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MET
MET
MET - Metropolitan - Audited group results for the year ended
31 December 2006 and dividend declaration
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 2006
* ADDING SHAREHOLDER VALUE
* Total premium income up 40%
* Total premiums received top R11 billion
* Total assets under management exceed R85 billion
* Headline earnings per share up 28%
* Return on embedded value of 26%
* Total dividend per share up 22%
* Special dividend of 77 cents per share
REVIEW OF OPERATIONS AND PROSPECTS
Financial highlights
* Diluted core headline earnings per share increased by 18% (basic
increased by 20%).
* Headline earnings and earnings were boosted by the performance of the
investment markets, but growth was dampened by basis changes mainly
relating to assumed future expense assumptions.
* Retail, the largest contributor to group profits, increased its
operating profit by 18%; the corporate business by 26%; the health business
by 155%; and asset management by 33%.
* The international business posted reduced profits for the period under
review as a result of saturation in the existing markets and start-up
investments in the new country operations.
* The unbroken record of positive cash flow continued, with a previously
unmatched net on-balance sheet inflow of R4 billion being recorded.
* Investment income on shareholder assets increased by 47% despite the
R1 845 million capital returned during 2006 (20% of the opening market
capitalisation).
* Excellent investment market performance contributed to improved
funding levels and a strong capital position.
* Once again positive operating experience variances emerged in the
embedded value, mainly resulting from better than expected investment
markets, mortality and persistency experience; however, the growth in the
expense base, aimed at promoting business expansion, resulted in a negative
operating assumption change.
* The return on embedded value of 26% was driven by improved operations,
the value of new business added, the investment performance on the
shareholder assets and enhanced by the capital management activities.
Operational overview
* Total long-term insurance premium income grew by 40% to R11 billion.
* Group recurring premium income increased by 9% to R6.3 billion.
* Retail recurring premium income was 10% higher, again highlighting
policyholders` improved economic conditions and the quality of business
written over recent years, while single premium income was up 38%.
* Retail new business APE (recurring premium income plus 10% of single
premiums) was 8% higher than 2005, suppressed by significant changes to
business processes. The APE new business margin increased from 11.5% to
12.1% while the PVP margin decreased from 2.3% to 2.1%, mainly as a result
of changes both in the economic assumptions and the business mix.
* An impressive 201% increase in corporate new business APE (237% on
PVP), significantly boosted by a record single premium policy, resulted in
a margin of 7.4% (APE) and 0.8% (PVP).
* The corporate business was successful in tendering for the Transnet
Pension Fund Administration business, thereby doubling the size of its
administration business and gearing itself for further expansion. The take-
on of the administration of the funds is due to commence during the second
quarter of 2007.
* The health business increased its principal members under
administration from 440 000 to over 500 000, with more than 100 000 new
members now signed up with the Government Employees Medical Scheme (GEMS).
* The decrease in new business volumes and a change in the product mix
in the international arena resulted in the new business margins falling
from 22.5% to 6.7% (APE), and from 4.3% to 1.3% (PVP).
* Metropolitan Card Operations, after completing a pilot phase, was
successfully launched and remains on track.
* The group started operating a life business in Kenya; acquired a
majority share of an existing insurance company in Ghana; and agreed on a
50/50 joint venture with a bank in Nigeria, subject to outstanding
regulatory and other approvals.
* Further clarity was obtained following the settlement between the
South African life industry and national treasury.
Transformation
* During the year Metropolitan underwent an official assessment of its
transformation status by independent rating agency Empowerdex. In terms of
the Financial Sector Charter, the group achieved the highest possible
ranking, that of black empowered/owned organisation. In terms of the
department of trade and industry`s more stringent draft codes of good
practice, Metropolitan was deemed to be a level 3 contributor.
* Ongoing highly focused skills development, procurement (reporting
infrastructure in particular), enterprise and social development
initiatives, aimed at accelerating the pace of transformation in the
Metropolitan workplace and the communities within which the group operates,
should ensure that Metropolitan gains recognition as a level 1 contributor
in the foreseeable future.
Prospects
* Metropolitan remains the largest long-term financial services group in
Africa focused primarily on the low and middle income markets. The
benefits of this focus, together with Metropolitan`s commitment to black
economic empowerment and its brand, will continue to give the group a
competitive advantage.
* Metropolitan continues to capitalise on its focused market status, in
line with its strategy to create prosperity for Africa`s people, by
providing accessible, affordable and appropriate products.
* Despite the increase in general consumption, the outlook in the
group`s target markets remains positive. Higher interest rates and debt
levels during 2006 are being mitigated by lower inflation, rising
employment rates, an improved GDP outlook, further reductions in taxation
and growing business confidence.
* The board is satisfied that the business is sustainable, with a
renewed focus on client service, product innovation, business retention,
cost management and ongoing capital management.
DIRECTORS` STATEMENT
The directors take pleasure in presenting the audited results of the
Metropolitan Holdings financial services group for the year ended 31
December 2006.
International Financial Reporting Standards (IFRS)
The consolidated balance sheet and income statement, statement of changes
in equity and cash flow statement have been prepared in accordance with
International Financial Reporting Standards (IFRS) issued and effective at
the time of preparing these statements. The accounting policies of the
group have been applied consistently to all the years presented.
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, estimates and accounting policies are
disclosed in detail in the annual financial statements at 31 December 2006.
Changes to presentation and restatement of 2005 results
* The trustees of the group`s retirement and pension fund schemes have
submitted their surplus apportionment arrangements in terms of the Pension
Funds Second Amendment Act 39 of 2001. The Metropolitan Staff Pension Fund
submission is the only arrangement that has, to date, been noted by the
Financial Services Board (FSB). Approval of the other arrangements is
still outstanding. As a result of this process, a net asset of R126
million in respect of the Metropolitan Staff Pension Fund plus a post-
retirement medical benefit obligation of R59 million were recognised in the
group results during 2006.
* The layout of the income statement has been changed to reflect
expenses by nature; sales remuneration and distribution costs are shown on
the face of the income statement and net realised and fair value gains have
been aggregated.
* The asset management business, previously part of the corporate
business segment, is managed as a new primary segment and disclosed as
such. The comparative information has been adjusted accordingly.
* In December 2005:
* investment income on investment contracts was accounted for directly
to the liability through the income statement; this has been restated and
now flows through investment income. This restatement is a reclassification
between line items in the income statement that has no effect on earnings.
* IFRIC 8 - Scope of IFRS 2 - Share-based payments - was early adopted
by the group on 1 January 2006 and retrospectively applied to 2005,
decreasing total assets by R143 million and earnings by R95 million.
CAPITAL MANAGEMENT
* In April 2006 Metropolitan returned 100 cents per share to
shareholders by way of a capital reduction (R765 million).
* During the first half of 2006 Metropolitan Holdings Limited bought and
cancelled 16 million listed ordinary shares (R200 million - 2.7% of the
listed shares).
* Another 27 million listed shares (R358 million - 4.7%) were bought
back by Metropolitan Life Limited and held as treasury shares.
* The company bought back approximately half of the shares owned by
management of the health business.
* On 6 December 2006 the High Court sanctioned the transfer of the
Metropolitan Odyssey Limited long-term insurance business to Metropolitan
Life Limited with effect from 1 January 2006. This transfer is in support
of the capital management programme of the group
* In terms of section 24(a)(l) of the Long-term Insurance Act, 1998, as
amended, approval was obtained from the FSB on 10 November 2006 for
Metropolitan Life Limited to issue subordinated redeemable debt to the
value of R500 million. This issue was successfully concluded on 15 December
2006, another first for the group.
* Metropolitan Life Limited received a AA- national insurer financial
strength rating from Fitch Ratings.
* A total dividend for the year of 77 cents per share has been declared,
up 22% on 2005.
* Good progress has been made in developing an economic capital model
for the group.
* Previously the desired capital was based on a range between 1.5 and 3
times the required statutory capital (CAR).
* The new target, at 31 December 2006, is R3.9 billion, which
approximates 2.8 times CAR.
* As a result the group has declared a once-off special dividend of 77
cents per share (87 cents including STC), payable on all ordinary shares,
in order to reduce the excess capital closer to the optimal levels.
* This special dividend brings the total payment to shareholders, over
the last three years, to over R4 billion.
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
Sadly Eric Molobi, chairman of Metropolitan, passed away on 4 June 2006.
His leadership, insight and guidance will be sorely missed, not only at
Metropolitan and KTI, but also at a national level. JJ Njeke was appointed
as acting chairman on 30 May 2006.
Willie Esterhuyse, having reached statutory retirement age, retired with
effect from 30 May 2006 after fifteen years on the board. Andile Sangqu,
previously an alternate to Eric Molobi, was appointed to the board on 3
July 2006. Derek Pead, an executive director, resigned from the board with
effect from 1 January 2007 due to other responsibilities while Phillip
Matlakala was appointed to the board as an executive director on the same
date. On 12 February 2007 the company announced that the group CEO, Peter
Doyle, would be stepping down with effect from 31 March 2008. Professor
Wiseman Nkuhlu was appointed to the board on 13 March 2007. 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 or contingent liabilities at
31 December 2006. 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
No material post balance sheet events, other than those mentioned above,
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 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.
An interim dividend of 29.00 cents per ordinary share was declared in
September and paid in October 2006. On 13 March 2007 a final dividend of
48.00 cents per ordinary share was declared.
In addition, a once-off special dividend of 77 cents per ordinary share was
also declared.
The total amount of 125 cents per share is payable to the holders of
ordinary shares recorded in the register of the company at the close of
business on Thursday, 5 April 2007 and will be paid on Tuesday, 10 April
2007. The last day to trade "cum" dividend will be Thursday, 29 March
2007. The shares will trade "ex" dividend from the start of business on
Friday, 30 March 2007. Share certificates may not be dematerialised or
rematerialised between Friday, 30 March and Thursday, 5 April 2007, 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 Tuesday, 10 April 2007.
Staff share purchase scheme dividend
A dividend of R20 million (2005: R28 million) was declared on the unlisted
shares in the staff share purchase scheme, as provided for in the trust
deed.
Preference share dividend
Dividends of R26 million (13.5%), R16 million (125.00 cents per share) and
R21 million (13.3%) were declared on 13 March 2007 on the A1, A2 and A3
Metropolitan preference shares respectively, and are payable on 31 March
2007.
Dividends of R22 million (11.7%), R4 million (29.00 cents per share) and
R18 million (11.6%) were declared in September 2006 on the A1, A2 and A3
Metropolitan preference shares respectively, and paid on 30 September 2006.
The declaration rate was determined as set out in the company`s articles.
Preference share dividends are included under finance costs in these
results.
AUDIT OPINION
The auditors, PricewaterhouseCoopers Inc, have issued their opinion on the
group financial statements for the year ended 31 December 2006. A copy of
their unqualified report is available for inspection at the company`s
registered office.
Signed on behalf of the board
JJ Njeke Acting group chairman
Peter Doyle Group chief executive
Cape Town
13 March 2007
Directors:
JJ Njeke (non-executive group chairman (acting)), Peter Doyle (group chief
executive), Phillip Matlakala (executive director), Abel Sithole (executive
director), Preston Speckmann (executive director), Fatima Jakoet, Peter
Lamprecht, Syd Muller, Bulelwa Ndamase, John Newbury, Andile Sangqu, 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
Link Market Services SA (Proprietary) Merrill Lynch
Limited
(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@linkmarketservices.co.za
METROPOLITAN HOLDINGS - GROUP RESULTS
CONSOLIDATED BALANCE SHEET 31.12.2006 31.12.2005
Rm Rm
ASSETS
Property, plant and equipment 541 549
Investment property 2 492 2 255
Intangible assets 413 404
Investment in associates 4 7
Financial assets (1, 2) 54 090 43 322
Employee benefit asset 126 -
Deferred income tax 11 4
Reinsurance contracts 217 181
Cash and cash equivalents 8 516 6 526
Total assets 66 410 53 248
EQUITY
Capital and reserves attributable to 6 694 6 206
equity holders (2)
Minority interests (2) 561 417
Total equity 7 255 6 623
LIABILITIES
Insurance contract liabilities
Long-term insurance (3) 30 790 25 496
Capitation contracts 2
Financial liabilities
Investment contracts - fair value 11 137 7 454
through income
Investment contracts - with 12 695 9 905
discretionary participation
features (3)
Other financial liabilities 1 849 1 264
Employee benefit obligations 223 225
Deferred income tax 300 296
Other payables 1 957 1 703
Current income tax 202 282
Total liabilities 59 155 46 625
Total equity and liabilities 66 410 53 248
Financial assets include equity and debt securities, loans and receivables
and derivatives.
2005 has been restated for the early adoption of IFRIC 8.
Under IFRS4, the group continues to account for long-term insurance
contracts and investment contracts with discretionary participation
features using SA GAAP.
METROPOLITAN HOLDINGS - GROUP RESULTS
STATEMENT OF ACTUARIAL VALUES OF 31.12.2006 31.12.2005
ASSETS AND LIABILITIES ON REPORTING Rm Rm
BASIS
Total assets per balance sheet 66 410 53 248
Actuarial value of policy liabilities (54 622) (42 855)
per balance sheet
Other liabilities per balance sheet (4 533) (3 770)
Minority interests (561) (417)
Excess - group per reporting basis 6 694 6 206
Net assets - other businesses (858) (62)
Excess - long-term insurance business 5 836 6 144
(4)
LONG-TERM INSURANCE BUSINESS (4)
Change in excess of long-term (308) 777
insurance business (4)
Increase in share capital (35) (5)
Metropolitan Kenya included in (8)
insurance (5)
Exchange differences - 17
Change in other reserves 232 (63)
Dividend paid 2 187 932
Total surplus arising 2 068 1 658
Operating profit 660 589
Investment income on excess 211 179
Net realised and fair value gains 1 245 836
on excess
Investment variances (6) 70 66
Basis changes and other changes (166) 102
Employee benefit asset/obligation 67
Other adjustments - (13)
LOA statement of intent (19) (101)
Consolidation adjustments (186) (128)
Income tax expense 364 413
Adjustment for share of profit of - (6)
associates
Results of long-term insurance 2 246 1 937
business (4)
Results of other group businesses 324 329
Results of operations per income 2 570 2 266
statement
METROPOLITAN HOLDINGS - GROUP RESULTS
STATEMENT OF ACTUARIAL VALUES OF ASSETS 31.12.2006 31.12.2005
AND LIABILITIES ON STATUTORY BASIS Rm Rm
Reporting excess - long-term insurance 5 836 6 144
business (4)
Disallowed assets in terms of statutory (135) (35)
requirements (7)
Capital adjustments 101 -
Statutory excess - long-term insurance 5 802 6 109
business (4)
Capital adequacy requirement 1 592 1 418
Capital adequacy multiple 3.6 4.3
Discretionary margins 2 058 1 886
(4) 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.
(5) During 2005 the group set up an insurance operation in Kenya; during
2006 this company was included as an insurance company in the statement of
actuarial assets and liabilities.
(6) Investment variances reflect the impact of actual investment returns
on the value of future expense recoveries.
(7) Disallowed assets include goodwill, deferred acquisition costs,
deferred revenue liabilities and employee benefit asset/obligation.
METROPOLITAN HOLDINGS - GROUP RESULTS
CONSOLIDATED INCOME STATEMENT 12 mths to 12 mths to
31.12.2006 31.12.2005
Rm Rm
Net insurance premiums received 7 423 6 656
Fee income 698 601
Investment income (8, 9) 2 578 2 164
Net realised and fair value gains (9) 9 831 8 486
Net income 20 530 17 907
Net insurance benefits and claims 5 634 6 411
Change in provisions 8 009 5 547
Change in insurance contract 5 233 4 612
liability
LOA statement of intent 19 101
Change in investment contract 2 792 847
with DPF liability
Change in reinsurance (35) (13)
provisions
Fair value adjustments on investment 1 687 1 218
contracts (8)
Depreciation, amortisation and 127 109
impairment expense
Employee benefit expense (9) 924 892
Sales remuneration and distribution 1 034 990
cost
Other expenses (9) 545 474
Expenses 17 960 15 641
Results of operations 2 570 2 266
Share of profit of associates 3 6
Finance costs (99) (54)
Profit before tax 2 474 2 218
Income tax expenses (491) (573)
Earnings 1 983 1 645
Attributable to:
Equity holders of group 1 947 1 600
Minority interests (9) 36 45
1 983 1 645
(8) In December 2005 only investment income on investment contracts was
accounted for directly to the liability; this item has been restated
through the income statement.
(9) 2005 has been restated for the early adoption of IFRIC 8.
METROPOLITAN HOLDINGS - GROUP RESULTS
RECONCILIATION OF Basic earnings Diluted earnings
HEADLINE EARNINGS
attributable to equity
holders of the company
12 mths to 12 mths to 12 mths to 12 mths to
31.12.2006 31.12.2005 31.12.2006 31.12.2005
Rm Rm Rm Rm
Earnings 1 947 1 600 1 947 1 600
Finance costs - 93 53
preference shares
Diluted earnings 2 040 1 653
Goodwill impaired 4 - 4 -
Headline earnings (10) 1 951 1 600 2 044 1 653
Net realised and fair (1 265) (906) (1 265) (906)
value gains on excess
(11)
Basis changes, LOA 111 (55) 111 (55)
statement of intent and
investment variances
Employee benefit (67) (67)
asset/obligation
IFRIC 8 - early adoption 9 2
Investment income on 15 14
treasury shares -
contract holders (12)
Core headline earnings 730 639 847 708
(13)
(10) Headline earnings consist of operating profit, investment income,
net realised and fair value gains, investment variances and basis and other
changes. Adjustments to headline earnings, as required by SAICA Circular
7/2002, relate to returns on shareholder assets only.
(11) 2005 has been restated for the early adoption of IFRIC 8.
(12) For diluted core headline earnings treasury shares held on behalf
of contract holders are deemed to be issued. For diluted earnings and
headline earnings these shares are deemed to be cancelled. The 2005
results have been adjusted accordingly.
(13) Net realised and fair value gains on investment assets,
investment variances and basis and other changes can be volatile; therefore
core headline earnings have been disclosed that comprise operating profit
and investment income on shareholder assets.
METROPOLITAN HOLDINGS - GROUP RESULTS
EARNINGS PER SHARE (cents) 12 mths to 12 mths to
attributable to equity holders of the 31.12.2006 31.12.2005
company
Basic (11)
Core headline earnings 130.36 109.04
Headline earnings 348.39 273.04
Earnings 347.68 273.04
Weighted average number of shares 560 586
(million)
Diluted (11)
Core headline earnings 112.93 95.93
Diluted weighted average number of 750 738
shares (million) (12)
Headline earnings 280.00 230.87
Earnings 279.45 230.87
Diluted weighted average number of 730 716
shares (million) (12)
DIVIDENDS 2006 2005
Ordinary listed shares (cents per
share)
Interim 29.00 24.00
Final 48.00 39.00
Total 77.00 63.00
Special dividend 77.00 -
DIVIDENDS
Convertible redeemable preference A1 A2 A3
shares
Paid - 31 March 2005 Rate 9.2%
Rm 25
Paid - 30 September Rate 9.9%
2005
Rm 23
Paid - 31 March 2006 Rate 10.4% 39.00 cps 9.2%
Rm 24 5 10
Paid - 30 September Rate 11.7% 29.00 cps 11.6%
2006
Rm 22 4 18
Payable - 31 March Rate 13.5% 125.00 cps 13.3%
2007
Rm 26 16 21
Redemption value (per R 5.12 9.18 9.18
share)
METROPOLITAN HOLDINGS - GROUP RESULTS
ANALYSIS OF DILUTED CORE 12 mths to 12 mths to
HEADLINE EARNINGS 31.12.2006 31.12.2005
Rm Rm
Retail business 436 369
Operating profit 627 523
Tax (191) (154)
Corporate business 145 115
Operating profit 204 161
Tax (59) (46)
Asset management business 69 52
Operating profit 94 72
Tax (25) (20)
International business 61 86
Operating profit 67 92
Tax (6) (6)
Health business 51 20
Operating profit 72 49
Tax (21) (29)
Shareholder capital 85 66
Holding company expenses (44) (34)
Metropolitan Card Operations (21) (6)
Investment income on 310 211
shareholder excess
Income tax on investment income (160) (105)
Diluted core headline earnings 847 708
RESULTS OF OPERATIONS Net income Expenses Results of operations
FROM ADMINISTRATION
BUSINESS
(gross of minority
interest and before tax)
12 mths to 12 mths to
31.12.2006 31.12.2005
Rm Rm Rm Rm
Health business 560 (488) 72 49
Asset administration 103 (45) 58 34
Asset management 113 (77) 36 38
776 (610) 166 121
METROPOLITAN HOLDINGS - GROUP RESULTS
CONSOLIDATED STATEMENT OF CHANGES IN 12 mths to 12 mths to
EQUITY 31.12.2006 31.12.2005
Rm Rm
Changes in share capital
Balance before implementation of 870
IFRS4 and IAS39 (revised)
Treasury shares held on behalf (198)
of contract holders
Balance at beginning 559 672
Staff scheme shares released 86 53
Shares repurchased and cancelled (200) (242)
Treasury shares held on behalf of 61 76
contract holders
Capital reduction (642)
Balance at end (136) 559
Changes in other reserves
Balance at beginning 428 367
Total recognised income (30) 51
Earnings directly accounted in (29) 61
equity
Foreign currency translation (1) (10)
differences
Employee share schemes - value of 10 10
services provided
Fair value gains - available-for-sale 1 -
financial assets
Transfer from retained income 4 -
Balance at end (14) 413 428
Changes in retained income
Balance before implementation of 3 945
IFRS4 and IAS39 (revised)
Opening deferred acquisition (11)
costs and deferred revenue
liabilities
Treasury shares held on behalf (19)
of contract holders
Balance at beginning 5 219 3 915
Earnings for period (15) 1 947 1 600
Dividends paid (386) (296)
Shares repurchased (358) -
Transfer to other reserves (5) -
Balance at end 6 417 5 219
Capital and reserves attributable to 6 694 6 206
equity holders
METROPOLITAN HOLDINGS - GROUP RESULTS
CONSOLIDATED STATEMENT OF CHANGES IN 12 mths to 12 mths to
EQUITY 31.12.2006 31.12.2005
Rm Rm
Changes in minority interest
Balance at beginning 417 359
Total recognised income 36 41
Earnings for period 36 45
Foreign currency translation - (4)
differences
Employee share schemes - value of - 1
services provided
Dividend paid (34) (1)
Net change in minority interest 142 17
Balance at end 561 417
Total equity 7 255 6 623
(14) Other reserves consist of the following:
Land and buildings revaluation reserve: R96 million (31.12.2005: R121
million)
Foreign currency translation reserve: (R16 million) (31.12.2005: (R15
million))
Fair value reserve: R38 million (31.12.2005: R27 million)
Non-distributable reserve: R295 million (31.12.2005: R295 million)
(15) 2005 has been restated for the early adoption of IFRIC 8.
CONSOLIDATED CASH FLOW STATEMENT 12 mths to 12 mths to
31.12.2006 31.12.2005
Rm Rm
Net cash inflow from operating 1 976 3 206
activities
Net cash outflow from investing (41) (19)
activities
Net cash outflow from financing (1 198) (753)
activities
Net cash flow 737 2 434
Exchange gains/(losses) on cash 10 (1)
resources
Cash resources and funds on deposit at 6 526 4 093
beginning
Cash resources and funds on deposit at 7 273 6 526
end
METROPOLITAN HOLDINGS - GROUP RESULTS
SEGMENTAL REPORT (17) 12 mths to 12 mths to
31.12.2006 31.12.2005
Rm Rm
Segmental revenue
Retail business 10 674 8 412
Corporate business 6 175 6 086
Health business 560 519
Asset management business 216 157
Shareholder capital (16, 17, 18) 1 252 1 205
International business (19) 1 653 1 528
Net income per income statement 20 530 17 907
Segmental results
Retail business 627 525
Corporate business 204 161
Health business (16) 72 49
Asset management business 94 72
Shareholder capital (16, 17, 18) 1 375 1 205
International business (19) 198 254
Results from operations per income 2 570 2 266
statement
(16) 2005 has been restated for the early adoption of IFRIC 8.
(17) The segmental report is compiled on the basis of Metropolitan`s
primary segments. In all instances with the exception of international,
the secondary segments are in South Africa. The asset management business,
previously part of the corporate business, is managed as a new primary
segment and disclosed as such. The comparative information has been
adjusted accordingly.
(18) Shareholder capital consists of holding company, Metropolitan
Card Operations (Proprietary) Limited and shareholder return; in South
Africa this is not split between retail and corporate. Metropolitan Card
Operations (Proprietary) Limited has net income of R2 million and negative
results from operations of R20 million.
(19) International, with secondary segments in Botswana, Ghana, Kenya,
Lesotho, Mauritius and Namibia, includes investment return.
METROPOLITAN HOLDINGS - GROUP RESULTS
EMBEDDED VALUE 31.12.2006 31.12.2005
Rm Rm
Statutory excess - long-term 5 802 6 109
insurance business
Capital adjustments (101) -
Subordinated redeemable debt (501) -
Treasury shares held in 400 -
subsidiary
Adjustments to statutory excess 2 085 1 563
Net assets - other businesses 858 62
Dilutory effect of 80 95
subsidiaries (20)
Staff share scheme loans 227 313
Liability - convertible 832 945
redeemable preference shares
Treasury shares held on 197 258
behalf of contract holders
Goodwill (109) (110)
Adjustments for 405 349
Asset management business 210 191
Health business (21) 481 405
Holding company expenses (286) (247)
Adjusted net asset value 8 191 8 021
Net value of in-force business 4 096 3 447
Individual life 3 338 2 776
Gross value of in-force 3 475 2 913
business
Less: Cost of capital (137) (137)
Employee benefits 758 671
Gross value of in-force 830 736
business
Less: Cost of capital (72) (65)
Diluted embedded value 12 287 11 468
Diluted embedded value per share 1 702 1 499
(cents)
Diluted adjusted net asset value 1 134 1 048
per share (cents)
Diluted number of shares in issue 722 765
(million) (22)
(20) As a result of the early adoption of IFRIC 8, Metropolitan Health
and Metropolitan Kenya have been consolidated at 100% in the balance sheet.
For embedded value purposes, disclosed on a diluted basis, the minority
interest and related funding have been reinstated.
(21) The value of the health business is net of R53 million, being the
total liability of the option held by MHG management (31.12.2005: R129
million).
METROPOLITAN HOLDINGS - GROUP RESULTS
(22) The diluted number of shares in issue takes into account all
issued shares, assuming conversion of the convertible redeemable preference
shares and the release of staff share scheme shares, and includes the
treasury shares held on behalf of contract holders.
EMBEDDED VALUE Net Value of 31.12.2006 31.12.2005
ATTRIBUTABLE TO GROUP asset in-force
value Rm
Rm Rm Rm
Metropolitan Life Ltd 5 065 3 654 8 719 8 571
(23)
Metropolitan Odyssey 34 - 34 (78)
Ltd
Metropolitan Life 48 - 48 47
International Ltd
Metropolitan Life 251 228 479 496
(Namibia) Ltd
Metropolitan Life of 108 52 160 145
Botswana Ltd
Metropolitan Lesotho 136 159 295 319
Ltd
Metropolitan Life 5 2 7 -
Insurance Kenya Ltd
(24)
Metropolitan Life 12 1 13 -
Insurance Ghana Ltd
(24)
Asset management 110 210 320 256
business
Metropolitan Health 141 481 622 487
Group
Metropolitan Holdings 1 985 (286) 1 699 1 334
(after consolidation
adjustments)
Goodwill (109) (109) (109)
Total embedded value 7 786 4 501 12 287 11 468
Capital adjustments 101
Adjustments to (2 085)
statutory excess
Statutory excess - 5 802
long-term insurance
business
(23) The integration of the Metropolitan Odyssey Limited long-term
insurance business in Metropolitan Life Limited was accounted for in terms
of the requirements of merger accounting. Merger accounting requires that
the financial statements of Metropolitan Life Limited incorporate the
combined companies` results and cash flows as if the companies have always
been combined, including restatement of comparatives. The 2005 embedded
value for Metropolitan Life Limited has been adjusted accordingly.
METROPOLITAN HOLDINGS - GROUP RESULTS
(24) During 2005 the group set up an insurance operation in Kenya;
during 2006 this company was included as an insurance company for embedded
value purposes. The group acquired a majority share (60%) of an existing
insurance company in Ghana on 1 January 2006.
VALUE OF LONG-TERM INSURANCE NEW 12 mths to 12 mths to
BUSINESS 31.12.2006 31.12.2005
Rm Rm
Retail business 114 100
Gross value of new business 116 107
Less: Cost of capital (2) (7)
Corporate business 30 6
Gross value of new business 37 7
Less: Cost of capital (7) (1)
International business * 7 28
Gross value of new business 9 33
Less: Cost of capital (2) (5)
Total value of long-term insurance 151 134
new business
* Net of outside shareholders. Excludes Metropolitan Ghana and
Metropolitan Kenya as the companies are in a start-up phase.
NEW BUSINESS PREMIUMS 12 mths to 12 mths to
31.12.2006 31.12.2005
Rm Rm
Recurring premiums
Retail business 753 732
Corporate business 141 80
International business * 89 105
983 917
Single premiums
Retail business 1 872 1 369
Corporate business 2 661 545
International business * 157 174
4 690 2 088
Annual premium equivalent (APE) 1 452 1 126
Retail business 940 869
Corporate business 407 135
International business 105 122
Present value premiums (PVP) 9 502 6 144
Retail business 5 410 4 444
Corporate business 3 563 1 056
International business 529 644
METROPOLITAN HOLDINGS - GROUP RESULTS
* Net of outside shareholders. Excludes Metropolitan Ghana (R4 million
APE) and Metropolitan Kenya (R4 million APE) as the companies are in a
start-up phase.
PROFITABILITY OF NEW BUSINESS 12 mths to 12 mths to
31.12.2006 31.12.2005
% of APE 10.4 11.9
Retail business 12.1 11.5
Corporate business 7.4 4.3
International business 6.7 22.5
% of PVP 1.6 2.2
Retail business (23) 2.1 2.3
Corporate business 0.8 0.5
International business 1.3 4.3
SOURCE OF NEW BUSINESS PRODUCTION - 31.12.2006 31.12.2005
GROUP
Individual life - insurance and
investment business
Total% Total%
APE % APE %
General intermediary channel 8 6 12 8
Direct writers 23 25 32 28
Group schemes 9 6 8 5
Direct mail and telemarketing 24 14 14 9
Odyssey broker channel 28 43 22 41
3rd party business - 1 - -
International 8 5 12 9
VALUE OF NEW BUSINESS - OTHER BUSINESSES 12 mths to 12 mths to
31.12.2006 31.12.2005
Rm Rm
Asset management business 25 22
Health business 78 76
PRINCIPAL ASSUMPTIONS (South Africa) (25) 31.12.2006 31.12.2005
% %
Pre-tax investment return
Equities 10.0 9.5
Properties 10.0 9.5
Government stock 8.0 7.5
Cash 6.0 5.5
Risk discount rate 10.5 10.0
Investment return (before tax) - smoothed 9.4 8.9
bonus
Expense inflation rate 4.8 4.3
METROPOLITAN HOLDINGS - GROUP RESULTS
(25) The principal assumptions relate to the South African life
insurance business only. Assumptions relating to the international life
insurance businesses are based on local requirements and can be different
to the South African assumptions.
OUTSIDE SHAREHOLDER INTEREST 31.12.2006 31.12.2005
% %
Metropolitan Life (Namibia) Ltd 19.0 19.0
Metropolitan Life of Botswana Ltd 24.2 24.2
Metropolitan Health Group 17.6 18.8
Metropolitan Life Insurance Kenya Ltd 40.0
(19)
Metropolitan Life Insurance Ghana Ltd 40.0
(19)
LONG-TERM Net In-force business New business written
INSURANCE worth
BUSINESS:
SENSITIVITIES
- 31.12.2006
Net Gross Cost Net Gross Cost of
value value of CAR value value CAR
Rm Rm Rm Rm Rm Rm Rm
Base value 5 802 4 096 4 305 (209) 151 162 (11)
1% increase 3 764 4 087 (323) 124 140 (16)
in risk
discount
rate
% change (8) (5) 54 (18) (13) 53
1% reduction 4 539 4 616 (77) 183 186 (3)
in risk
discount
rate
% change 11 7 (63) 21 15 (69)
10% increase 3 870 4 079 (209) 126 137 (11)
in future
expenses
% change (6) (5) - (17) (16) -
(note 1)
10% increase 4 022 4 231 (209) 114 125 (11)
in policy
discontin
uance
% change (2) (2) - (25) (23) -
10% increase 3 803 4 012 (209) 104 115 (11)
in
mortality
and
morbidity
% change (7) (7) - (31) (29) -
(note 2)
METROPOLITAN HOLDINGS - GROUP RESULTS
LONG-TERM INSURANCE Net In-force business New business written
BUSINESS: worth
SENSITIVITIES -
31.12.2006
Net Gross Cost Net Gross Cost of
value value of value value CAR
CAR
Rm Rm Rm Rm Rm Rm Rm
1% reduction in 5 846 4 094 4 303 (209) 176 187 (11)
gross
investment
return,
inflation rate
and risk
discount rate
% change 1 - - - 16 15 -
(note 3)
1% reduction in 5 754 3 790 4 128 (338) 135 151 (16)
gross
investment
return only
(no change in
risk discount
rate)
% change (1) (7) (4) 61 (10) (6) 55
(note 3)
1% reduction in 5 948 4 069 4 278 (209) 166 177 (11)
inflation
% change 3 (1) (1) - 10 9 -
10% fall in market 5 500 3 968 4 177 (209)
value of
equities
% change (5) (3) (3) -
10% reduction in 4 027 4 236 (209) 143 154 (11)
premium
indexation
take-up rate
% change (2) (2) - (6) (5) -
10% increase in 114 125 (11)
non-commission
related
acquisition
expenses
% change (24) (23) -
Notes
(1) No corresponding changes in variable policy charges are assumed,
although in practice it is likely that they will be modified according to
circumstances.
(2) Mortality decreases by 10% for annuities; mortality and morbidity
increase by 10% for assurance.
(3) Bonus rates are assumed to change commensurately.
METROPOLITAN HOLDINGS - GROUP RESULTS
(4) The change in the value of cost of CAR is disclosed as nil where the
sensitivity test results in an insignificant change in the value.
ANALYSIS OF CHANGES IN Other Long-term 12 mths 12 mths
GROUP EMBEDDED VALUE busi- insurance to to
nesses business 31.12.2 31.12.2
006 005
Total Total
NAV VoIF Rm Rm
Rm Rm Rm
Profit from new business 108 (140) 299 267 243
Embedded value from 103 (140) 291 254 232
new business
Expected return to 5 8 13 11
end of year
Profit from existing (37) 582 (3) 542 655
business
Expected return - 61 379 440 356
unwinding of risk
discount rate
Expected (or 550 (550) - -
actual) net of tax
profit transfer to
net worth
Operating (41) 215 207 381 140
experience variance
Operating (57) (164) (7) (228) 283
assumption changes
LOA statement of (19) (32) (51) (124)
intent
Embedded value profit from 71 442 296 809 898
operations
Investment return on net 181 1 206 - 1 387 1 174
worth
Investment variances 37 87 356 480 456
Economic assumption (2) (9) (1) (12) 37
changes
Exchange rate movements - - - - (13)
Total embedded value 287 1 726 651 2 664 2 552
profit
Changes in share capital (1 221) 21 (1 200) (242)
Dividend paid 1 724 (2 153) (429) (326)
Redeemable preference (123) (123) 481
shares
Finance costs - preference (93) (93) (53)
shares
Increase in embedded value 574 (406) 651 819 2 412
Return on embedded value (%) 25.5 28.9
METROPOLITAN HOLDINGS - GROUP RESULTS
ANALYSIS OF VARIANCES AND OPERATING ASSUMPTION CHANGES - 31.12.2006
Operating experience
variance
Other A reduction in the present value of future
businesses profits as a result of the outflow of off-
balance sheet funds at Metropolitan Asset
Management.
Long-term
insurance
business
NAV Mortality profits across most lines of
business, better than expected persistency of
the Retail business` direct marketing
products, tax profits and the impact of better
than expected investment performance,
including a higher than expected investment
return on working capital.
VoIF Better than expected premium inflows on
employee benefit risk and investment schemes,
reduced by outflows on the Corporate business
smoothed bonus products and a reduction in the
cost of statutory capital following the
transfer of the Metropolitan Odyssey life
business into Metropolitan Life Limited in the
last quarter of 2006
Operating assumption
changes
Other business An increase to future expected expenses
following the introduction of a new long-term
staff retention scheme in December 2006.
Long-term
insurance
business
NAV An increase in assumed future expenses in the
Retail business, offset by assumed
improvements to future mortality and
persistency levels. The increase in future
expenses relate to the new long-term retention
scheme, a change in the expense allocation
methodology following the changes in the
business mix and an increase in the overall
expense base primarily aimed at growing the
business.
METROPOLITAN HOLDINGS - GROUP RESULTS
ANALYSIS OF VARIANCES AND OPERATING ASSUMPTION CHANGES - 31.12.2006
VoIF An increase in future assumed expenses in the
Corporate business, offset by the impact of
assumed improvements in mortality and persistency
levels of the Retail business` grouped individual
product ranges, as well as assumed changes to the
mortality experience of its non-linked lines of
business.
LOA statement of This item represents the additional reduction in
intent the embedded value, since it was first estimated
in December 2005, following clarification on the
guaranteed minimum surrender value calculation
for reversionary bonus policies and policies with
hybrid charging structures.
PREMIUMS RECEIVED (pre-IFRS4; excluding 12 mths to 12 mths to
MHG capitation contracts) 31.12.2006 31.12.2005
Rm Rm
Recurring premiums 6 301 5 770
Retail business 3 918 3 575
Corporate business 1 592 1 437
International business 791 758
Single premiums 4 729 2 116
Retail business 1 872 1 353
Corporate business 2 661 544
International business 196 219
Total premiums received 11 030 7 886
METROPOLITAN HOLDINGS - GROUP RESULTS
PAYMENTS TO CONTRACT HOLDERS 12 mths to 12 mths to
(pre-IFRS4; excluding MHG capitation 31.12.2006 31.12.2005
contracts) Rm Rm
Individual life 4 377 3 142
Death and disability claims 934 833
Maturity claims 1 307 752
Annuities 519 452
Surrenders 1 697 1 178
Re-insurance recoveries (80) (73)
Employee benefits 2 775 3 975
Death and disability claims 726 668
Maturity claims 136 131
Annuities 387 293
Withdrawal benefits 358 293
Terminations 1 307 2 746
Re-insurance recoveries (139) (156)
Total payments to contract holders 7 152 7 117
FUNDS RECEIVED FROM CLIENTS 12 mths to 12 mths to
Gross Gross 31.12.2006 31.12.2005
inflow outflow Net inflow Net inflow
Rm Rm Rm Rm
Retail business 5 790 (3 945) 1 845 2 182
Corporate business 4 253 (2 630) 1 623 (1 842)
International business 987 (577) 410 429
Long-term insurance 11 030 (7 152) 3 878 769
business cash flows
Health business 8 560 (8 187) 373 529
Asset management business 10 882 (12 745) (1 863) 4 502
Corporate business 371 371 -
Total funds received from 30 843 (28 084) 2 759 5 800
clients
METROPOLITAN HOLDINGS - GROUP RESULTS
ANALYSIS OF EXPENSES 12 mths to 12 mths to
31.122006 31.12.2005
Rm Rm
Depreciation, amortisation and 127 109
impairment expense
Employee benefit expense 924 892
Sales remuneration and 1 034 990
distribution cost
Other expenses 545 474
Finance costs 99 54
Total expenses 2 729 2 519
Long-term insurance business 2 019 1 832
Management expenses 1 115 970
Administration expenses 988 842
Distribution costs 127 128
Sales remuneration 904 862
Administration business 594 561
Health business 472 464
Asset management 77 68
Asset administration 45 29
Finance costs - preference shares 93 53
Holding company 44 34
Metropolitan Card Operations 24 6
Consolidation adjustments 22 20
Retirement asset/obligation (67)
Implementation of IFRS4 and IAS39 13
adjustment
Total expenses 2 729 2 519
NUMBER OF EMPLOYEES 31.12.2006 31.12.2005
Indoor staff 4 321 3 899
Insurance companies 2 506 2 396
Retail business 1 325 1 324
Employee benefits business 332 315
International business 346 274
Group services 503 483
Metropolitan Health Group 1 638 1 359
Asset management 70 70
Asset administration 58 53
Metropolitan Card Operations 28 -
Holding company 21 21
Field staff 3 316 3 426
Retail business 2 551 2 977
International business 765 449
Total 7 637 7 325
METROPOLITAN HOLDINGS - GROUP RESULTS
ASSETS UNDER MANAGEMENT 31.12.2006 31.12.2005
Rm Rm
Property, plant and equipment 541 549
Investment property 2 492 2 255
Intangible assets 413 404
Investment in associates 4 7
Financial assets 54 090 43 322
Employee benefit asset 126 -
Deferred income tax 11 4
Reinsurance contracts 217 181
Cash and cash equivalents 8 516 6 526
Total on-balance sheet assets 66 410 53 248
Collective investments 12 241 9 019
Health 2 669 2 490
Asset Managers 3 368 5 694
EB segregated assets 1 170 798
Total assets under management 85 858 71 249
ANALYSIS OF ASSETS BACKING GROUP 31.12.2006 31.12.2005
EXCESS
Rm % Rm %
Listed equities - local listed 4 851 70.1 3 864 59.3
Foreign investments - unit linked 428 6.2 649 9.9
investments
Owner-occupied properties 334 4.8 392 6.0
Debt securities - fixed interest 697 10.1 822 12.6
Cash and cash equivalents 1 059 15.3 1 291 19.8
Goodwill 148 2.1 148 2.3
Other net assets 236 3.4 298 4.6
Redeemable preference shares (832) (12.0) (945) (14.5)
6 921 100.0 6 519 100.0
Adjustment for staff share (227) (313)
schemes
Excess - group per reporting 6 694 6 206
basis
METROPOLITAN HOLDINGS - GROUP RESULTS
GROUP EXCESS - TOP 10 EQUITY 31.12.2006 31.12.2005
HOLDINGS
Rm % Rm %
MTN Group Ltd 177 3.5 220 5.7
Standard Bank Group Ltd 137 2.7 166 4.3
Anglo American Plc 128 2.5 125 3.2
Billiton Plc 110 2.2 106 2.7
Sasol Ltd 88 1.7 103 2.7
FirstRand Ltd 86 1.7 106 2.7
SABMiller Plc 83 1.6 97 2.5
Imperial Holdings Ltd 78 1.5 71 1.8
Nedbank Group Ltd 76 1.5 - -
Impala Platinum Holdings Ltd 75 1.5 - -
Remgro Plc - - 91 2.4
Naspers N-ord Ltd - - 64 1.7
1 038 20.4 1 149 29.7
Collective investments 1 781 35.0 1 379 35.7
2 819 55.4 2 528 65.4
Total equities backing excess 5 083 100.0 3 864 100.0
STOCK EXCHANGE PERFORMANCE 2006 2005 2004 2003
12 month period
Value of listed shares traded 5 614 3 347 2 049 994
(rand million) (26)
Volume of listed shares traded 442 315 250 165
(million) (26)
Shares traded (% of average 75.0 51.1 37.9 24.4
listed shares in issue) (26)
Value of shares traded - life 81.9 70.0 47.3 40.8
insurance (J857 - Rbn)
Value of shares traded - top 40 1 735.0 1 829.8 653.4
index (J200 - Rbn) 028.2
Trade prices
Highest (cents per share) 1 581 1 220 1 100 750
Lowest (cents per share) 1 020 950 680 470
Last sale of period (cents 1 500 1 185 1 090 685
per share)
Percentage (%) change during 38.25 19.70 59.12 12.30
period (27)
Percentage (%) change - life 28.18 21.18 36.04 0.45
insurance sector (J857)
Percentage (%) change - top 40 37.53 44.12 20.11 9.37
index (J200)
31 December
Price/core headline earnings 13.12 12.35 12.24 11.03
ratio (diluted)
Dividend yield % (dividend on 5.13 5.32 4.77 6.28
listed shares)
Dividend yield % - top 40 index 2.06 2.24 2.49 3.02
(J200)
METROPOLITAN HOLDINGS - GROUP RESULTS
STOCK EXCHANGE PERFORMANCE 2006 2005 2004 2003
Total shares issued (million)
Listed on JSE 585 594 641 678
Ordinary shares 578 587 632 668
Share incentive scheme 7 7 9 10
Unlisted - share purchase 41 48 63 70
scheme
Total ordinary shares in 626 642 704 748
issue
Treasury shares held in (27) - (41) (41)
subsidiary company
Treasury shares held on (13) (22)
behalf of contract holders
Adjustment to staff share (47) (50) (53) (55)
scheme shares (28)
Share incentive scheme (7) (5) (5) (5)
Share purchase scheme (40) (45) (48) (50)
Basic number of shares in 539 570 610 652
issue
Adjustment to staff share 47 50 53 55
scheme shares
Treasury shares held on 13 22
behalf of contract holders
Convertible redeemable 123 123 - -
preference shares
Diluted number of shares in 722 765 663 707
issue (29)
Market capitalisation at period- 10.83 9.07 8.06 4.84
end (Rbn) (30)
Percentage (%) of life insurance 5.45 6.83 7.04 5.96
sector
(26) 31.12.2006 is net of 42 million shares acquired for R558 million
as part of a share buy-back programme (31.12.2005: 22 million shares
acquired for R242 million).
(27) Both 2006 and 2005 have been adjusted for a capital reduction of
100 cents each.
(28) These shares were issued after 1 January 2001, the date on which
the group adopted AC133 (now IAS39).
(29) The diluted number of shares in issue takes into account all
issued shares, assuming conversion of the convertible redeemable preference
shares and the release of staff share scheme shares, and includes the
treasury shares held on behalf of contract holders.
(30) The market capitalisation is calculated on the diluted number of
shares in issue.
Date: 14/03/2007 08:04:44 Produced by the JSE SENS Department.
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