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MAF
MAF
Mutual & Federal Insurance Company Limited - Preliminary Results for the year
ended 31 December 2005
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
INCOME STATEMENT
for the year ended 31 December 2005
Restated
31/12/05 31/12/04 Change
R"m R"m %
Gross premiums 8 005 7 360 9
Less: reinsurance premium (1 131) (943)
Net premiums 6 874 6 417
Change in provision for unearned premiums
net of reinsurance 8 32
Earned premiums net of reinsurance 6 882 6 449
Commission income on reinsurance 233 169
Net investment income 1 572 1 018
Other operating income 6 4
Net income 8 693 7 640
Claims incurred net of reinsurance (4 239) (3 990)
Acquisition costs (1 639) (1 460)
Management expenses (812) (595)
Impairment of goodwill (58) (2)
Operating profit before taxation 1 945 1 593 22
Taxation (430) (442)
Operating profit after taxation 1 515 1 151 32
(123) -
Operating profit attributable to minority
shareholders
Share of associated company"s operating
profit 3 30
Operating profit 1 395 1 181 18
Earnings per share
(a) Headline earnings per share are
calculated on operating
profit adjusted for the impairment of
goodwill, intangibles
and the profits on sale of property, plant
and equipment.
Determination of headline earnings
Operating profit 1 395 1 181
Impairment of goodwill 58 2
Impairment of intangible assets 26 14
Profit on sale of property, plant and
equipment (4) (3)
Headline earnings 1 475 1 194
Headline earnings per share (cents) 592 486 22
Diluted headline earnings per share 572 481
(cents) (note 2)
(b) Basic earnings per share are based on
operating profit.
Basic earnings per share
Basic earnings per share (cents) 560 480 17
Diluted basic earnings per share (cents)
(note 2) 541 476
Ordinary dividend per share declared in
respect
of the year (cents) 155 105 48
Special dividend per share (cents) - 350
Net asset value per share (cents)
1 941 1 462 33
Number of shares in issue (million)
- at period end - excluding treasury shares 251,0 247,4
- weighted average 249,0 245,9
257,8 248,0
- diluted weighted average (note 2)
BALANCE SHEET
at 31 December 2005
Restated
As at as at
31/12/05 31/12/04
R"m R"m
Assets
Investment in associated company - 220
Goodwill 82 140
Intangible assets 83 52
Investment property 7 7
Property, plant and equipment 226 208
Investments at fair value through profit and loss 5 742 4 103
Ordinary shares 4 060 3 228
Government stock 50 63
Money market deposits and other 1 632 812
Reinsurers" share of insurance contract provisions 798 813
Deferred acquisition costs 150 149
Trade and other receivables 790 573
Cash and cash equivalents 1 974 1 427
Total assets 9 852 7 692
Equity and liabilities
Post retirement medical aid provision 131 100
Deferred taxation 244 130
Interest bearing loan 5 2
Insurance contract provisions 3 639 3 303
Agents" balances, accounts payable and provisions 764 541
Total shareholders" equity 5 069 3 616
Ordinary shareholders" capital and reserves 4 872 3 616
Interest of minority shareholders in subsidiary 197 -
Total equity and liabilities 9 852 7 692
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2005
Attributable to ordinary shareholders of the group
Foreign
currency
Contin- trans-
Share gency lation
R"m capital reserve reserve
Balance at
31 December 2003 139 523
Changes in accounting
policy (note 3)
Operating profit for
the period
Transfer to contingency
reserve 134
Current period
movements (15)
Share based
payments charge
Dividends paid
Issue of shares 14
Balance at
31 December 2004 153 657 (15)
Arising on consolidation
of CGIC
Buy back of shares by
subsidiary
Operating profit for
the period
Transfer to contingency
reserve 51
Current period movements (3)
Share based payments
charge
Share based payments
transfer 16
Dividends paid
Issue of shares 17
Balance at
31 December 2005 186 708 (18)
Share-
based Property
pay- reva-
ments luation Retained
R"m reserve reserve income
Balance at
31 December 2003 2 796
Changes in accounting
policy (note 3) 1 23 (2)
Operating profit for
the period 1 181
Transfer to contingency
reserve (134)
Current period
movements (6)
Share based
payments charge 3
Dividends paid (1 041)
Issue of shares
Balance at
31 December 2004 4 17 2 800
Arising on consolidation
of CGIC
Buy back of shares by
subsidiary
Operating profit for
the period 1 395
Transfer to contingency
reserve (51)
Current period movements (2) 5
Share based payments
charge 144
Share based payments
transfer (16)
Dividends paid (300)
Issue of shares
Balance at
31 December 2005 132 15 3 849
Pref-
Min- erence
ority share
R"m interest holders Total
Balance at
31 December 2003 2 36 3 496
Changes in accounting
policy (note 3) (36) (14)
Operating profit for
the period 1 181
Transfer to contingency
reserve -
Current period
movements (2) (23)
Share based
payments charge 3
Dividends paid (1 041)
Issue of shares 14
Balance at
31 December 2004 - - 3 616
Arising on consolidation
of CGIC 211 211
Buy back of shares by
subsidiary (14) (14)
Operating profit for
the period 123 1 518
Transfer to contingency
reserve -
Current period movements -
Share based payments
charge 144
Share based payments
transfer -
Dividends paid (123) (423)
Issue of shares 17
Balance at
31 December 2005 197 - 5 069
CASH FLOW STATEMENT AND NOTES
for the year ended 31 December 2005
Restated
31/12/05 31/12/04
R"m R"m
Cash generated by operating activities 1 181 1 298
Taxation paid (391) ( 390)
Cash available from operating activities 790 908
Dividends paid (423) (1 041)
Cash generated by / (utilised in) operating activities 367 ( 133)
Cash generated by investing activities (3) 349
Cash balances of subsidiary acquired 174 -
Decrease in funding requirements 544 216
Cash effects of financing activities
Share buy back by subsidiary (14) -
Proceeds from issue of shares 17 14
Increase in cash and cash equivalents 547 230
NOTES
1. Statement of compliance The condensed financial statements have been
prepared in accordance with International Financial Reporting Standards
("IFRS"s") and its interpretations issued by the International Accounting
Standards Board (IASB), and are in compliance with the Listings Requirements
of the JSE Limited. These are the group"s first consolidated financial
statements under IFRS"s and IFRS 1 has been applied. In order to show
comparative balances, the period ended 31 December 2004 is also shown under
IFRS"s. The date of transition to IFRS"s is 1 January 2004.
The application for the first time of IFRS 4: Insurance contracts, did not
have any impact on the recognition and measurement of assets and liabilities
in respect of insurance contracts at 31 December 2005. The group"s
comprehensive consolidated financial statements for the year ended 31
December 2005 will present all additional disclosures required for insurance
contracts by this standard.
2. Diluted earnings per share Diluted earnings per share is determined by
adjusting the weighted average number of ordinary shares outstanding to
assume conversion of all dilutive potential ordinary shares.
3. Changes in accounting policy and presentation
Effect of first time adoption of IFRS"s
During the period the group changed its accounting policies with regard to
share based payments, goodwill, foreign exchange translation differences,
operating leases and property valuations in order to comply with the
accounting standards IFRS 2, IFRS 3, IAS 21, IAS 17 and IAS 16 respectively.
# The costs associated with the share based payments which were not
accounted for previously, are now charged to the income statement over
the 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.
# Operating lease costs which were previously expensed as paid are now
spread evenly over the period of the lease.
# The depreciable amount for property, plant and equipment is no longer
cost but rather the difference between cost and residual value.
# 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 shareholders" equity.
CASH FLOW STATEMENT AND NOTES
for the year ended at 31 December 2005
Results of Cells
Following the implementation of IFRS 4 the group re-evaluated its presentation
for insurance cells. The results of insurance contracts under- written in cells
where the risks and rewards accrue to the cell owners, no longer form part of
the group operating profit. Consequently no transfer is required to minority
interests for this business as was done in prior years. The change in
presentation had no effect on the group"s operating profit.
The effect of the changes in accounting policies was to increase shareholders"
funds at 31 December 2003 as shown in the statement of changes in equity. The
effect of these items on operating profit is summarised below.
Year
ended
31/12/04
R"m
Net income as previously reported under SA GAAP 1 148
Share based payment charge (3)
Goodwill impairment 19
Foreign exchange translation adjustment 15
Operating leases (1)
Property, plant and equipment 3
Restated operating profit 1 181
4. Segmental analysis
Commercial Risk Finance Personal
Divisional segments R"m R"m R"m
Dec 2004
Gross premiums 3 306 1 116 2 938
Operating profit before taxation 433 11 164
Total assets 1 314 166 367
Total liabilities 2 424 420 1 091
Dec 2005
Gross premiums 3 772 1 175 3 058
Operating profit before taxation 513 13 51
Total assets 1 475 298 445
Total liabilities 3 039 345 1 268
Unallocated Total
Divisional segments R"m R"m
Dec 2004
Gross premiums 7 360
Operating profit before taxation 985 1 593
Total assets 5 845 7 692
Total liabilities 141 4 076
Dec 2005
Gross premiums 8 005
1 368 1 945
Operating profit before taxation
Total assets 7 634 9 852
Total liabilities 131 4 783
SUPPLEMENTARY INCOME STATEMENT
for the year ended at 31 December 2005
Restated
31/12/05 31/12/04 Change
R"m R"m %
(Reflecting long-term rate of return
adjustment)
Technical account (note A)
Gross premiums 8 005 7 360 9
Net premiums 6 874 6 417 7
Earned premiums net of reinsurance 6 882 6 449
Claims incurred net of reinsurance (4 239) (3 990)
Acquisition expenses (1 406) (1 291)
Management expenses (660) (561)
Net underwriting surplus 577 607 (5)
Investment return on insurance funds (note
B) 255 201 27
General insurance result 832 808 3
Long-term investment return on
shareholders" funds (note B) 368 348 6
Operating income based on long-term
investment return 1 200 1 156 4
Non-technical account (note A)
Short-term investment fluctuations 949 469
Dividends, interest and property income 369 321
Realised surplus on investments 581 99
Unrealised surplus on investments 622 598
Allocated investment return transferred to
technical
account (note B) (623) (549)
Goodwill (58) (2)
Abnormal costs (146) (30)
Operating profit before taxation 1 945 1 593
Taxation (including secondary tax on
companies) (430) (442)
Operating profit after taxation 1 515 1 151
Income attributable to minority
shareholders (123) -
Share of associated company"s operating
profit 3 30
Operating profit 1 395 1 181
Operating earnings per share
Operating earnings per share are calculated
on operating profit adjusted for
goodwill, abnormal costs, share of
associated company"s profit, short-term
investment fluctuations net of
taxation and secondary tax on companies.
Determination of operating earnings
Operating profit 1 395 1 181
Goodwill 58 2
Abnormal costs 146 30
Share of associated company"s operating
profit (3) (30)
Short-term investment fluctuations (949) (469)
Minority shareholders" short-term
investment fluctuations 38 -
Taxation effect of short-term investment
fluctuations 126 61
Secondary tax on companies 47 117
Operating earnings 858 892 (4)
Operating earnings per share (cents) 345 363 (5)
Diluted operating earnings per share
(cents) (note 2) 333 360
Combined ratio (%) (note C) 91,6 90,6
SUPPLEMENTARY INCOME STATEMENT
for the year ended at 31 December 2005
NOTES TO THE SUPPLEMENTARY INCOME STATEMENT
A. Presentation
The results for the year in accordance with IFRS are shown in the income
statement. To present these in a more meaningful way, the 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 operating profit 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.
C. Combined ratio
This reflects the ratio of total insurance expenditure to net earned premiums.
COMMENTS
The financial results for the year were pleasing with the underwriting and
investment activities both delivering most satisfactory performances.
Although there were a number of large commercial and industrial claims the
commercial division generated a most satisfactory result. The personal division
was however adversely impacted by a number of severe storms and aggressive
competition. In addition, the motor account was negatively affected by an
increase in the incidence of motor vehicle accidents and higher repair costs.
Gross premiums grew by 9% following the inclusion of the results of Credit
Guarantee Insurance Corporation. There were intense levels of competition in
the industry as competitors endeavored to gain market share. Management
maintained adherence to responsible underwriting standards and will not pursue
market growth indiscriminately.
The BEE transaction concluded during the year is beneficial to all parties
involved and progress has been made in effecting the desired transformation at
an operational level. Costs of R145 million associated with the transaction
have been written-off in the current year.
Investment income for the year increased strongly following sharp gains in the
price of listed equities. In addition interest income increased following cash
flows generated by the operations whilst a number of special dividends were
also received.
The net asset value per share grew by 33% during the year to 1 941 cents and the
solvency margin (being the ratio of net assets to net premiums) increased to
71% at the end of the year.
Prospects for underwriting surpluses remain favourable in 2006.
APPOINTMENT OF CHAIRMAN
The Chairman, K T M Saggers retires from the Board on 3 May 2006 having reached
mandatory retirement age. Mr J B Magwasa joins the Board from 15 February 2006
as Chairman-elect.
COMPLIANCE
The company complies in all material respects with the JSE Listings
Requirements and the King Report Code of Corporate Practices and Conduct.
REVIEW
KPMG Inc. has reviewed the financial information set out in this results
announcement with the exception of the Supplementary Income Statement. The
unqualified review opinion is available for inspection at the company"s
registered office.
CAPITALISATION AWARD WITH A CASH DIVIDEND ALTERNATIVE (NUMBER 72)
Notice is hereby given that the directors of the company have resolved to issue
fully paid ordinary shares in the company as a capitalisation award to ordinary
shareholders. Ordinary shareholders will be entitled, in respect of all or part
of their shareholding, to elect to receive new fully paid ordinary shares which
shares will be issued only to those ordinary shareholders who elect in respect
of all or part of their shareholding, on or before 12h00, Friday, 17 March 2006
to receive the capitalisation award shares. Shareholders not electing to
receive new fully paid ordinary shares in respect of all or part of their
shareholding will be entitled to receive a cash dividend alternative of 115
cents per ordinary share ("the cash dividend alternative").
In accordance with the provisions of STRATE, the electronic settlement and
custody system used by JSE Limited, the relevant dates for the capitalisation
award election and the cash dividend alternative are as follows:
COMMENTS
2006
Last day to trade to receive the cash dividend or
participate in the capitalisation award Friday, 10 March
Shares trade ex the cash dividend and the capitalisation
award Monday, 13 March
Listing of the maximum number of new ordinary shares to
be taken up in terms of the
capitalisation award Monday, 13 March
Last day to elect to receive capitalisation award shares
by no later than 12h00 on Friday, 17 March
Record date to participate in the capitalisation award
or receive the cash dividend
alternative on Friday, 17 March
Payment of the cash dividend alternative to shareholders
who have elected to not
participate in the capitalisation award or have
participated in the capitalisation award
in respect of only part of their shareholding Monday, 20 March
New shares issued and posted or Central Securities
Depository Participant ("CSDP")
or broker accounts credited regarding the shares to be
issued to shareholders
participating in the capitalisation award in respect of
all or part of their shareholding on Monday, 20 March
The maximum number of new shares listed in terms of the
capitalisation award
adjusted to reflect the actual number of shares issued
in terms of the capitalisation
award on or about Thursday, 23 March
Note:
1. Shares may not be dematerialised or rematerialised between Monday, 13 March
2006 and Friday, 17 March 2006, both days inclusive.
2. The above dates and times are subject to change. Any changes will be
published on the Securities Exchange News Services ("SENS") and in the
press.
The number of capitalisation shares to which shareholders are entitled will be
determined in the ratio that 115 cents per ordinary share bears to the 30 day
volume weighted average price for the company"s share, to be determined by no
later than Thursday, 2 March 2006. Details of the ratio will be published on
SENS not later than Friday, 3 March 2006 and in the financial press the
following business day. Trading in the STRATE environment does not permit
fractions and fractional entitlements. Accordingly, where a shareholder"s
entitlement to new ordinary shares calculated in accordance with the above
formula gives rise to a fraction of a new ordinary share, such fraction will be
rounded up to the nearest whole number where the fraction is greater than or
equal to 0,5 and rounded down to the nearest whole number where the fraction is
less than 0,5.
A circular relating to the capitalisation award and the cash dividend
alternative will be posted to shareholders on or about Friday, 24 February
2006.
Note:
Dematerialised shareholders are required to notify their duly appointed CSDP or
broker of his/her election in terms of the capitalisation award in the manner
and at the time stipulated in the agreement governing the relationship between
the shareholder and his/her CSDP or broker.
On behalf of the Board
K T M Saggers (Chairman) B Campbell (Managing Director)
14 February 2006
Registered Office: 19th Floor, Mutual & Federal Centre, 75 President Street,
Johannesburg, 2001
Transfer Secretaries: Computershare Investor Services 2004 (Pty) Ltd,
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.za
Date: 15/02/2006 08:00:38 AM Produced by the JSE SENS Department
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