| Thu 25 May 2006, 12:56 | | Alexander Forbes Limited - Further announcement an |
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AFB
AFB
Alexander Forbes Limited - Further announcement and trading statement
Alexander Forbes Limited ("Alexander Forbes")
Registration number: 1958/001974/06
ISIN: ZAE000018230
JSE Code: AFB
Further announcement and trading statement
1. Shareholders are referred to the cautionary announcements dated 20 and 31
March 2006, which provide details concerning income derived by the South African
business of Alexander Forbes Financial Services in relation to the "bulking" of
retirement funds" current bank accounts. "Bulking" is the term used to describe
the practice of aggregating, on a notional basis, the total value of all
retirement funds" current accounts in order to negotiate better interest rates
with banks on behalf of retirement funds.
2. Approximately 1,700 retirement funds, as Alexander Forbes" clients, have
benefited significantly from the practice of bulking. The total amount of
interest attributable to bulking arrangements that was earned by these funds
exceeds R1 billion. In addition to this amount, Alexander Forbes received
income attributable to bulking arrangements, which historically was not
adequately disclosed to clients.
3. Alexander Forbes embarked upon a process of contractual disclosure to
affected retirement funds during 2003 and subsequently terminated the practice
of receiving income for bulking in September 2004. Alexander Forbes continues
to bulk retirement funds" current accounts and clients continue to benefit from
the higher interest rates negotiated with banks. Clients receive the full
benefit of the higher interest rates and Alexander Forbes receives no income in
this regard.
4. The board of Alexander Forbes has concluded that the appropriate resolution
of this matter is to offer to place the affected retirement funds into the
position they would have been in had a full corporate cash management rate of
interest been paid to the retirement funds on their current account balances.
This additional amount to be paid to retirement funds equates to the total net
amount earned by Alexander Forbes from bulking together with interest thereon
over the entire period that Alexander Forbes benefited historically from bulking
arrangements.
5. The company has submitted a report to the Financial Services Board ("FSB")
regarding the historical practice of receiving income for bulking. The report
included the above proposed basis for a settlement proposal to retirement funds
in relation to the inadequate disclosure of income earned for bulking. An
estimate of the aggregate cost of this proposal is R380 million.
6. In respect of the bulking matter specifically, the FSB is satisfied that the
Alexander Forbes" proposal is fair to the retirement funds concerned, subject to
final verification of the amounts as set out in paragraph 8 below and on the
understanding that agreement will be sought from the trustees of each of the
retirement funds concerned.
7. This aggregate cost of R380 million has been determined by reverting back
approximately ten years to 1996, being the first financial year in which, based
on available information, Alexander Forbes started receiving income from bulking
of retirement funds" current accounts. This amount includes a R12 million
voluntary contribution to the FSB"s Consumer Education Fund which, among other
objectives, will be used for the training of trustees of retirement funds.
8. The total amount and the amount in respect of each retirement fund are still
subject to final verification by independent auditors Ernst & Young, but the
final cost, including the voluntary contribution, is not expected to be
materially different to the estimated aggregate cost of R380 million mentioned
above. The company will shortly engage with each of the retirement funds
affected by this proposal.
9. The board of Alexander Forbes is committed to meeting the highest standards
of governance. To this end, Deneys Reitz and Ernst & Young were commissioned to
review and report on the business practices throughout the group. The purpose
of this review is to ensure that all of the company"s business practices meet
the highest level of integrity. This report will be submitted to the FSB for
scrutiny. To be prudent, the board has agreed to provide an additional amount of
R100 million in respect of any historic financial exposure that may arise as a
result of this wider review.
10. Alexander Forbes will make a full provision for both of these amounts,
totalling R480 million, in its financial statements for the year ended 31 March
2006. This provision will have the effect of decreasing Alexander Forbes"
headline and basic earnings per share by more than 20% than was reported for the
previous financial year. It is expected that headline and basic earnings per
share for the year to 31 March 2006 will be in the range of 1 to 6 cents per
share.
Adjusted headline and basic earnings per share, excluding the one-off charge of
R480 million referred to above, and the effect of accounting for policyholder
investments as treasury shares (referred to in the company"s SENS release of 3
April 2006), are expected to be in the range of 120 to 125 cents per share.
This financial information has not been reviewed or reported on by the company"s
auditors. The financial results for the year ended 31 March 2006 will be
released on 20 June 2006.
11. The board wishes to express its appreciation to the current executives for
the roles that they have played in the resolution of this matter.
12. Shareholders are advised that the cautionary announcements in respect of
this matter released on 20 and 31 March 2006 are no longer applicable and are
hereby withdrawn. However, the separate cautionary announcement issued by the
company on 21 April 2006 continues to apply.
25 May 2006
Sponsor: J.P.Morgan Equities Limited
Date: 25/05/2006 12:56:09 PM Produced by the JSE SENS Department
