| Mon 14 Nov 2005, 7:00 | | Alexander Forbes - Unaudited interim results for t |
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Alexander Forbes - Unaudited interim results for the six months ended 30
September 2005
Alexander Forbes Limited
(Incorporated in the Republic of South Africa)
(Registration number 1958/001974/06)
Share code: AFB ISIN code: ZAE000018230
Unaudited interim results for the six months ended 30 September 2005
- Income from operations increases 8% to R2 591 million
- Headline earnings increase 19% to R321 million
- Investment Solutions global assets exceed R107 billion
Review of operations
Overview
The six months to 30 September 2005 have been characterised by:
- Continued strong operating results from our African businesses
- Growth in our International Financial Services businesses
- Continued strong growth in the assets of Investment Solutions
- Difficult trading conditions in our International Risk Services business
A 19% increase in the group"s headline earnings which totalled R321 million for
the six months
Trading results of operations
The Group recorded 8% growth in income from operations and 1% growth in trading
results from operations. The International Risk Services business experienced
continued difficult trading conditions during the current period aggregate.
Trading results from the group"s other operations increased 22% in comparison to
the results for the prior period.
- Africa Financial Services
The Africa Financial Services business recorded revenue growth of 15% with
strong growth in the trading result up 28% to R110 million. This growth was
driven by the solid performance of the core actuarial consulting and
administration divisions with increased revenue from special projects, including
those related to legislative change. Other allied businesses contributed to the
strong profit growth.
- Africa Risk & Insurance Services
The Africa Risk & Insurance Services business delivered a trading result of R119
million in line with the result for the prior period. This was achieved against
a backdrop of difficult industry conditions. In particular, the results were
affected by reduced income due to weaker underwriting results experienced by the
business. There have been good new business gains and the business has been
successful in employing additional key client facing individuals.
- International Financial Services
The International Financial Services business achieved revenue growth of 23%
delivering a trading result of GBP3,0 million up 50% on the prior period. The
most significant contributor to this result was Lane Clark & Peacock; the
actuarial consulting business, acquired in 2002, recorded strong revenue and
profit growth benefiting from increased demand for its services in the UK and
Swiss markets resulting from legislative change.
The International Financial Services businesses have been consolidated into a
single management structure. This includes the DC Link Administration business
(previously shown as part of UK Investment Solutions) and the continuing part of
the UK Direct Marketing business. The part of the UK Direct Marketing entity
which, as previously advised is in run-off, is shown separately from trading
results of operations in the income statement. Comparative segmental information
has been reclassified accordingly.
- International Risk Services
The International Risk Services business continues to trade in difficult
conditions including a reduction in insurance rates in a number of classes of
business. Revenues decreased 7% with the trading result decreasing to GBP2,2
million. Despite this disappointing result, we are seeing positive results from
actions taken in the business in the previous financial year. We have recruited
key personnel to replace lost staff and to strengthen and position the business
to take advantage of opportunities in the marketplace. We expect pressures on
the financial result to continue in the short term with improved prospects in
the medium term.
- Investment Solutions
The Africa Investment Solutions business recorded revenue growth of 25%. There
was even stronger growth in the trading result up 42% to R125 million resulting
from the operational gearing which is integral to the business model. Average
assets under management increased 32% with closing assets reaching R99 billion
at 30 September 2005. The business benefited from strong equity market growth
and further net inflows which totalled R3,5 billion for the period.
The UK Investment Solutions business, started in 2002, continued to attract new
clients with assets under management growing by 53% from year-end to GBP681
million. The trading loss is a reflection of the investment made in growing the
asset base of this business.
Empowerment in South Africa
We are pleased to announce that we have reached agreement to include all South
African staff of the group, numbering almost 3000, as participants in the
Empowerment Transaction through the establishment of a new Staff Trust. The
Staff Trust will have an effective 9% shareholding in Alexander Forbes South
Africa. The majority of this equity will be allocated to black management and
staff which will increase the broad-based component of the empowerment
shareholding.
This participation has been made available with the assistance of Shanduka from
the existing 30% empowerment shareholding and therefore there is no additional
cost or dilution to shareholders of Alexander Forbes Limited. A portion of the
stake was acquired for the Staff Trust from the Shanduka Value Partners Fund for
an amount of R34 million which was funded on interest-bearing loan account. The
balance was contributed by Shanduka in support of this key initiative.
We have recently completed an independent valuation of Alexander Forbes South
Africa Holdings (Pty) Limited ("AFSAH"). The valuation confirmed that a
significant amount of value has already been created for the empowerment
shareholders. Based on the results of the South African businesses and applying
the 5,8 EBIT multiple used to value the transaction, the net amount of the
empowerment consortium"s investment in AFSAH already exceeds R200 million.
The Group has continued to make significant progress in transformation. This has
resulted in an improved overall "A" rating from Empowerdex for AFSAH. The
introduction of a broad base of black management and staff, through the Staff
Trust, is expected to further improve this rating.
Financing
As previously advised, the equity issue and repurchase of exchangeable bonds
held by VenFin in the previous financial year resulted in a significant
strengthening of the group"s balance sheet. This has remained the position
during the six months to 30 September 2005. The decrease in interest costs
compared to the prior period is attributable to the repurchase of the
exchangeable bonds in September 2004 (R40 million of interest costs were
incurred on these bonds in the prior period).
The Group has a partnership with a financial institution to provide a pension
backed housing loans product to members of retirement funds, with the funding
being provided by the financial institution. R750 million of this funding was
replaced by a securitisation of part of the housing loans book during the
current period. In order to enhance its returns, the group has retained the
first R75 million of credit risk on this part of the book. The securitisation
funding and directly related loans receivables of the securitisation entity are
shown separately in the group balance sheet.
Taxation
The Group"s effective tax rate of 27% for the six months to 30 September 2005 is
in line with the effective tax rate for the prior period and represents the
expected tax rate for the full financial year. The effective tax rate is
calculated excluding impairment charges and other capital items which are not
subject to tax.
Adjusted headline earnings per share
As previously advised, the Group issued 114,8 million new ordinary shares in
September 2004 in consideration for the repurchase of exchangeable bonds held by
VenFin. This has resulted in a 28% increase in the weighted average number of
shares in issue in the current period compared with the six months to September
2004. The effect of the increased shares in issue is only partly offset by the
interest saving on the repurchased bonds with the result that the 19% increase
in the group"s headline earnings translates into a 7% decrease in headline
earnings per share.
An adjusted measure of headline earnings per share has been presented in order
to facilitate a proper assessment of performance in comparison to the prior
period. The adjusted headline earnings per share excludes exceptional items (and
tax effects thereon) and reflects the position had the repurchase of
exchangeable bonds occurred at the commencement of the prior reporting period.
Headline earnings per share increased by 5% on this adjusted basis and totalled
66 cents for the six months under review.
The dilution effect of the repurchase of exchangeable bonds was partly absorbed
in the results for the year ended 31 March 2005 and will therefore be much less
pronounced for the full financial year to 31 March 2006.
Implementation of IFRS
The interim results have been presented in accordance with International
Financial Reporting Standards ("IFRS"), which became effective for the Group on
1 April 2005. Details relating to the changes resulting from the adoption of
IFRS and changes to the results of prior periods are set out in the annexure
which should be read in conjunction with this announcement.
Developments and prospects
We are delighted to have welcomed Peter Moyo to Alexander Forbes as managing
director of our South African group. His responsibilities extend to all of our
African operations.
As explained above, the dilutive effect of the repurchase of exchangeable bonds
will be less pronounced for the full year. We have continued to deliver
significant growth in most of our businesses. We have also strengthened the
management team and the group balance sheet. Value has already been created for
our empowerment shareholders and we continue to make significant progress on
transformation in South Africa. The Group is thus well positioned to capitalise
on opportunities.
For and on behalf of the board
PL Heinamann RI Gordon
Chairman Group chief executive
14 November 2005
INCOME STATEMENT
30 Sept 30 Sept 31 March
2005 % 2004 2005
Rm Rm Rm
Income from operations 2 591 8 2 397 4 858
(note 3)
Other income 38 54 107
Operating expenses (2 165) (2 017) (4 231)
Operating profit 464 7 434 734
Analysed as follows:
Trading results of 408 1 404 772
operations
Profit from direct 22 35 68
marketing entity in run-
off
Profit from group cell 19 1 23
captive insurance
arrangement
Exceptional items (note 4) 22 5 (106)
Impairment charges and (7) (11) (23)
other capital items
Operating profit 464 7 434 734
Investment income 27 31 66
Finance costs (32) (78) (129)
Share of profits of 7 2 8
associates
Profit before taxation 466 20 389 679
Taxation (128) (111) (191)
Profit for the period 338 22 278 488
Minority interest 24 20 20 45
Profit attributable to 314 22 258 443
ordinary shareholders
Reconciliation of heading
earnings
Add: Impairment charges 7 11 23
and other capital items
Headline earnings 321 19 269 466
EARNINGS PER SHARE (cents)
- Basic earnings 68 (6) 72 108
- Headline earnings 70 (7) 75 114
- Adjusted headline 66 5 63 123
earnings
DILUTED EARNINGS
PER SHARE (cents)
- Basic earnings 68 (4) 71 108
- Headline earnings 69 (7) 74 113
- Adjusted headline 66 5 63 123
earnings
Number of shares (net of
treasury shares)
- issued (millions) 461 - 460 461
- weighted average 461 28 359 409
(millions)
- diluted weighted average 463 28 363 411
(millions)
Net asset value per share 449 8 416 468
(cents)
CASH FLOW STATEMENT
30 Sept 30 Sept 31 March
2005 2004 2005
Rm Rm Rm
Cash from operating activities 506 496 939
Movement in working capital and (39) 106 (54)
insurer balances
Taxation and dividend payments (359) (362) (476)
108 240 409
Cash from investing activities
Net subsidiaries and businesses (15) (119) (72)
acquired
Capital expenditure for the year (66) (81) (132)
Net movement in financial assets 19 (11) 3
(62) (211) (201)
Cash from financing activities
Net proceeds of share issues 1 1 160 1 163
Net borrowings repaid (40) (1 456) (1 366)
Withdrawal of matching deposit - 227 227
Premium finance receivables and (10) (141) (71)
other net movements
(49) (210) (47)
Net cash flows (3) (181) 161
Foreign subsidiary translation (74) - 16
adjustment
Net movement in cash balances (77) (181) 177
SEGMENTAL ANALYSIS
Income from
operations
30 Sept 30 Sept
2005 % 2004
AFRICA (Rm)
Risk & Insurance Services 442 (1) 445
Financial Services 523 15 454
Investment Solutions 363 25 290
Total Africa (Rm) 1 328 12 1 189
INTERNATIONAL (GBPm)
Risk Services 63,6 (7) 68,6
Financial Services 40,6 23 33,0
Investment Solutions 2,3 77 1,3
Total International (GBPm) 106,5 3 102,9
Total International (Rm) 1 263 5 1 208
Total Group (Rm) 2 591 8 2 397
Trading results
of operations
30 Sept 30 Sept
2005 % 2004
AFRICA (Rm)
Risk & Insurance Services 119 - 119
Financial Services 110 28 86
Investment Solutions 125 42 88
Total Africa (Rm) 354 21 293
INTERNATIONAL (GBPm)
Risk Services 2,2 (71) 7,7
Financial Services 3,0 50 2,0
Investment Solutions (0,3) - (0,3)
Total International (GBPm) 4,9 (48) 9,4
Total International (Rm) 54 (51) 111
Total Group (Rm) 408 1 404
Africa
30 Sept 30 Sept
2005 2004
Rm Rm
Trading results of operations 354 293
Profit from direct marketing entity in - -
run-off
Profit from group cell captive 8 -
insurance arrangement
Exceptional items (note 4) - -
Operating profit before impairment 362 293
charges
Net finance costs 4 2
Share of profits of associates 4 (2)
Headline profit before tax 370 293
Taxation on headline profit (100) (79)
Minority interest (9) (10)
Headline earnings 261 204
International
30 Sept 30 Sept
2005 2004
Rm Rm
Trading results of operations 54 111
Profit from direct marketing entity in 22 35
run-off
Profit from group cell captive 11 1
insurance arrangement
Exceptional items (note 4) 22 5
Operating profit before impairment 109 152
charges
Net finance costs (9) (49)
Share of profits of associates 3 4
Headline profit before tax 103 107
Taxation on headline profit (28) (32)
Minority interest (15) (10)
Headline earnings 60 65
Total
30 Sept 30 Sept
2005 2004
Rm Rm
Trading results of operations 408 404
Profit from direct marketing entity in 22 35
run-off
Profit from group cell captive 19 1
insurance arrangement
Exceptional items (note 4) 22 5
Operating profit before impairment 471 445
charges
Net finance costs (5) (47)
Share of profits of associates 7 2
Headline profit before tax 473 400
Taxation on headline profit (128) (111)
Minority interest (24) (20)
Headline earnings 321 269
BALANCE SHEET
30 Sept 30 Sept 31 March
2005 2004 2005
Rm Rm Rm
ASSETS
Financial assets held under 96 557 70 162 81 102
multi-manager investment
contracts
Financial assets held under unit 5 548 2 144 4 590
trust contracts
Housing loans secured by 750 - -
retirement fund assets
Property and equipment 251 268 267
Purchased and developed computer 30 31 24
software
Goodwill 2 153 2 122 2 154
Other intangible assets 39 27 39
Investment in associates (note 53 104 66
5)
Deferred tax asset 226 253 253
Financial assets 324 371 257
Trade and other receivables 1 571 1 638 1 438
Cash and cash equivalents 2 506 2 135 2 583
Total assets 110 008 79 255 92 773
EQUITY
Shareholders" equity 2 072 1 912 2 135
Minority interest 134 133 132
Total equity 2 206 2 045 2 267
LIABILITIES
Financial liabilities held under 96 557 70 162 81 102
multi-manager investment
contracts
Liabilities to unit holders 5 548 2 144 4 590
Securitisation funding for 750 - -
housing loans
Borrowings 782 706 760
Retirement benefit obligations 299 308 308
Deferred tax liability 46 4 47
Deferred consideration for 229 131 187
acquisitions
Provisions 95 79 126
Other liabilities 3 496 3 676 3 386
Total liabilities 107 802 77 210 90 506
Total equity and liabilities 110 008 79 255 92 773
STATEMENT OF CHANGES IN EQUITY
Treasury
Share share
capital and share
share option Other
premium reserve reserves
Rm Rm Rm
At 31 March 2004
As previously reported 86 162 892
Amended for adoption of IFRS - - (430)
Restated at 31 March 2004 86 162 462
Share issues 1 160 - -
Movement in share option - (15) 29
reserve
Translation and other - - 1
movements
Profit for the period - - 258
Distributions - - (231)
Movements in minority - - -
interest
At 30 September 2004 1 246 147 519
Share issues 15 - -
Movement in share option 9 (2) 8
reserve
Treasury shares purchased - (12) -
Translation and other - - 20
movements
Profit for the period - - 185
Movements in minority - - -
interest
At 31 March 2005 1 270 133 732
Share issues 9 - -
Movement in share option 41 (45) 11
reserve
Translation and other - - (84)
movements
Profit for the period - - 314
Distributions (309) - -
Movements in minority - - -
interest
At 30 September 2005 1 011 88 973
Share-
holders" Minority Total
equity interest equity
Rm Rm Rm
At 31 March 2004
As previously reported 1 140 107 1 247
Amended for adoption of IFRS (430) - (430)
Restated at 31 March 2004 710 107 817
Share issues 1 160 - 1 160
Movement in share option 14 - 14
reserve
Translation and other 1 (1) -
movements
Profit for the period 258 20 278
Distributions (231) - (231)
Movements in minority - 7 7
interest
At 30 September 2004 1 912 133 2 045
Share issues 15 - 15
Movement in share option 15 - 15
reserve
Treasury shares purchased (12) - (12)
Translation and other 20 3 23
movements
Profit for the period 185 25 210
Movements in minority - (29) (29)
interest
At 31 March 2005 2 135 132 2 267
Share issues 9 - 9
Movement in share option 7 - 7
reserve
Translation and other (84) (10) (94)
movements
Profit for the period 314 24 338
Distributions (309) - (309)
Movements in minority - (12) (12)
interest
At 30 September 2005 2 072 134 2 206
Notes
1. Basis of preparation
These interim results have been prepared in accordance with IAS 34 - Interim
Financial Reporting and comply with International Financial Reporting Standards
("IFRS"). We draw readers" attention to the fact that the interim results were
neither audited nor reviewed by the auditors and consequently they do not
express any assurance on the interim results for the period ended 30 September
2005.
The accounting policies are consistent with those applied in the 2005 financial
year except for the changes resulting from the adoption of IFRS.
30 Sept 30 Sept 31 March
2005 2004 2005
2. Exchange rates
The income statements and
balance sheets of significant
foreign subsidiaries have been
translated to Rands as follows:
Weighted average R:GBP rate 11,7 11,7 11,5
Closing R:GBP rate 11,2 11,6 11,7
3. Income from operations (Rm)
Fee and commission income 2 484 2 323 4 688
Interest and other net finance 69 50 101
income from financing
activities
Less: Directly related interest (8) (8) (11)
expense
Net earned premium and 72 50 121
investment income from
insurance activities
Less: Net claims and transfers (26) (18) (41)
to policyholders
Total income from operations 2 591 2 397 4 858
4. Exceptional items (Rm)
Non-recurring restructuring - - (111)
costs
Non-trading currency gain - 5 5
Reduction of onerous lease 22 - -
provision
Total exceptional items 22 5 (106)
5. Associates (Rm)
Carrying value in balance sheet 53 104 66
Directors" valuation of 87 141 102
associates
6. Capital expenditure and
commitments (Rm)
Depreciation for the period 64 77 122
Capital expenditure for the 66 81 132
period
Operating lease commitments
- Due within one year 207 199 213
- Thereafter 1 076 913 1 204
1 283 1 112 1 417
Annexure - Adoption of International
Financial Reporting Standards
Introduction
In line with the requirements of the JSE Limited, Alexander Forbes has adopted
International Financial Reporting Standards (IFRS) with effect from 1 April
2005. As the group publishes comparative information for one year in its
financial statements, the effective date for transition to IFRS is 1 April 2004,
which represents the start of the earliest period of comparative information
presented. The results for the six months ended 30 September 2004 and the year
ended 31 March 2005 have been restated accordingly.
Basis of presentation
The financial information has been presented in accordance with IFRS statements
that are currently effective. This may differ from IFRS finally in effect at 31
March 2006 as a result of ongoing global developments and possible amendment by
interpretive guidance from the International Financial Reporting Interpretations
Committee of the International Accounting Standards Board.
The impact of changing from South African Generally Accepted Accounting Practice
to IFRS is summarised below. Reconciliations are provided of the adjustments to
financial information as previously reported. The adjustments shown in these
reconciliations are cross-referenced to the relevant paragraph below.
Transitional arrangements
The key principle of IFRS 1 - First Time Adoption of International Financial
Reporting Standards is full retrospective application of IFRS. In accordance
with this statement, the group"s transition date is 1 April 2004 and the opening
balance sheet at that date has been restated using the accounting policies
adopted by the group under IFRS. Comparative financial information for the six
months to 30 September 2004 and the year ended 31 March 2005 have been restated
accordingly.
IFRS 1 allows certain exemptions in preparing the opening balance sheet. The
elections made by the group are detailed below.
1. Employee benefits: All cumulative actuarial losses in respect of the group"s
defined benefit pension funds and post-retirement medical obligation have been
recognised in full in the opening balance sheet. The effect is to decrease
equity as previously reported at 1 April 2004.
2. Cumulative translation difference: The cumulative foreign currency
translation reserve arising on consolidation of foreign entities has been reset
to zero in the opening balance sheet by an adjustment within equity comprising a
transfer from non-distributable reserves to distributable reserves. There is no
net effect on equity as previously reported at 1 April 2004.
3. Insurance contracts: The group has elected the exemption not to apply the
disclosure requirements of IFRS 4 - Insurance Contracts to comparative
information.
IFRS 2 - Share-based Payments, IFRS 3 - Business Combinations, IAS 36 -
Impairment of Assets and IAS 38 - Intangible Assets were previously adopted by
the group in presenting its financial statements for the year ended 31 March
2005. IFRS 2 was applied to all employee share option costs with full
retrospective effect. IFRS 3, IAS 36 and IAS 38 were applied to all business
combinations effective from 31 March 2003 and to goodwill and intangible asset
balances from that date. The adoption of these statements complies with the
transitional arrangements and exemptions provided in IFRS 1.
Changes to the format of the income statement and balance sheet
Changes have been made to the format of the group"s income statement, balance
sheet and segmental information arising from the adoption of IFRS. This has
resulted in additional line items being presented and the reclassification of
certain items within the income statement and balance sheet. These changes
affect only the presentation of information and have had no effect on net profit
and equity as previously reported.
Changes to accounting policies
The following changes have been made to the group"s accounting policies as a
result of the adoption of IFRS.
4. Revenue recognition
In line with industry practice, the group"s accounting policy has previously
been to recognise insurance brokerage income in full upon inception of the
policy. In accordance with industry developments and guidance provided in IAS 18
- Revenue, the group now defers a portion of brokerage income to cover the cost
of post-placement servicing activities plus a reasonable profit thereon. The
amount deferred is recognised as revenue over the servicing period on a
consistent basis reflecting the pattern of servicing activities.
Fees earned on the origination of a financial instrument were previously
recognised on inception of the contract with a portion of the revenue deferred
to cover the future servicing costs plus a reasonable profit thereon. These fees
are now spread evenly over the expected period of the contract. Costs
attributable to such contracts continue to be expensed immediately.
The deferral of income arising from changes to the group"s accounting policies
for revenue recognition has resulted in a decrease in equity as previously
reported. Changes to the opening and closing balances of deferred income
resulting from changes to the volume and mix of business affect the previously
reported results of the relevant periods.
5. Operating leases
Circular 7/2005 issued by the South African Institute of Chartered Accountants
requires operating lease costs to be accounted for on a straight-line basis.
Future lease increases in terms of the lease contract are aggregated and the
average lease expense is then recognised in equal amounts over the lease period.
This treatment leads to the earlier recognition of lease expenses. Previously,
the amortisation of the lease expense reflected the contractual escalation
inherent in the lease contract. The effect is to reduce net profit as previously
reported with the cumulative adjustment reflected as a decrease in equity.
6. Consolidation of cell captive insurance arrangement
The assets, liabilities, income statement and cash flow effects attributable to
the group"s investment in a cell captive insurance licensed entity operated by a
third party are now included in the consolidated financial statements of the
group. Previously, the group recognised only the premiums paid to the insurer as
an operating expense in the relevant reporting period. The effect is to
eliminate these premium payments on consolidation and to recognise the assets,
liabilities, income statement and cash flow effects of the group"s insurance
cell in the consolidated financial statements of the group. This has increased
the potential for greater volatility in reported earnings.
7. Cell captive insurance facilities provided to third parties
The group provides cell captive insurance facilities to clients through two
licensed insurance companies. Previously, all assets and liabilities of these
companies were included in the consolidated balance sheet of the group. The
group now recognises only its attributable interest in these assets and
liabilities in the consolidated balance sheet. The effect is to decrease the
assets and linked liabilities included in the group balance sheet in respect of
these entities with no effect on net profit and equity as previously reported.
This change affects only the group financial statements and does not effect the
presentation of the entity financial statements of the two licensed insurance
companies.
The presentation of cell captive insurance transactions is the subject of
ongoing local and international industry debate and developments are being
monitored.
8. Consolidation of unit trusts
The assets and liabilities attributable to unit trusts managed by the group are
now included in the consolidated financial statements of the group. Previously,
the group recognised only its investments in the unit trusts and its contractual
entitlement to income. The effect is to increase the assets and linked
liabilities included in the group balance sheet with no effect on net profit and
equity as previously reported.
9. Sub-agents
In line with insurance broking industry practice, commission payments to third
party sub-agents were previously offset against brokerage income. These
commission payments are now included in operating expenses. The effect is to
increase revenue and operating expenses by an equal amount with no impact on net
profit and equity as previously reported.
Other matters
The changes detailed in this announcement do not have an effect on the cash
flows reported by the group other than in case of the consolidation of the
group"s cell captive insurance arrangement. In this case, insurance premiums
paid to the cell captive insurer are eliminated on consolidation and any actual
claims paid to third parties are reflected as cash flow effects in the
consolidated cash flow statement of the group.
Investment Solutions is the group"s multi-manager investment management
subsidiary operating under a life insurance licence with all investments
directly matched to linked policyholder liabilities. Policyholders" monies are
placed with selected asset managers who are given full discretion in terms of
their investment mandate to buy or sell individual shares. In the course of
exercising their mandate, they may from time to time hold Alexander Forbes
shares within their investment portfolios. Given the specific circumstances of
Investment Solutions, there is uncertainty as to whether these shares should be
classified and accounted for as treasury shares under IFRS. Accounting for these
shares as treasury shares would require the shares to be deducted from equity
while the directly matched liability to policyholders would continue to be
recognised as a liability in the balance sheet. This results in an accounting
mismatch where there is no economic mismatch. The anomaly created by this
mismatch is that increases in the Alexander Forbes share price and dividend
payments to shareholders would no longer be matched to the revaluation of the
linked liability, resulting in the reporting of a loss in the income statement
even though no actual loss would be realised and there would be no cash flow
effect whatsoever. This would have amounted to R63 million for the six months
ended 30 September 2005 (in respect of 19.5 million shares). We draw attention
to the fact that these shares have not been classified as treasury shares under
IFRS because inter alia we do not exercise control over the decision to buy or
sell the shares, we do not exercise voting rights over the shares and all
economic benefits are for the account of policyholders.
As explained earlier in this announcement, IFRS statements are subject to
ongoing global developments and possible amendment by interpretive guidance from
the International Financial Reporting Interpretations Committee of the
International Accounting Standards Board. We will monitor developments in this
regard.
Reconciliation of financial information previously reported
Six months Year
ended ended
30 Sept 31 March
2004 2005
Notes Rm Rm
RECONCILIATION OF INCOME FROM
OPERATIONS
Total revenue as previously 2 281 4 625
reported
Adoption of IFRS
Reclassification of items 113 231
within income statement (no
effect on profit)
Interest income from broking 37 75
and financing activities now
included in Income from
operations
Income from direct marketing (54) (107)
entity in run-off now shown
inOther income
Sub-agents and other changes 9 130 263
in classification
Changes to accounting policies
Revenue recognition 4 1 (2)
Consolidation of cell captive 6 2 4
insurance arrangement
Income from operations 2 397 4 858
reported under IFRS
Six months Year
ended ended
30 Sept 31 March
2004 2005
Notes Rm Rm
RECONCILIATION OF TRADING
RESULTS OF OPERATIONS
Operating profit as previously 415 790
reported
Adoption of IFRS
Reclassification of items 2 7
within income statement (no
effect on profit)
Interest income from broking 37 75
and financing activities
included in Income from
operations
Profit from direct marketing (35) (68)
entity in run-off shown
separately from Trading
results of operations
Transitional arrangements
Employee benefits 1 3 7
Changes to accounting policies
Revenue recognition 4 (5) (13)
Operating leases 5 (11) (19)
Trading results of operations 404 772
reported under IFRS
Six months Year
ended ended
30 Sept 31 March
2004 2005
Notes Rm Rm
RECONCILIATION OF PROFIT FOR
THE PERIOD
Profit for the period as 288 483
previously reported
Adoption of IFRS
Transitional arrangements
Employee benefits 1 3 7
Changes to accounting policies
Revenue recognition 4 (5) (13)
Operating leases 5 (11) (19)
Consolidation of cell captive 6 1 23
insurance arrangement
Adjustment for taxation 2 7
effects on IFRS changes
Profit for the period reported 278 488
under IFRS
At At At
1 30 Sept 31 March
April
2004 2004 2005
Notes Rm Rm Rm
RECONCILIATION OF
EQUITY
Total equity as previously 1 247 2 485 2 693
reported
Adoption of IFRS
Transitional arrangements
Employee benefits 1 (108) (106) (103)
Changes to accounting
policies
Revenue recognition 4 (224) (230) (235)
Operating leases 5 (95) (102) (109)
Consolidation of cell 6 (3) (2) 21
captive insurance
arrangement
Total equity as reported 817 2 045 2 267
under IFRS
Six months Year
ended ended
30 Sept 31 March
2004 2005
Note Rm Rm
RECONCILIATION OF CASH FLOWS
Cash from operating activities 495 916
as previously reported
Adoption of IFRS
Changes to accounting policies
Consolidation of cell captive 6 1 23
insurance arrangement
Cash from operating activities 496 939
reported under IFRS
Movement in cash balances as (197) 141
previously reported
Adoption of IFRS
Changes to accounting policies
Consolidation of cell captive 6 16 36
insurance arrangement
Net movement in cash balances (181) 177
reported under IFRS
ANALYSIS OF EARNINGS PER SHARE
Six months ended 30 September
2005
Reported
under IFRS
BASIC EARNINGS PER SHARE
Profit attributable to 314
ordinary shareholders (Rm)
Weighted average number of 461
shares (millions)
Basic earnings per share 68
(cents)
HEADLINE EARNINGS PER
SHARE
Headline earnings (Rm) 321
Weighted average number of 461
shares (millions)
Headline earnings per 70
share (cents)
ADJUSTED HEADLINE EARNINGS
PER SHARE
Headline earnings (Rm) 321
Adjusted for:
