRS
30 June 2004
As previously
reported
under SA GAAP 2 232 43
Reclassificatio 436
ns
Adjustments
for:
Goodwill 13
Share-based 6 (6)
payments
Translation (67)
reserve
Share of profit 16
from associate
As reported 6 2 188 436 43
under IFRS
31 December
2004
As previously
reported
under SA GAAP 2 724 60
Reclassificatio 939
ns
Adjustments
for:
Goodwill 28
Share-based 11 (11)
payments
Translation (65)
reserve
Share of profit 16
from associate
As reported 11 2 692 939 60
under IFRS
Reconciliation of changes in shareholders` equity (continued)
Distributable Reserve
Total
R million
1 January 2004
As previously reported
under SA GAAP 4 009
Reclassifications -
Adjustments for:
Goodwill 2
Share-based payments -
Translation reserve -
Share of profit from associate 16
As reported under IFRS 4 027
30 June 2004
As previously reported
under SA GAAP 4 398
Reclassifications -
Adjustments for:
Goodwill 13
Share-based payments -
Translation reserve -
Share of profit from associate 16
As reported under IFRS 4 427
31 December 2004
As previously reported
under SA GAAP 5 465
Reclassifications -
Adjustments for:
Goodwill 28
Share-based payments -
Translation reserve -
Share of profit from associate 16
As reported under IFRS 5 509
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