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MAF
MAF
MAF - Mutual & Federal Insurance Company - Reviewed financial results for the
year ended 31 December 2006 and capitalisation
award with cash dividend announcement
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
Reviewed financial results for the year ended 31 December 2006
Income Statement
for the year ended 31 December 2006
31 December 31 December
2006 2005 Change
R`m R`m %
Gross premiums 8 549 8 005 7
Less: reinsurance premiums (1 122) (1 131)
Net premiums 7 427 6 874
Change in provision for 32 8
unearned premiums net of
reinsurance
Earned premiums net of 7 459 6 882
reinsurance
Commission income on 182 233
reinsurance
Net investment income 1 306 1 572
Other operating income 2 6
Net income 8 949 8 693
Claims incurred net of (4 679) (4 290)
reinsurance
Acquisition costs (1 794) (1 639)
Management expenses (737) (761)
Impairment of goodwill (36) (58)
Profit before taxation 1 703 1 945 (12)
Taxation (726) (430)
Profit after taxation 977 1 515 (36)
Share of associated company`s 4 3
retained profit
Profit for the year 981 1 518
Profit attributable to outside (115) (123)
shareholders
Profit attributable to ordinary 866 1 395 (38)
shareholders
Earnings per share
(a) Headline earnings per share
are calculated on profit
attributable to ordinary
shareholders adjusted for the
impairment of goodwill,
intangibles and the profit on
sale of property and equipment.
Determination of headline
earnings
Profit attributable to ordinary 866 1 395
shareholders
Impairment of goodwill 36 58
Impairment of intangible assets 10 26
Profit on sale of property and (1) (4)
equipment
Headline earnings 911 1 475
Headline earnings per share 361 592 (39)
(cents)
Diluted headline earnings per 344 572
share (cents) (note 2)
(b) Basic earnings per share
are based on profit
attributable to ordinary
shareholders.
Basic earnings per share
Basic earnings per share 343 560 (39)
(cents)
Diluted basic earnings per 327 541
share (cents) (note 2)
Ordinary dividend per share 175 155 13
declared in respect of the year
(cents)
Special dividend per share 800 -
(cents)
Net asset value per share 1 342 1 943 (31)
(cents)
Number of shares in issue
(million)
- at period end - excluding 254,7 251,0
treasury shares
- weighted average 252,5 249,0
- diluted weighted average 264,8 257,8
(note 2)
Balance Sheet
at 31 December 2006
As at As at
31 December 31 December
2006 2005
R`m R`m
Assets
Property and equipment 226 202
Investment in associated company 4 -
Goodwill 46 82
Intangible assets 132 107
Investment property - 7
Investments at fair value through 5 018 5 742
profit and loss
Ordinary shares 2 963 4 060
Government stock 4 50
Money market instruments and other 2 051 1 632
Reinsurers` share of insurance 781 798
contract provisions
Deferred acquisition costs 174 150
Deferred taxation 10 18
Trade and other receivables 853 790
Cash and cash equivalents 1 192 1 974
Total assets 8 436 9 870
Equity and liabilities
Post retirement medical aid provision 147 131
Deferred taxation 132 262
Interest bearing loan 5 10
Insurance contract provisions 3 549 3 585
Agents` balances, accounts payable 998 807
and provisions
Total shareholders` equity 3 605 5 075
Ordinary shareholders` capital and 3 417 4 878
reserves
Interest of outside shareholders in 188 197
subsidiary
Total equity and liabilities 8 436 9 870
Statement Of Changes In Equity
for the year ended 31 December 2006
Attributable to ordinary shareholders of
the group
Foreign Share-
Contin- currency based
Share gency translation payments
R`m capital reserve reserve reserve
Balance at 31 December 153 657 (15) 4
2004
Profit for the year
Arising on consolidation
of CGIC
Buy back of shares by
subsidiary
Transfer to contingency 51
reserve
Current period movements (3)
Share based payments 128
charge
Dividends paid
Issue of shares 33
Balance at 31 December
2005
as previously reported 186 708 (18) 132
Prior year adjustment 10
Balance at 31 December
2005
as restated 196 708 (18) 132
Profit for the year
Transfer to contingency 49
reserve
Current period movements (2)
Share based payments 26
charge
Dividends paid
Issue of shares 181
Balance at
31 December 2006 377 757 (20) 158
Attributable to
ordinary
shareholders of the
group
Outside
Property share-
revaluation Retained holders`
R`m reserve income interest Total
Balance at 31 17 2 800 - 3 616
December 2004
Profit for the year 1 395 123 1 518
Arising on 211 211
consolidation of CGIC
Buy back of shares by (14) (14)
subsidiary
Transfer to (51) -
contingency reserve
Current period (2) 5 -
movements
Share based payments 128
charge
Dividends paid (300) (123) (423)
Issue of shares 33
Balance at 31
December 2005
as previously 15 3 849 197 5 069
reported
Prior year adjustment (4) 6
Balance at 31
December 2005
as restated 15 3 845 197 5 075
Profit for the year 866 115 981
Transfer to (49) -
contingency reserve
Current period 4 (2) -
movements
Share based payments 26
charge
Dividends paid (2 534) (124) (2
658)
Issue of shares 181
Balance at
31 December 2006 19 2 126 188 3 605
Cash Flow Statement
for the year ended 31 December 2006
31 31
December December
2006 2005
R`m R`m
Cash generated by operating 900 1 205
activities
Taxation paid (787) (391)
Cash available from operating 113 814
activities
Dividends paid (2 658) (416)
Cash (utilised in)/generated by (2 545) 398
operating activities
Cash generated by/(utilised in) 1 582 (38)
investing activities
Cash effects of financing activities 181 15
Share buy back - (11)
Proceeds from issue of shares 181 26
(Decrease)/increase in cash and cash (782) 375
equivalents
Cash and cash equivalents at 1 974 1 428
beginning of year
Cash balances of subsidiary - 174
consolidated
Effect of exchange rate movements on - (3)
cash and cash equivalents
Cash and cash equivalents at end of 1 192 1 974
year
Notes
1. Statement of compliance
The condensed consolidated financial statements have been prepared in accordance
with International Financial Reporting Standards ("IFRSs") and its
interpretations issued by the International Accounting Standards Board ("IASB"),
and are in compliance with the Listings Requirements of the JSE Limited. The
accounting policies applied in the preparation of these financial statements are
consistent with those used in the annual financial statements for the year ended
31 December 2005.
2. Diluted basic and headline earnings per share
Diluted basic and headline earnings per share are determined by adjusting the
weighted average number of ordinary shares outstanding to assume conversion of
all dilutive potential ordinary shares.
3. Segmental analysis
Risk
Commercial Finance Personal Unallocated Total
Divisional R`m R`m R`m R`m R`m
segments
December 2005
Gross premiums 3 772 1 175 3 058 8 005
Profit/(loss) 432 12 (13) 1 514 1 945
before taxation
Total assets 1 338 298 445 7 789 9 870
Total liabilities 2 903 345 1 266 281 4 795
December 2006
Gross premiums 4 001 1 321 3 227 8 549
Profit/(loss) 460 14 (40) 1 269 1 703
before taxation
Total assets 1 390 289 519 6 238 8 436
Total liabilities 2 972 370 1 297 192 4 831
Supplementary Income Statement
for the year ended 31 December 2006
31 31
December December
2006 2005 Change
(Reflecting long-term rate of R`m R`m %
return adjustment)
Technical account (note A)
Gross premiums 8 549 8 005 7
Net premiums 7 427 6 874 8
Earned premiums net of 7 459 6 882
reinsurance
Claims incurred net of (4 671) (4 239)
reinsurance
Acquisition expenses (1 612) (1 406)
Management expenses (721) (660)
Net underwriting surplus 455 577 (21)
Investment return on 289 255 13
insurance funds (note B)
General insurance result 744 832 (11)
Long-term investment return 329 368 (11)
on shareholders` funds (note
B)
Operating income based on 1 073 1 200 (11)
long-term investment return
Non-technical account (note
A)
Short-term investment 688 949
fluctuations
Dividends, interest and 408 369
property income
Realised surplus on 2 132 581
investments
Unrealised (deficit)/surplus (1 234) 622
on investments
Allocated investment return (618) (623)
transferred to technical
account (note B)
Impairment of goodwill (36) (58)
Non-operational items (22) (146)
Profit before taxation 1 703 1 945
Taxation (including secondary (726) (430)
tax on companies)
Profit after taxation 977 1 515
Share of associated company`s 4 3
retained profit
Profit for the year 981 1 518
Profit attributable to (115) (123)
outside shareholders
Profit attributable to 866 1 395
ordinary shareholders
Operating earnings per share
Operating earnings per share
are calculated on profit
attributable to ordinary
shareholders adjusted for
impairment of goodwill, non-
operational items, share of
associated company`s profits,
short-term investment
fluctuations net of taxation
adjusted for outside
shareholders` share
Determination of operating
earnings
Profit attributable to 866 1 395
ordinary shareholders
Impairment of goodwill 36 58
Non-operational items 22 146
Share of associated company`s (4) (3)
profit
Short-term investment (688) (949)
fluctuations
Outside shareholders` short- 24 38
term investment fluctuations
Taxation effect of short-term 185 138
investment fluctuations
Secondary tax on companies 319 35
Operating earnings 760 858 (11)
Operating earnings per share 301 345 (13)
(cents)
Diluted operating earnings 287 333
per share (cents) (Note 2)
Combined ratio (%) (note C) 93,9 91,6
Notes to the supplementary income statement
A. Presentation
The results for the year, in accordance with IFRS, are shown in the income
statement. To illustrate the outturn of the insurance and investment operations,
the above supplementary income statement is provided and separated into:
(a) A technical account
The technical account includes a long-term investment return of 11,1% (2005:
11,1%) 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
profit before taxation.
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
Profit for the year has declined following the anticipated decrease in
underwriting profits, reduced returns on listed equities and the payment of a
special dividend, which reduced investable funds and increased STC payable.
The underwriting result is influenced by substantial weather-related losses and
large commercial and industrial claims during the year. Furthermore trading
conditions within the motor portfolio continue to be unfavourable with an
increase in the incidence of vehicle claims and escalating repair costs. These
factors have been exacerbated by the competitive environment with a number of
insurers attempting to gain market at sub-economic pricing.
The group has refined the estimation methods used for technical reserves and
provisions in the light of current business and accounting practices. This
refinement has favourably impacted the underwriting surplus in 2006 by R215
million.
Gross premiums grew by 7% (2005: 9%) which is in line with inflation although
the company seeks to achieve premium growth greater than the increase in real
GDP. This lower growth reflects the high levels of competition within the market
and management resolve to not pursue growth at the expense of profitability.
Despite the overall reduction in investments which was required to finance the
payment of the special dividend, investment income for the year was highly
satisfactory. Interest income increased in line with higher levels of cash
holdings and investment gains were highly positive following strong increases in
the value of listed equities.
The net asset value per share was R13,42 at 31 December 2006 (2005: R19,43) and
the solvency margin on an international basis (being the ratio of net assets to
net premiums) was 49% (2005: 74%) which is in accordance with management`s long-
term objectives.
There are indications of a return to more favourable trading conditions in the
market and on the strength of this management are accordingly cautiously
optimistic that prospects are favourable for underwriting surpluses in 2007.
The group continues to make meaningful progress with internal transformation
following the highly successful empowerment transaction in South Africa in
2005. Furthermore the company was successful in concluding an empowerment
transaction in Namibia during 2006 involving staff, business partners and the
community.
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 74)
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, 9 March 2007
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 135 cents per
ordinary share ("the cash dividend alternative").
SALIENT DATES
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:
2007
Last day to trade to receive the cash Friday, 2 March
dividend or participate in the
capitalisation award
Shares trade ex the cash dividend and Monday, 5 March
the capitalisation award
Listing of the maximum number of new Monday, 5 March
ordinary shares to be taken up in terms
of the capitalisation award
Last day to elect to receive Friday, 9 March
capitalisation award shares by no later
than 12h00 on
Record date to participate in the Friday, 9 March
capitalisation award or receive the cash
dividend alternative on
Payment of the cash dividend alternative Monday, 12 March
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
New shares issued and posted or central Monday, 12 March
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
The maximum number of new shares listed Thursday, 15 March
in terms of the capitalisation award
adjusted to reflect the actual number of
shares issued in terms of the
capitalisation award on or about
Note:
1. Shares may not be dematerialised or rematerialised between Monday, 5 March
2007 and Friday, 9 March 2007, both days inclusive.
2. The above dates and times are subject to change. Any changes will be
published on Securities Exchange News Service ("SENS") and in the press.
The number of capitalisation shares to which shareholders are entitled will be
determined in the ratio that 135 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, 22 February 2007. Details of the ratio will be published on
SENS not later than Friday, 23 February 2007 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.
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
JB Magwaza B Campbell
(Chairman) (Managing Director)
7 February 2007
Registered Office: 19th Floor, Mutual & Federal Centre, 75 President Street,
Johannesburg, 2001
Transfer Secretaries: Computershare Investor Services 2004 (Pty) Limited, 70
Marshall Street, Johannesburg, 2001
Sponsor: Nedbank Capital, 135 Rivonia Road, Sandown, 2196
Website: www.mf.co.za
E-mail: investor@mf.co.za
A Member of the Old Mutual Group Authorised Financial Services Provider
Date: 08/02/2007 08:00:03 Produced by the JSE SENS Department.
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