| Wed 15 Mar 2006, 8:00 | | Metropolitan - Audited Group Results For The Year |
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MET
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Metropolitan - Audited Group Results For The Year Ended 31 December 2005
Metropolitan Holdings Ltd
(Incorporated in the Republic of South Africa)
Registration number: 2000/031756/06
ISIN: ZAE000050456
JSE Share Code: MET
NSX Share Code: MTD
("Metropolitan")
METROPOLITAN HOLDINGS FINANCIAL SERVICES GROUP
AUDITED GROUP RESULTS FOR THE YEAR ENDED 31 DECEMBER 2005
Adding shareholder value
- Core headline earnings per share up 41%
- All businesses grew operating profits in excess of 40%
- Return on embedded value of 27%
- Final dividend per share up 24%
- Total assets under management exceed R70 billion
- Capital reduction of 100 cents per share
REVIEW OF OPERATIONS AND PROSPECTS
Financial highlights
- Fully diluted core headline earnings per share grew by 35% (undiluted
increased by 41%).
- Earnings and headline earnings in 2004 included the release of R436 million
from the previously ring-fenced 90:10 fund; excluding that once-off item,
total earnings for 2005 increased by 39% compared with 2004.
- All the businesses in the group continued to contribute positively to core
headline earnings thanks to ongoing operational improvements.
- Retail, the largest business in the group, increased its operating profit
by 42% while the corporate business grew by 59%.
- The health business boosted operating profits, before IFRS costs relating
to the staff share schemes, by 94% from R35 million to R68 million.
- The international business increased its operating profit by 65% from R52
million to R86 million.
- The group"s unbroken record of positive cashflow from clients was
maintained.
- Strong investment markets contributed to improved funding levels and a
particularly sound capital position.
- In addition to maintaining a dividend yield of around 5%, the fully diluted
embedded value per share still increased 22% from 1 225 cents to 1 499
cents.
Operational highlights
- Total recurring premium income, the ultimate measure of sustainable success
in an insurance operation, increased by 11% to R5.8 billion.
- Retail single premium income was up 8%.
- Retail new recurring premium business was marginally below the very high
levels recorded in 2004.
- The benefits of management action over the past few years in terms of
product pricing, cost reductions and improved retention can, however, be
seen in the new business margin, which remained above 11% despite the
increase in minimum values and reduced volumes.
- Retention levels were maintained despite an increase in debit order
business.
- Retail made good progress with its operational enhancement and distribution
restructuring projects, all aimed at increasing the net level of new
business while decreasing the unit cost per policy.
- Fewer new business opportunities for employee benefits business and the
poor margins on offer during the first half of 2005 caused management to
focus on the profitability and client service management of the
significantly expanded book of existing business. Operating profits grew
very satisfactorily as a result despite the lower level of new business
written during the year.
- Employee benefits withdrawals increased substantially as market preference
moved away from smoothed bonus business; some of these funds were invested
in other group products.
- Excellent absolute and relative investment performance was achieved by
Metropolitan Asset Managers during the year.
- Metropolitan Collective Investments is now a significant third party
administrator of funds.
- Focussed management action in the international arena saw the new business
margin improve from 13.1% to 22.5%, and the value of new business grow from
R16m to R28m.
- Two new life insurance businesses have been established in Africa - Kenya
and Ghana.
- The health business successfully implemented the Polmed scheme, which
augurs well for the two highly sought-after Government Employees Medical
Scheme (GEMS) contracts secured in November 2005.
- Metropolitan Health is now the largest administrator of closed medical
schemes in South Africa.
- Tight control over the net long-term insurance management expenses meant
that the group met its target of 7% growth for 2005; with "business-as-
usual" expenses growing by only 1%.
Prospects
- Metropolitan remains the largest long-term financial services group in
Southern Africa focused on the low and middle income markets. The benefits
of this focus, enhanced by Metropolitan"s commitment to black economic
empowerment as encapsulated in its brand and reflected in these results,
will continue to give the group a competitive advantage.
- Market consolidation over the past two years means that Metropolitan can
look forward to capitalising on its focused market positioning, in line
with its stated strategy to be a leader in providing affordable insurance
and investment solutions to people in lower income groups.
- The outlook in the group"s target markets remains extremely positive,
boosted by the increase in disposable income as a result of reduced
interest rates, lower inflation, rising employment rates, an improved GDP
outlook, lower tax rates and growing business confidence.
- The improvement in the capital markets, which started in the second half of
2004 and continued throughout 2005, has shown signs of continuing through
the first half of 2006.
- The board is satisfied that the operational improvements achieved in 2005
are sustainable, given that increased productivity, enhanced retention,
cost containment and capital management remain the key areas of focus for
2006.
DIRECTORS" STATEMENT
The directors take pleasure in presenting the audited, unqualified annual
financial results of the Metropolitan Holdings financial services group for the
year ended 31 December 2005.
These results have been prepared in accordance with International Financial
Reporting Standards (IFRS) issued and effective at the time of preparing these
results; guidelines issued by the Actuarial Society of South Africa; and the
disclosure requirements of the JSE Limited (JSE). International Financial
Reporting Standard 1 (IFRS1) - First time adoption of IFRS - has been applied to
these results.
The accounting policies of the group have been applied consistently to all the
years presented, except for policies relating to the classification and
measurement of financial instruments and insurance contracts. IAS32 - Financial
instruments: disclosure and presentation - together with IAS39 (revised) -
Financial instruments: recognition and measurement - and IFRS4 - Insurance
contracts - were only applied from 1 January 2005. The 2004 consolidated
financial statements of the group were prepared in accordance with South African
Generally Accepted Accounting Practice (GAAP), which differs in some areas from
IFRS. The comparative figures were therefore restated to reflect the necessary
adjustments. Reconciliations and descriptions of the effect of the transition
from GAAP to IFRS on the group"s equity and its net income and cash flows are
published in the annual financial statements. The transition to IFRS had no
material impact on the group"s equity. The preparation of financial statements
in accordance with IFRS requires the use of certain critical accounting
estimates as well as the exercise of managerial judgement in the application of
the group"s accounting policies. Such judgement, assumptions and estimates are
disclosed in detail in the annual financial statements.
Corporate activity during the year
- A capital reduction of R1.00 per share was declared on 2 December 2004 to
all classes of issued share capital, payable on 10 January 2005. Share
premium was reduced by R780 million.
- Metropolitan Holdings Limited repurchased and cancelled 41 million ordinary
shares at a cost of R422m, from its subsidiary Metropolitan Life Limited.
The transaction had no impact on group capital. In addition, 22 million
shares were repurchased through the open market at a cost of R242 million
and cancelled.
- On 5 December 2005 Metropolitan Holdings Limited issued 12 700 000 A2 and
34 381 139 A3 variable rate cumulative redeemable convertible preference
shares (Met prefs) at an issue price of R10.18 per share to a subsidiary of
Kagiso Trust Investments (Proprietary) Limited (KTI), a broad-based
empowerment consortium. Eric Molobi, JJ Njeke and Andile Sangqu are
directors of KTI, while management will own 25% of this subsidiary.
- Metropolitan Health Group issued new shares to KTI, resulting in KTI owning
17.6% of the business with effect from 1 January 2005.
- Metropolitan signed the agreement between the industry and national
treasury whereby minimum values are maintained, and is actively exploring
ways of improving its product and service offerings further.
- The group has agreed to maintain certain minimum values on premium
reductions and early terminations. The effect of the settlement is to
increase the contract holder benefits by R175 million and decrease the
embedded value by R124 million.
CORPORATE GOVERNANCE
The board has satisfied itself that appropriate principles of corporate
governance were applied throughout the year under review.
DIRECTORATE CHANGES AND DIRECTORS" SHAREHOLDING
Bulelwa Ndamase, Sindisiwe Mabaso and Fatima Jakoet were appointed as non-
executive directors with effect from 11 March 2005. Derek Pead was appointed as
an executive director with effect from 13 September 2005. Ntuthukoyezwe
Buthelezi and Sindisiwe Mabaso, both non-executive directors, resigned with
effect from 13 September 2005 and 17 October 2005 respectively due to other
responsibilities. No further changes have been made to the directorate. All
transactions in listed shares involving directors were disclosed on SENS as
required.
CAPITAL COMMITMENTS AND CONTINGENT LIABILITIES
The group had no material capital commitments at 31 December 2005. The group is
party to legal proceedings in the normal course of business, and appropriate
provisions are made when losses are expected to materialise.
POST BALANCE SHEET EVENTS
Apart from those listed below, no other material post balance sheet events
occurred between the balance sheet date and the date of approval of the annual
financial statements.
DIVIDEND DECLARATION
Ordinary listed shares
The dividend policy for the ordinary listed shares, approved by the directors
and consistent with prior years, is to provide shareholders with stable dividend
growth that reflects expected growth in underlying earnings in the medium term,
while allowing the dividend cover to fluctuate.
A final dividend of 39.00 cents per ordinary share has been declared on 14 March
2006, giving a total dividend for 2005 of 63.00 cents. This final dividend is
payable to the holders of ordinary shares recorded in the register of the
company at the close of business on Friday, 7 April and will be paid on Monday,
10 April. The last day to trade "cum" dividend will be Friday, 31 March 2006.
The shares will trade "ex" dividend from the start of business on Monday, 3
April 2006. Share certificates may not be dematerialised or rematerialised
between Monday, 3 April and Friday, 7 April 2006, both days inclusive.
Where applicable, dividends in respect of certificated shareholders will be
transferred electronically to shareholders" bank accounts on payment date. In
the absence of specific mandates, dividend cheques will be posted to
certificated shareholders on or about payment date. Shareholders who have
dematerialised their shares will have their accounts with their CSDP or broker
credited on Monday, 10 April 2006.
Staff share purchase scheme dividend
A dividend of R28 million (2004: R44 million) has been declared on the unlisted
shares in the staff share purchase scheme, as provided for in the trust deed.
Preference share dividend
A dividend of R23 million (9.9%) was paid on 30 September 2005 on the A1
preference shares. Dividends of R24 million (10.4%) (2004: R25 million (9.2%)),
R5 million (39.00 cents per share) and R10 million (9.2%) have been declared on
the A1, A2 and A3 preference shares respectively, payable on 31 March 2006. The
declaration rate was determined as set out in the company"s articles.
CAPITAL REDUCTION
A capital reduction of R1.00 per share was declared on 14 March 2006 to all
classes of issued share capital, payable on 10 April 2006. Share premium will
be reduced by R765 million. The pro forma financial effects of the capital
reduction on earnings per share and headline earnings per share is not
significant. Assuming the capital reduction had occurred on 31 December 2005,
the pro forma financial effects of the capital reduction would have been to
reduce both net asset value per share and net tangible asset value per share by
9%.
AUDIT OPINION
The auditors, PricewaterhouseCoopers Inc, have issued their opinion on the group
financial statements for the year ended 31 December 2005. A copy of their
unqualified report is available for inspection at the company"s registered
office.
Signed on behalf of the board
Eric Molobi Group chairman
Peter Doyle Group chief executive
Cape Town
14 March 2006
Directors:
Eric Molobi (non-executive group chairman), Peter Doyle (group chief executive),
Derek Pead (executive director), Abel Sithole (executive director), Preston
Speckmann (executive director), Willie Esterhuyse, Fatima Jakoet, Peter
Lamprecht, Syd Muller, Bulelwa Ndamase, John Newbury, JJ Njeke, Andile Sangqu
(alternate), Marius Smith, Franklin Sonn, Johan van Reenen
Secretary: Bongiwe Gobodo-Mbomvu
Registration number: 2000/031756/06
Registered office: 7 Parc du Cap, Mispel Road, Bellville 7535
JSE code: MET
NSX code: MTD
ISIN NO. ZAE000050456
Transfer secretaries Sponsor
Ultra Registrars (Proprietary) Limited Merrill Lynch
(Registration number 2000/007239/07)
5th Floor, 11 Diagonal Street,
Johannesburg, 2001
P O Box 4844, Johannesburg, 2000
Telephone +27 11 834 2266
E-mail info@ultrareg.co.za
Notice of a capital reduction
An ordinary resolution authorising the directors of Metropolitan by way of a
general authority to distribute to shareholders share capital and reserves of
the Company, in terms of Section 90 of the Companies Act, 1973 (Act 61 of 1973),
as amended, was approved at the annual general meeting of Metropolitan
shareholders held on Wednesday, 18 May 2005.
Notice is hereby given that on 14 March 2006 the board of directors resolved to
reduce the Company"s share premium by way of a cash payment of 100 cents per
ordinary and preference share.
Shareholders are reminded that this distribution does have capital gains tax
implications for them, and are requested to seek clarity on their specific
circumstances.
The salient dates pertaining to the capital reduction are as follows:
2006
Last day to trade to qualify for payment Friday, 31 March
Shares trade without payment Monday, 3 April
Record date Friday, 7 April
Payment to shareholders Monday, 10 April
No share certificates may be dematerialised or rematerialised between Monday, 3
April 2006 and Friday, 7 April 2006, both dates inclusive.
METROPOLITAN HOLDINGS FINANCIAL SERVICES GROUP
Basis of presentation of financial information
These results have been prepared in accordance with International Financial
Reporting Standards (IFRS) issued and effective at the time of preparing these
results; guidelines issued by the Actuarial Society of South Africa; and the
disclosure requirements of the JSE Limited (JSE). International financial
reporting standard 1 (IFRS1) - first time adoption of IFRS - has been applied to
these results.
The accounting policies of the group have been applied consistently to all the
years presented, except for policies relating to the classification and
measurement of financial instruments and insurance contracts. IAS32 - financial
instruments: disclosure and presentation - together with IAS39 (revised) -
financial instruments: recognition and measurement - and IFRS4 - insurance
contracts - were only applied from 1 January 2005. The 2004 consolidated
financial statements of the group were prepared in accordance with South African
generally accepted accounting practice (GAAP), which differs in some areas from
IFRS. The comparative figures were therefore restated to reflect the necessary
adjustments. Reconciliations and descriptions of the effect of the transition
from GAAP to IFRS on the group"s equity and its net income and cash flows are
published in the annual financial statements. The transition to IFRS had no
material impact on the group"s equity. The preparation of financial statements
in accordance with IFRS requires the use of certain critical accounting
estimates as well as the exercise of managerial judgement in the application of
the group"s accounting policies. Such judgement, assumptions and estimates are
disclosed in detail in the annual financial statements.
The tables below provide reconciliations of net equity and core headline
earnings from the 2004 published results to the results after transition to
IFRS.
RECONCILIATION OF Assets Liabilities Minority Shareholder
EQUITY interests equity
at 31 December 2004 Rm Rm Rm Rm
Disclosed under SA GAAP 44 134 38 555 75 5 504
Reclassification of 125 125 - -
liability portion of
derivative investments
Consolidation of 291 6 285 -
collective investments
Reversal of goodwill 37 - - 37
amortised
Metropolitan Health - 77 (1) (76)
share scheme liability
Reclassification of - 283 - (283)
equity portion of
redeemable convertible
preference shares as
debt
Restated under IFRS 44 587 39 046 359 5 182
RECONCILIATION OF Retail Corporate Inter- MHG Shareholder Total
CORE HEADLINE national capital
EARNINGS Rm Rm Rm Rm Rm Rm
for the year ended
31 December 2004
Disclosed under SA 263 107 52 46 86 554
GAAP
Employee benefits - (4) (2) - (45) - (51)
value of service
provided
Amortisation of (12) (12)
intangible asset
Additional interest (9) (9)
expense on
reclassification of
redeemable
convertible
preference shares as
debt
Restated under IFRS 259 105 52 (11) 77 482
METROPOLITAN HOLDINGS - GROUP RESULTS
CONSOLIDATED BALANCE SHEET 31.12.2005 31.12.2004
Rm Rm
ASSETS
Property, plant and equipment 549 445
Investment property 2 255 1 875
Intangible assets 404 406
Investment in associates 7 8
Financial assets (1) 43 465 37 754
Deferred income tax 4 6
Reinsurance contracts 181
Cash and cash equivalents 6 526 4 093
Total assets 53 391 44 587
EQUITY
Capital and reserves attributable to equity 6 301 5 182
holders
Minority interests 465 359
Total equity 6 766 5 541
LIABILITIES
Insurance contract liabilities (2) 25 496 35 612
Financial liabilities
Investment contracts - fair value through income 7 454
Investment contracts with discretionary 9 905
participation features (3)
Other financial liabilities 1 264 602
Employee benefit obligations 225 182
Deferred income tax 296 154
Other payables 1 703 2 394
Current income tax 282 102
Total liabilities 46 625 39 046
Total equity and liabilities 53 391 44 587
(1) Financial instruments include equity, debt securities, derivative financial
instruments and loans and receivables. Equity and debt securities were
classified as available-for-sale assets in 2004 and were designated as fair
value through income on 1 January 2005. No adjustments to the fair value
of these designated assets were required.
(2) The group took the IFRS4 exemption and therefore has not restated its
comparative information, which is based on SA GAAP. The disclosed
comparative for insurance contract liabilities includes liabilities for
insurance and investment contracts. If IFRS4 had been adopted early, the
value of the liabilities would have been R35 627 million at 31 December
2004 (insurance liabilities R19 902 million, investment contract
liabilities R5 660 million and investment contracts with discretionary
participation features liabilities R10 063 million). The total liabilities
are R13 million greater than those disclosed in 2004 as a result of the
implementation of IFRS4 and IAS39. Under IFRS4, the group continues to
account for insurance contracts using SA GAAP.
(3) Investment contracts with discretionary participation features continue to
be accounted for using SA GAAP.
METROPOLITAN HOLDINGS - GROUP RESULTS
STATEMENT OF ACTUARIAL VALUES OF ASSETS AND 31.12.2005 31.12.2004
LIABILITIES ON REPORTING BASIS Rm Rm
Total assets per balance sheet 53 391 44 587
Actuarial value of policy liabilities per (42 855) (35 612)
balance sheet
Other liabilities per balance sheet (3 770) (3 434)
Minority interests (465) (359)
Excess - group per reporting basis 6 301 5 182
Net assets - other businesses (157) 185
Excess - long-term insurance business * 6 144 5 367
LONG-TERM INSURANCE BUSINESS *
Change in excess of long-term insurance 777 672
business *
Increase in share capital (5) (113)
Exchange differences 17 9
Change in other reserves (63) (6)
Dividend paid 932 475
Release from 90:10 ring-fenced book 661
Total surplus arising 1 658 1 698
Operating profit 589 326
Investment income on excess 179 164
Basis and other changes 102 249
Investment variances 66 25
Other adjustments (13)
LOA statement of intent (101)
Shareholder share of 90:10 ring-fenced book 295
Capital appreciation on excess 836 639
Consolidation adjustments (128) (184)
Income tax expense 413 305
Adjustment for other expenses and share of (6) (1)
profit of associates
Results of long-term insurance business * 1 937 1 818
Results of other group businesses 427 253
Results of operations 2 364 2 071
STATEMENT OF ACTUARIAL VALUES OF ASSETS AND 31.12.2005 31.12.2004
LIABILITIES ON STATUTORY BASIS Rm Rm
Excess - group per reporting basis 6 301 5 182
Disallowed assets in terms of FSB requirements (35) (40)
Net assets - other businesses (157) 185
Statutory excess - long-term insurance business * 6 109 5 327
Capital adequacy requirement 1 426 1 563
Capital adequacy multiple 4.3 3.4
Discretionary margins 1 886 1 537
- The long-term insurance business includes both insurance and investment
contract business and is the simple aggregate of all the life insurance
companies in the group. It includes minority interests and other items, which
are eliminated on consolidation. It excludes non-insurance business.
METROPOLITAN HOLDINGS - GROUP RESULTS
CONSOLIDATED INCOME STATEMENT 12 mths to 12 mths to
31.12.2005 31.12.2004
Rm Rm
Net insurance premiums received (4) 6 656 7 754
Fee income 601 368
Investment income 1 912 1 974
Net realised gains 2 413 1 264
Net fair value gains (5) 6 166 3 748
Net income 17 748 15 108
Net insurance benefits and claims (4) 6 411 5 685
Change in insurance contract provisions (4) 5 459 5 215
LOA statement of intent 101
Change in investment contract provisions 955
Change in reinsurance provisions (13)
Amortisation and impairment of intangible 54 85
assets
Expenses for marketing and administration 1 555 1 305
Sales remuneration 862 747
Expenses 15 384 13 037
Results of operations 2 364 2 071
Share of profit of associates 6 4
Finance costs (54) (16)
Profit before tax 2 316 2 059
Income tax expenses (573) (381)
Earnings 1 743 1 678
Attributable to:
Equity holders of group 1 695 1 653
Minority interests 48 25
1 743 1 678
(4) For 2004 total premiums received and claims paid for insurance and
investment contracts are disclosed on the face of the income statement as
comparative information. Similarly, the comparatives for the change in
insurance contract liabilities include both insurance and investment
contracts.
(5) Under SA GAAP, net fair value gains on available-for-sale assets were
recognised in the income statement. The 2004 comparative figures therefore
reflect net fair value gains on available-for-sale assets while the 2005
figures reflect gains on assets at fair value through income. Refer (1)
above.
METROPOLITAN HOLDINGS - GROUP RESULTS
RECONCILIATION OF HEADLINE EARNINGS 12 mths to 12 mths to
attributable to equity holders of the company 31.12.2005 31.12.2004
Rm Rm
Earnings 1 695 1 653
Goodwill impaired - 37
Headline earnings (6) 1 695 1 690
Capital appreciation on excess (999) (639)
Basis changes, LOA statement of intent and (55) (274)
investment variances
Shareholder share of 90:10 fund (295)
Core headline earnings (7) 641 482
(6) Headline earnings consist of operating profit, investment income, capital
appreciation, investment variances and basis and other changes.
(7) Realised and fair value changes of investments can be volatile, therefore
core headline earnings have been disclosed that comprise operating profit
and investment income on shareholder assets.
EARNINGS PER SHARE (cents) 12 mths to 12 mths to
attributable to equity holders of the company 31.12.2005 31.12.2004
Basic
Core headline earnings 109.39 77.49
Headline earnings 289.25 271.70
Earnings 289.25 265.76
Weighted average number of shares (million) 586 622
Diluted (8)
Core headline earnings 95.93 71.12
Headline earnings 257.05 244.68
Earnings 257.05 239.37
Weighted average number of shares (million) (9) 738 696
(8) Diluted earnings, headline earnings and core headline earnings have been
adjusted for the finance charge relating to the redeemable preference
shares and the investment return relating to the treasury shares held on
behalf of contract holders. The finance charge and the investment return
for the year to 31.12.2005 were R53 million (31.12.2004: R13m) and R149
million (R135 million capital appreciation and R14 million dividend income)
(31.12.2004: Rnil) respectively.
(9) Weighted average number of shares takes into account all issued shares,
assuming conversion of the convertible redeemable preference shares, the
release of staff share scheme shares and includes the treasury shares held
on behalf of contract holders.
METROPOLITAN HOLDINGS - GROUP RESULTS
DIVIDENDS 2005 2004
Ordinary listed shares (cents per share)
Interim 24.00 20.50
Final 39.00 31.50
Total 63.00 52.00
Convertible redeemable preference shares A1 A2 A3
Paid - 31 March 2005 Rate 9.2%
Rm 25
Paid - 30 September Rate 9.9%
2005
Rm 23
Payable - 31 March Rate 10.4% 39.00 9.2%
2006 cps
Rm 24 5 10
ANALYSIS OF CORE HEADLINE EARNINGS 12 mths to 12 mths to
31.12.2005 31.12.2004
Rm Rm (10)
Corporate business 167 105
Operating profit 233 150
Tax (66) (45)
Retail business 369 259
Operating profit 523 370
Tax (154) (111)
International business 86 52
Operating profit 92 56
Tax (6) (4)
Metropolitan Health Group 9 (11)
Operating profit 38 10
Tax (29) (21)
Shareholder capital 10 77
Holding company expenses (40) (42)
Finance costs - preference shares (53) (13)
Investment income on shareholder assets 208 214
Income tax on investment income (105) (82)
Core headline earnings 641 482
(10) Comparative information was adjusted as disclosed in the reconciliation of
core headline earnings from 2004 published results to the results after the
transition to IFRS disclosed above.
RESULTS OF OPERATIONS FROM Net Expenses Results of operations
ADMINISTRATION BUSINESS (gross of income
minority interest and before tax)
12 mths to 12 mths to
31.12.2005 31.12.2004
Rm Rm Rm Rm
Metropolitan Health Group 519 (470) 49 10
Asset administration 63 (29) 34 18
Asset management 106 (68) 38 21
688 (567) 121 49
METROPOLITAN HOLDINGS - GROUP RESULTS
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 12 mths to 12 mths to
31.12.2005 31.12.2004
Rm Rm
Changes in share capital
Balance at beginning 870 1 781
Capital reduction (608)
Treasury shares held on behalf of contract (122)
holders (IAS39)
Staff scheme shares reversed 53 (8)
Shares acquired and cancelled (242) (295)
Balance at end 559 870
Changes in other reserves
Balance at beginning 367 70
Revaluation of owner-occupied properties 63 -
Shadow accounting of owner-occupied (2) -
properties
Foreign currency translation differences (10) (8)
Employee share schemes - value of services 10 10
provided
Distribution from 90:10 fund 295
Balance at end (11) 428 367
Changes in retained income
Balance at beginning 3 945 2 877
First time adoption of IFRS4 and IAS39 (30)
Earnings for period 1 695 1 653
Dividends paid (296) (290)
Transfer to other reserves - (295)
Balance at end 5 314 3 945
Capital and reserves attributable to equity 6 301 5 182
holders
Changes in minority interest
Balance at beginning 359 346
Earnings for period 48 25
Change in minority interest 62 (9)
Employee share schemes - value of services 1
provided
Dividend paid (1) (1)
Foreign currency translation differences (4) (2)
Balance at end 465 359
Total equity 6 766 5 541
(11) Other reserves consist of the following:
Land and buildings revaluation reserve: R121m (31.12.2004: R60m)
Foreign currency translation reserve: (R15m) (31.12.2004: (R5m))
Fair value reserve: R27m (31.12.2004: R17m)
Non-distributable reserve: R295m (31.12.2004: R295m)
METROPOLITAN HOLDINGS - GROUP RESULTS
CONSOLIDATED CASH FLOW STATEMENT 12 mths to 12 mths to
31.12.2005 31.12.2004
Rm Rm
Net cash inflow from operating activities (12) 3 280 324
Net cash outflow from investing activities (90) (43)
Net cash outflow from financing activities (756) (55)
Net cash flow 2 434 226
Cash and cash equivalents at beginning 4 093 3 903
Fair value and exchange losses on cash (1) (36)
Cash and cash equivalents at end 6 526 4 093
(12) The group classifies the cash flows for the purchase and disposal of
financial assets in its operating cash flows, as the purchases are funded
from the cash flows associated with the origination of insurance and
investment contracts, net of the cash flows for payments of insurance
benefits and claims and investment contract benefits. The comparative
figures have been adjusted accordingly.
SEGMENTAL REPORT 12 mths to 12 mths to
31.12.2005 31.12.2004
Rm Rm
Segmental revenue
South Africa
Retail 8 412 7 681
Corporate 5 980 4 942
Health 519 340
Shareholder capital (13) 2 266 1 216
International (14) 1 528 1 265
Consolidation adjustments (957) (336)
Net income per income statement 17 748 15 108
Segmental results
South Africa
Retail 525 385
Corporate 233 164
Health 49 10
Shareholder capital (13) 1 483 1 608
International (14) 254 166
Consolidation adjustments (180) (262)
Results from operations per income statement 2 364 2 071
(13) Consists of holding company and shareholder return. The shareholder return
in South Africa is not split between retail and corporate.
(14) International includes investment return.
METROPOLITAN HOLDINGS - GROUP RESULTS
EMBEDDED VALUE 31.12.2005 31.12.2004
Rm Rm
Statutory excess - long-term insurance business 6 109 5 327
Adjustments for: 349 178
Asset management 191 140
Health administration (15) 405 290
Holding company expenses (247) (252)
Adjustment to statutory excess 1 563 636
Net assets - other businesses 157 (185)
Staff share scheme shares 313 460
Liability - redeemable preference shares 945 469
Treasury shares held on behalf of contract 258
holders
Goodwill (110) (108)
Adjusted net asset value 8 021 6 141
Net value of in-force business 3 447 2 915
Individual life 2 776 2 288
Gross value of in-force business 2 913 2 444
Less: Cost of capital (137) (156)
Employee benefits 671 627
Gross value of in-force business 736 714
Less: Cost of capital (65) (87)
Fully diluted embedded value 11 468 9 056
Fully diluted embedded value per share (cents) 1 499 1 225
(16)
Fully diluted adjusted net asset value per share 1 048 831
(cents) (16)
Diluted number of shares in issue (million) 765 739
(15) The value of the health business is net of R129 million, being the total
liability of the option held by MHG management (2004: R77 million).
(16) 2004 figures are disclosed after the capital reduction of 100 cents per
share.
EMBEDDED VALUE ATTRIBUTABLE TO GROUP Net Value 31.12.2005 31.12.2004
asset of in-
value force Rm Rm
Rm Rm
Metropolitan Life Ltd 5 166 2 886 8 052 7 081
Metropolitan Odyssey Ltd 241 200 441 352
Metropolitan International Ltd 47 - 47 95
Metropolitan Namibia 317 179 496 373
Metropolitan Life of Botswana Ltd 95 50 145 115
Metropolitan Lesotho Ltd 225 132 357 261
Metropolitan Health Group 82 405 487 325
Asset management 65 191 256 202
Metropolitan Holdings (after 1 543 (247) 1 296 360
consolidation adjustments)
Goodwill (109) (109) (108)
Total embedded value 7 672 3 796 11 468 9 056
Adjustments to group excess (1
563)
Statutory excess - long-term 6 109
insurance business
METROPOLITAN HOLDINGS - GROUP RESULTS
VALUE OF LONG-TERM INSURANCE NEW BUSINESS 12 mths to 12 mths to
31.12.2005 31.12.2004
Rm Rm
Retail business (17) 100 135
Gross value of new business 107 140
Less: Cost of capital (7) (5)
Corporate business 6 54
Gross value of new business 7 67
Less: Cost of capital (1) (13)
International business * 28 16
Gross value of new business 33 20
Less: Cost of capital (5) (4)
Total value of long-term insurance new 134 205
business
- Net of outside shareholders
(17) The value of Retail new business has been reduced by R12 million as a
result of the statement of intent signed by the life industry in 2005.
NEW BUSINESS PREMIUMS 12 mths to 12 mths to
31.12.2005 31.12.2004
Rm Rm
Recurring premiums
Retail business 732 762
Corporate business 80 448
International business * 105 101
917 1 311
Single premiums
Retail business 1 369 1 258
Corporate business 545 1 059
International business * 174 210
2 088 2 527
Annual premium equivalent (APE) 1 126 1 564
Retail business 869 888
Corporate business 135 554
International business 122 122
Present value premiums (PVP) 6 144
Retail business 4 444
Corporate business 1 056
International business 644
* Net of outside shareholders
METROPOLITAN HOLDINGS - GROUP RESULTS
PROFITABILITY OF NEW BUSINESS 12 mths to 12 mths to 12 mths to
31.12.2005 31.12.2005 31.12.2004
% of PVP % of APE % of APE
Retail business (18) 2.3 11.5 15.2
Corporate business 0.5 4.3 9.7
International business 4.3 22.5 13.1
(18) New business margin reduced by 0.3% (PVP) and 1.4% (APE) as a result of the
statement of intent signed by the life industry during 2005.
SOURCE OF NEW BUSINESS 31.12.2005 31.12.2004
Individual life - insurance and
investment business
APE % Total APE % Total
% %
General intermediary channel 12 8 15 9
Direct writers 32 28 36 30
Group schemes 8 5 8 5
Direct mail and telemarketing 14 9 11 6
Odyssey broker channel 22 41 19 39
International 12 9 11 11
VALUE OF NEW BUSINESS - OTHER BUSINESSES 12 mths to 12 mths to
31.12.2005 31.12.2004
Rm Rm
Health administration 76 173
Asset management 22 11
PRINCIPAL ASSUMPTIONS (South Africa) 31.12.2005 31.12.2004
% %
Pre-tax investment return
Equities 9.5 10.3
Properties 9.5 10.3
Government stock 7.5 8.3
Cash 5.5 6.3
Risk discount rate 10.0 10.8
Investment return (before tax) - smoothed bonus 8.9 9.7
Expense inflation rate 4.3 5.0
OUTSIDE SHAREHOLDER INTEREST 31.12.2005 31.12.2004
% %
Metropolitan Namibia 19.0 19.1
Metropolitan Botswana 24.2 24.2
Metropolitan Health Group 18.8 1.5
METROPOLITAN HOLDINGS - GROUP RESULTS
LONG-TERM INSURANCE Net In-force business New business written
BUSINESS: worth
SENSITIVITIES -
31.12.2005
Net Gross Cost Net Gross Cost of
value value of value value CAR
CAR
Rm Rm Rm Rm Rm Rm Rm
Base value 6 109 3 447 3 649 (202) 134 147 (13)
1% increase in risk 3 140 3 453 (313) 113 132 (19)
discount rate
% change (9) (5) 55 (16) (10) 42
1% reduction in risk 3 827 3 901 (74) 158 165 (7)
discount rate
% change 11 7 (64) 18 12 (47)
10% increase in 3 241 3 443 (202) 115 128 (13)
future expenses
% change (6) (6) - (14) (13) -
10% increase in 3 385 3 587 (202) 102 115 (13)
policy discontinuance
% change (2) (2) - (24) (22) -
10% increase in 3 143 3 345 (202) 67 80 (13)
mortality and
morbidity
% change (note 1) (9) (8) - (50) (46) -
1% reduction in gross 6 110 3 407 3 624 (217) 139 152 (13)
investment return
% change (note 2) - (1) (1) 7 3 3 -
10% fall in market 6 078 3 348 3 550 (202)
value of assets
% change (1) (3) (3) -
10% reduction in 3 316 3 518 (202) 127 140 (13)
premium indexation
take-up rate
% change (4) (4) - (6) (5) -
10% increase in non- 110 123 (13)
commission related
acquisition expenses
% change (18) (16) -
Notes:
(1) Mortality decreases by 10% for annuities; mortality and morbidity increase
by 10% for assurance.
(2) Bonus rates are decreased commensurate with the drop in returns.
(3) The change in the value of cost of CAR is shown as nil where the
sensitivity test causes an insignificant change in the value.
METROPOLITAN HOLDINGS - GROUP RESULTS
ANALYSIS OF CHANGES IN Other Long-term 12 mths 12
GROUP EMBEDDED VALUE busines insurance to mths
ses business 31.12.2 to
005 31.12.
Total 2004
Total
NAV VoIF Rm Rm
Rm Rm Rm
Profit from new business 103 140 243 401
Point of sale 98 134 232 389
Expected return to end 5 6 11 12
of year
Profit from existing 63 596 (4) 655 827
business
Expected return - 22 - 334 356 300
unwinding of RdR
Expected (or actual) - 371 (371) - -
net of tax profit
transfer to net worth
Operating experience 25 190 (75) 140 109
variance
Operating assumption 16 136 131 283 193
changes
LOA statement of intent (101) (23) (124)
90:10 fund amalgamation 225
Embedded value profit 166 596 136 898 1 228
from operations
Investment return on net 65 993 - 1 058 777
worth
Investment variances 31 66 359 456 140
Economic assumption 1 4 32 37 111
changes
Exchange rate movements - (13) - (13) (17)
Total embedded value 263 1 646 527 2 436 2 239
profit
Changes in share capital (246) 4 (242) (917)
Dividend paid 605 (931) (326) (290)
Staff scheme shares 55 55 23
Redeemable preference 481 481 464
shares
Finance costs - (53) (53) (13)
preference shares
Movements in other (2) 63 61
reserves
Increase in embedded 1 103 782 527 2 412 1 506
value
Return on embedded value 26.9 29.6
(%)
METROPOLITAN HOLDINGS - GROUP RESULTS
PREMIUMS RECEIVED (Pre-IFRS4) 12 mths to 12 mths to
31.12.2005 31.12.2004
Rm Rm
Recurring premiums 5 770 5 190
Retail business 3 575 3 224
Corporate business 1 437 1 320
International business 758 646
Single premiums 2 116 2 564
Retail business 1 353 1 258
Corporate business 544 1 059
International business 219 247
Total premiums received 7 886 7 754
PAYMENTS TO POLICYHOLDERS (Pre-IFRS4) 12 mths to 12 mths to
31.12.2005 31.12.2004
Rm Rm
Individual life 3 142 3 390
Death and disability claims 833 766
Maturity claims 752 1 063
Annuities 452 431
Surrenders 1 178 1 200
Re-insurance recoveries (73) (70)
Employee benefits 3 975 2 295
Death and disability claims 668 505
Maturity claims 131 181
Annuities 293 292
Withdrawal benefits 293 213
Terminations 2 746 1 174
Re-insurance recoveries (156) (70)
Total payments to policyholders 7 117 5 685
FUNDS RECEIVED FROM CLIENTS 12 mths to 12 mths to
31.12.2005 31.12.2004
Gross Gross Net inflow Net inflow
inflow outflow Rm Rm
Rm Rm
Retail business 4 928 (2 746) 2 182 1 424
Corporate business 1 981 (3 823) (1 842) 243
International business 977 (548) 429 402
Long-term insurance 7 886 (7 117) 769 2 069
business cash flows
Health administration 7 935 (7 406) 529 618
Asset management 7 787 (3 285) 4 502 (540)
Total funds received from 23 608 (17 808) 5 800 2 147
clients
METROPOLITAN HOLDINGS - GROUP RESULTS
NUMBER OF EMPLOYEES 31.12.2 31.12.2
005 004
Indoor staff 3 899 3 578
Insurance companies 2 396 2 321
Retail business 1 324 1 358
Employee benefit business 315 301
International business 274 203
Group services 483 459
Metropolitan Health Group 1 359 1 110
Asset management 70 72
Asset administration 53 54
Holding company 21 21
Field staff 3 426 3 651
Retail business 2 977 3 155
International business 449 496
Total 7 325 7 229
ANALYSIS OF EXPENSES 12 mths to 12 mths to
31.12.2005 31.12.2004
Rm Rm
Amortisation and impairment of intangible assets 54 85
Expenses for marketing and administration 1 555 1 305
Sales remuneration 862 747
Finance costs 54 16
Total expenses 2 525 2 153
Long-term insurance business 1 824 1 648
Management expenses 962 901
Administration expenses 837 779
Distribution costs 125 122
Sales remuneration 862 747
Administration business 656 458
Health administration 467 327
Asset management 67 56
Asset administration 29 20
Finance costs - preference shares 53 13
Holding company 40 42
Employee share schemes - value of services 12 10
provided (group expense)
Consolidation adjustments 20
Implementation of IFRS4 and IAS39 adjustment 13
Goodwill impaired - 37
Total expenses 2 525 2 153
METROPOLITAN HOLDINGS - GROUP RESULTS
ASSETS UNDER MANAGEMENT 31.12.2005 31.12.2004
Rm Rm
Property, plant and equipment 549 445
Investment property 2 255 1 875
Intangible assets 404 406
Investment in associates 7 8
Financial assets 43 465 37 754
Deferred income tax 4 6
Reinsurance contracts 181
Cash and cash equivalents 6 526 4 093
Total on-balance sheet assets 53 391 44 587
Collective investments 9 019 2 721
Health administration 2 490 1 710
Metropolitan Asset Managers 5 694 3 941
EB segregated assets 798 766
Total assets under management 71 392 53 725
ANALYSIS OF ASSETS BACKING 31.12.2005 31.12.2004
GROUP EXCESS
Rm % Rm %
Listed equities 3 864 58.5 3 270 58.0
Foreign investments 649 9.8 385 6.8
Properties 392 5.9 376 6.7
Fixed interest 822 12.4 673 11.9
Money market 1 291 19.5 1 316 23.3
Goodwill 148 2.2 148 2.6
Redeemable preference shares (945) (14.3) (469) (8.3)
Other assets 393 6.0 (57) (1.0)
6 614 100.0 5 642 100.0
Adjustment for staff share (313) (460)
schemes
Excess - group per reporting 6 301 5 182
basis
GROUP EXCESS - TOP 10 EQUITY HOLDINGS 31.12.2005 31.12.2004
Rm % Rm %
MTN Group Ltd 220 5.7 330 10.1
Standard Bank Group Ltd 166 4.3 97 3.0
Anglo American Plc 125 3.2 103 3.1
Billiton Plc 106 2.7 67 2.1
FirstRand Ltd 106 2.7 72 2.2
Sasol Ltd 103 2.7 59 1.8
SABMiller Plc 97 2.5 69 2.1
Remgro Plc 91 2.4 66 2.0
Imperial Holdings Ltd 71 1.8 - -
Naspers N-ord Ltd 64 1.7 48 1.5
Sanlam Ltd - - 50 1.5
1 149 29.7 961 29.4
Collective investments 1 379 35.7 1 007 30.8
2 528 65.4 1 968 60.2
Total equities backing excess 3 864 100.0 3 270 100.0
METROPOLITAN HOLDINGS - GROUP RESULTS
STOCK EXCHANGE PERFORMANCE 31.12.2005 31.12.2004 31.12.2003 31.12.2002
12 months to 31 December
Value of listed shares 3 347 2 049 994 1 652
traded (rand million) *
Volume of listed shares 315 250 165 246
traded (million) *
Shares traded (% of 51.1 37.9 24.4 36.7
average listed shares in
issue)
Value of shares traded - 70.0 47.3 40.8 42.9
life insurance (J857 -
Rbn)
Value of shares traded - 1 028.2 829.8 653.4 684.1
top 40 index (J200 - Rbn)
Trade prices (cents per
share)
Highest 1 220 1 100 750 902
Lowest 950 680 470 485
Last sale of year 1 185 1 090 685 610
Percentage change during 19.70 59.12 12.30 (23.75)
year#
Percentage change - life 21.18 36.04 0.45 (18.04)
insurance sector (J857)
Percentage change - top 44.12 20.11 9.37 (14.13)
40 index (J200)
31 December
Price / core headline 12.35 12.24 11.03 11.59
earnings ratio (diluted)
Dividend yield % (dividend 5.32 4.77 6.28 6.23
on listed shares)
Dividend yield % - top 40 2.24 2.49 3.02 3.37
index (J200)
Total shares issued
(million)
Listed on JSE 594 641 678 676
Ordinary shares 587 632 668 669
Share incentive scheme 7 9 10 7
Unlisted - Share 48 63 70 59
purchase scheme
Total ordinary shares in 642 704 748 735
issue
Treasury shares held by - (41) (41) (41)
a subsidiary company
Treasury shares held on (22)
behalf of contract
holders
Adjustment to staff (50) (53) (55) (47)
share scheme shares ***
Share incentive scheme (5) (5) (5) (5)
Share purchase scheme (45) (48) (50) (42)
Basic number of shares 570 610 652 647
in issue
Adjustment to staff 50 53 55 47
share scheme shares
Treasury shares held on 22
behalf of contract
holders
Convertible redeemable 123 76 - -
preference shares
Fully diluted number of 765 739 707 694
shares in issue
Market capitalisation 9.07 8.06 4.84 4.23
(rand billion) **
Percentage of life 6.83 7.04 5.96 5.27
insurance sector (J857)
* 31.12.2005 is net of 22 million shares acquired and cancelled for R242
million as part of a share buy-back programme (31.12.2004: 44 million shares;
R293 million).
# 2005 adjusted for capital reduction.
** The market capitalisation is calculated on the fully diluted number of shares
in issue.
*** These shares have been issued since 1 January 2001, the date on which the
group adopted AC133 (now IAS39).
Date: 15/03/2006 08:01:09 AM Produced by the JSE SENS Department
