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Results announcement for the year ended 31 March 2019, final and special cash dividend declaration
ALEXANDER FORBES GROUP HOLDINGS LIMITED
Incorporated in the Republic of South Africa
(Registration number: 2006/025226/06)
JSE share code: AFH
ISIN: ZAE000191516
("Alexander Forbes" or "the group")
RESULTS ANNOUNCEMENT FOR THE YEAR ENDED 31 MARCH 2019, FINAL AND SPECIAL CASH DIVIDEND DECLARATION
OVERVIEW OF FINANCIAL RESULTS
Alexander Forbes Group Holdings Limited (JSE share code: AFH) today announced full-year results for
the 12 months ended 31 March 2019.
- Strategy update announced in March 2019 reaffirmed Alexander Forbes' strength as a trusted adviser
with a renewed focus on the core businesses of consulting, administration and investments
- The revised strategy resulted in the decision to exit the insurance businesses and sub-scale
African operations - which have been classified as discontinued
- Operating income for the total group increased 6% to R3 863 million
- Operating income from continuing operations up 4% to R3 136 million with sustained growth from
investments (up 7%), consulting and retirements (up 6%) and wealth and investments (up 4%)
- Termination of the IT contract relating to the group's modernisation programme during the first
half of the reporting period resulted in:
- R287 million write-off of capitalised software in development; and
- R50 million termination cost in operating expenses
- Profit from operations for the total group (before non-trading and capital items) down 7% to R915 million
- Profit from continuing operations (before non-trading and capital items) was down 19% to R678 million
- Headline earnings per share, for the total group, declined 1% to 44.0 cents
- Cash generated from continuing operations remained strong at R821 million
- Final dividend of 12 cents per share, bringing the total dividend for the year to 30 cents,
reverting to a cover ratio of 1.5 times
- A special dividend of 30 cents per share declared
- Assets under administration (AuA) and Assets under management (AuM) of R342 billion, down 4%
year on year
FINANCIAL HIGHLIGHTS
2019/2018 12 months ended 31 March
In millions of South African rands (Rm) % change 2019 2018 2017
Total group
Operating income (1) 6 3 863 3 647 3 470
Profit from operations (before non-trading items) (7) 915 986 937
Cost-to-income ratio (2) (%) 330 bps 76.3 73.0 73.0
Headline earnings per share (cents) (1) 44.0 44.4 53.4
Normalised headline earnings per share (3) (cents) (14) 45.0 52.4 59.7
Continuing operations (3)
Operating income 4 3 136 3 010 2 879
Profit from operations (before non-trading items) (19) 678 833 812
Cost-to-income ratio (%) 610 bps 78.4 72.3 71.8
Headline earnings per share (cents) (6) 32.5 34.5 39.6
Cash generated (from continuing operations) (5) 821 861 923
Final dividend (cents) (50) 12 24 23
Annual dividend (cents) (29) 30 42 40
Special dividend (cents) - 30 - 23
Closing AuA and AuM (in billions of South African rands) (4) 342 357 345
Discontinued operations (3)
Operating income 14 727 637 591
Profit from operations (before non-trading items) 55 237 153 125
Cost-to-income ratio (%) (860 bps) 67.4 76.0 78.8
1. Operating income represents revenue net of direct expenses.
2. Cost-to-income ratio is a percentage of the operating expenses (before non-trading items) over
the operating income.
3. Prior-year numbers restated for the effects of discontinued operations. See note 9.
INTRODUCTION
The year under review marks a watershed for Alexander Forbes, having aligned our resources to
capitalise on our core strengths and setting a course to deliver value from our market-leading
positions. We demonstrated our resilience amid weak trading conditions while addressing our
internal challenges.
Savings and retirement markets are under pressure and we did not perform to expectation, resulting
in lost business in some segments. We are addressing this shortfall and note the impact of lost
revenue on operating income.
The 6% increase in operating income to R3 863 million for the total group (4% increase to
R3 136 million from continuing operations) reflects these impacts but, importantly,
demonstrates our business' resilience in a difficult year.
Alexander Forbes faced internal challenges during the year under review. The departure of the
former chief executive officer and members of the executive team brought closure but also signalled
the need for a strategic review of the group. The incoming chief executive officer was mandated
by the board to conduct a review of the group's operating model and growth strategy, which aligns
resources internally to achieve sustainable profitable growth by capitalising on the group's
core strengths.
OUR REVISED STRATEGY
In March 2019 we announced a revised strategy that refocuses the business on providing advice-led
integrated retirement solutions and holistic wealth management.
Our strategy is based on providing best advice for clients through an integrated approach.
This requires a transition to a new operating model that will enable the 'one company,
client-centric' approach through the integration of our different business lines. The new target
operating model will include:
- one client-facing team, with divisional experts who are incentivised to deliver value to our
clients and grow our top line;
- a hub for advice-led product development and enablement to ensure our relevance and to provide
world-class advice for the South African context; and
- a joint platform for client support services, including fund and investments administration as
well as shared services to drive efficiency, automation and innovation in the way that we service
our clients.
We believe that this new way of operating will provide our clients with holistic best-in-class
advice across a broader spectrum and in doing so will significantly enhance our value proposition.
It will provide the opportunity to re-establish ourselves as the industry leaders, leverage our
scale and simplify our processes.
South Africa as our primary market will remain our core focus, and we will continue to service
clients across Africa through the advice-led solution platform 'ARRIVE' in close collaboration
with Mercer. There are no further plans for in-country investments in the rest of Africa and we
are exiting sub-scale markets such as Uganda and Zambia.
In line with the revised strategy, we also announced our intention to exit both the short-term
and life insurance (group risk) businesses. We have built solid and profitable operations in both
of these businesses which are highly valued in the insurance market. The process to dispose of
these separate businesses is under way and includes several regulatory approvals. Management aims to
conclude these transactions by the end of FY2020.
We continue to look for organic as well as inorganic growth opportunities in our core businesses.
Our decision to adopt a capital-light model is key regarding the capital allocation and return
hurdles that need to be met for us to pursue potential growth opportunities. With respect to
potential acquisitions, we continue to explore and assess potential opportunities to acquire a
similarly focused employee benefit business in support of our revised strategy.
MEASURING SUCCESS
By making these changes we are focusing on our competitive strengths and the segments where we can
reinforce our commanding position in the industry. We are reorganising ourselves in a way that can
deliver an integrated consulting and advice-led proposition, enabled by innovative solutions and
digital engagement platforms. This will ensure that our members receive the best information and
access to advice from Alexander Forbes throughout their life journey.
The increased focus on an advice-led, client-centric model is designed to achieve better outcomes
for our clients. Our research indicates that an integrated servicing model not only improves
efficiencies, which reduces cost, but the outcomes achieved for individual members also improve.
While the environment is currently not conducive to growth in income, we remain confident that we
will achieve our target of achieving between 8% to 10% compound annual growth rate in operating
income over the next five years.
The target operating model is designed to deliver more process efficiency through rationalisation
and structural change within a simplified structure. This is in final design phase with the
implementation expected to commencein the second quarter of financial year 2020, with a nine-month
phased roll-out.
Given the nature of the structural change that needs to take place, we anticipate realising the
intended impact over a three to five-year period. A measure of success of this initiative is the
expected reduction in our cost-to-income ratio to below 70% over this period. The executive team
is focused on accelerating the delivery of initiatives to address these structural inefficiencies,
where possible.
The revised strategy reaffirms our intent to remain capital light. Our ongoing measurement under
the Prudential Standards as an insurance entity has increased our regulatory capital by 100% over
the past five years. The decision to exit our insurance businesses and the legal entity restructuring,
which is in process, will reduce the regulatory capital requirement across the group.
- We have agreed with the board to reduce this surplus capital position within prudent capital
parameters.
- We do not intend to hold excess cash on our balance sheet, as evidenced in the special dividend
of 30 cents per share which has been declared in this period.
Our measure of success over the medium term will be to deliver an improvement in our return on
equity to above 14%.
FINANCIAL REVIEW
The strategic review of our portfolio of businesses resulted in the decision to exit the insurance
businesses as well as sub-scale businesses in the rest of Africa. The operations that we intend to
dispose of are shown as discontinued. The 2018 financial year results have been restated to reflect
this change.
We have, however, provided our segmental information in a manner that reflects how the business was
managed during the year. The segmental presentation incorporates all operations and provides a
reconciliation to the continuing operations reflected in the income statement. The impact of this
change is summarised as follows:
Operating income Profit from operations before
net of direct expenses non-trading and capital items
Rm 2019 % 2018 2019 % 2018
Continuing operations 3 136 4 3 010 678 (19) 833
Discontinued operations 727 14 637 237 55 153
Total group 3 863 6 3 647 915 (7) 986
Operating income
The growth in operating income from continuing operations of 4% to R3 136 million reflects the
resilience of the company, with pleasing performance from the following business lines:
- investments, up 7% in operating income owing to extended product offerings, including an offshore
product and the introduction of alternate asset classes;
- consulting and retirements, up 6% driven by strong performance from the healthcare consulting
business; and
- retail wealth and investments, up 4% owing to new business through improved retention rates.
Operating expenses
Operating expenses from continuing operations increased 13% to R2 458 million. The increase in
operating expenses is, in part, due to a number of non-recurring items such as the termination
penalty on the IT contract and various consulting expenses related to the implementation of the
previous strategy. These expenses are not expected to reoccur. In addition, the group incurred
increased technology and regulatory costs as well as a higher number of claims costs for the year
under review. The cost-to-income ratio for the period of 78.4% has deteriorated from 72.3% in the
prior year. The increase in costs is an area of concern for the executive team and the new
strategy incorporates plans to address the inefficiencies structurally.
Non-trading and capital items
Non-trading and capital items from continuing operations increased to R231 million (2018: R159 million),
owing predominantly to the capitalised software development assets write-off amounting to R150 million.
The non-trading and capital items also include the ongoing accounting for amortisation of intangible
assets amounting to R67 million (2018: R80 million) as well as the results of the insurance cell-captive
facility. The accounting for amortisation has no impact on the cash flows of the group.
Investment income
Investment income earned from the regulatory capital and surplus cash position of the company
through the year declined by 12% to R192 million due to lower cash balances resulting from the
share buy-back and dividends paid during the year. In addition, investment income of R21 million
(2018: loss of R11 million for the year) related to individual policyholder investments is recorded
in the consolidated income statement due to the fund level taxes and for which an equal tax
liability is raised. This policyholder income (and related tax cost) is excluded from our normalised
earnings when assessing the group's own investment income.
Effective tax rate
The effective tax rate, excluding the policyholder tax, is 43% largely due to the non-deductible
write-off of capitalised software development assets, unutilised tax losses and disallowed expenses.
Discontinued operations
Operating profit from discontinued operations before non-trading items increased 55% to R237 million.
Non-trading items of R149 million, largely related to the write-off of capitalised software
development assets, reduced the operating profit to R81 million. After finance charges and taxes,
the profit for the year from discontinued operations was R16 million. The group disposed of its
Kenyan operations during the second half of the year, realising a profit of R56 million. The full
results of these businesses are reflected in note 9 of the results.
Headline earnings
Excluding the software development assets write-off and other headline adjustments, headline earnings
were R545 million, a 3% decline on the prior year. The weighted average number of shares declined
slightly to 1 237 million (2018: 1 269 million) as a result of the share buy-back programme, which
was approved by shareholders and has been implemented since the prior reported period. Headline
earnings per share decreased by 1% to 44.0 cents per share (2018: 44.4 cents per share).
CAPITAL AND CASH MANAGEMENT
The group's cash flows continue to remain strong with cash generated from continuing operations of
R821 million. The financial position of the group remains robust and all regulated entities within
the group comply with current solvency, liquidity and regulatory capital adequacy requirements
(CAR). As at 31 March 2019 the consolidated regulatory capital requirement of the group was
R1 839 million, which increased 12% from the prior year (2018: R1 643 million). Using the measures
and interpretations under the Insurance Act 18 of 2017 and Prudential Standards implemented during
2018, the group has a surplus capital of R1 128 million (before the proposed dividend distribution
declared at year-end).
Our capital journey over the next 24 months aims to release inefficient capital and reduce the
surplus capital held. This will include the following:
- the payment of the proposed special dividend;
- the sale of the insurance businesses; and
- restructuring various operations and entities in the group.
The available surplus cash released will be used to reduce short-term borrowings, invest into core
businesses and any surplus will be returned to shareholders.
FINAL AND SPECIAL DIVIDEND DECLARATION
A final dividend declaration has been considered by the board, taking into account the group's
current and projected regulatory position, the available cash in the group as well as the highly
cash-generative nature of the group.
The board has declared a final gross cash dividend of 12 cents (9.6 cents net of dividend
withholding tax) per ordinary share for the year ended 31 March 2019, bringing the total dividend
declared for the year to 30 cents per share. This maintains the dividend cover at our stated policy
of 1.5 times. The board intends to manage the dividend within its stated target range of 1.5 to
2.0 times cover.
In addition, the board has declared a gross special cash dividend of 30 cents per ordinary share,
thereby distributing the available cash to shareholders and reducing the surplus capital position.
The group's strong cash performance and its desire to improve capital efficiencies is the basis for
the board's decision to declare this special dividend. The special dividend is subject to approval
by the Financial Surveillance Department of the South African Reserve Bank (SARB). A finalisation
announcement confirming receipt of SARB approval will be released on SENS by no later than 9 July 2019.
Both dividends have been declared from profits. A dividend withholding tax of 20% will be applicable
to all shareholders who are not exempt.
The directors have satisfied the solvency and liquidity test as required in terms of section 4(1) of
the Companies Act 71 of 2008. The issued number of shares at the date of declaration is 1 341 426 963.
The salient dates for the dividend will be as follows:
- Finalisation date for special dividend: Tuesday, 9 July 2019
- Last day of trade to receive a dividend: Tuesday, 16 July 2019
- Shares commence trading ex dividend: Wednesday, 17 July 2019
- Record date: Friday, 19 July 2019
- Payment date: Monday, 22 July 2019
Share certificates may not be dematerialised or rematerialised between Wednesday, 17 July 2019 and
Friday, 19 July 2019, both days inclusive.
OPERATING REVIEW
Our segmental analysis is aligned with the way that we managed the business through the year under
review. As part of the revised strategy, we will be transitioning to a client-centric operating
model, which is currently being designed and will be reflected in our interim results for the new
financial year.
CORPORATE & EMPLOYEE BENEFITS
Operating income Profit from operations before
net of direct expenses non-trading and capital items
Rm 2019 % 2018 2019 % 2018
Continuing operations 1 288 3 1 254 93 (53) 199
Consulting and retirements 1 176 6 1 111 93 (53) 199
Administration only 112 (22) 143 - - -
Group risk
(discontinued operations) 92 42 65 37 95 19
Corporate & employee benefits 1 380 5 1 319 130 (40) 218
Corporate & employee benefits delivered a 5% growth in operating income to R1 380 million. Profit from
operations (before non-trading and capital items) at R130 million is down 40%, driven by higher
operating expenses incurred by consulting and retirements partly off-set by a strong performance
from group risk.
Consulting and retirements
Our strategy is focused on building a relationship of trust with our clients to deliver best advice
and solutions, always putting clients first. We have improved our corporate engagement strategies by
offering new solutions to position our clients for regulatory change. An example is retirement
benefit counselling, where we offer employees counselling and access to advice on site and proactively
contact those nearing retirement. The business has also implemented effective default strategies
and solutions to improve member outcomes.
This division reported a 6% improvement in operating income, largely due to:
- healthcare consulting: up 10% - owing to the annualised value of new business from the prior
financial year and some significant wins early in the current year. New business also improved
owing to the collaboration with our strategic partners;
- retirements (umbrella funds): up 6% - Assets under management (AuM) for the umbrella funds
increased by 10% to R81.4 billion owing to conversions from administration only clients and an
increase in the contribution flows; and
- consultants and actuaries: up 4% - despite macroeconomic and internal challenges, which
impacted on new business prospects.
Costs for consulting and retirements increased 13% to R1 195 million (2018: R1 055 million).
This increase in operating expenses is driven by higher personnel, IT, compliance and regulatory
costs, and targeted capacity build-up to strengthen the core.
Administration only
Administration only reflects revenue earned from clients where fees are earned based on administration
only services. This division is now shown within the corporate & employee benefits segment.
Approximately 75% of the revenue decline during the period results from administration only clients
being converted to the umbrella fund within retirements.
Group risk
Gross written premiums increased by 19% year on year to R638 million driven by strong growth in
new business (with a low churn rate of 3%), with a 42% improvement in operating income to
R92 million year on year. An industry-wide increase of 22% in disability claims resulted in an
adverse impact on the business and has necessitated additional reserving.
The group risk business was able to participate in a reinsurance profit share due to improved
reinsurers underwriting results. The profit share was the biggest contributor to the increase in
net operating income in the current year and has off-set the higher claims experience and
increased reserves.
INVESTMENTS
Operating income grew by 7%, amid volatile market performance and significant movement in asset flows,
mainly due to the execution of several strategic initiatives. The business has focused on extending
its product offering, which includes private markets and fund-of-hedge funds, not otherwise
accessible in its investment universe. In addition, clients have access to a distinctive global
product offering through our strategic partner, Mercer. The extended product offering enhances our
value proposition to clients.
The reported total Assets under administration and management (AuA and AuM) were R342 billion at
31 March 2019, a 4% decrease, impacted by lower-than-expected new business and client losses,
mainly from the withdrawal of assets from our platform business. Our flagship portfolio, Performer,
continues to do well with 16% growth in AuM to R124.8 billion at year-end and achieving superior
returns; thus adding significant value in a tough market.
The assets are segregated as follows:
31 March 2019 31 March 2018
Rbn Institutional Retail Total Institutional Retail Total
Assets under administration (AuA) 29.7 5.0 34.7 48.2 5.5 53.7
Assets under management (AuM) 246.4 60.6 307.0 247.3 56.4 303.7
Total AuA and AuM 276.1 65.6 341.7 295.5 61.9 357.4
A summary of the cash flows for the 12 months to 31 March 2019 is depicted below:
31 March 2019 31 March 2018
Rbn Institutional Retail Total Institutional Retail Total
Controllable (11.9) 0.4 (11.5) 7.0 (1.4) 5.6
New business 3.3 0.4 3.7 9.7 1.1 10.8
Outflows owing to client losses (15.2) - (15.2) (2.7) (2.5) (5.2)
Uncontrollable (3.5) (0.8) (4.3) (9.0) (1.7) (10.7)
Ongoing contributions 38.6 8.5 47.1 29.7 5.9 35.6
Withdrawals for benefit payments (42.1) (9.3) (51.4) (38.7) (7.6) (46.3)
Withdrawal from platform (21.5) - (21.5) (3.5) - (3.5)
Net cash flows (36.9) (0.4) (37.3) (5.5) (3.1) (8.6)
The business reported R37.3 billion in net cash outflows for the year, 58% of which comprised
withdrawals from the platform business that related to two clients. Outflows owing to client losses
result from the following: R5.1 billion from clients supported by Alexander Forbes consultants;
R4.7 billion from clients advised by external consultants; and R5.4 billion from a single client
linked to the insourced administration.
For the institutional business, R3.3 billion in new business AuM flowed in during the year with a
further R1.7 billion assets awaiting transfer pending regulatory approval. Uncontrollable cash
outflows continue to be negative, influenced by factors prevalent across the retirement fund industry.
RETAIL
Operating income Profit from operations before
net of direct expenses non-trading and capital items
Rm 2019 % 2018 2019 % 2018
Wealth and investments
(continuing operations) 891 4 856 383 (2) 391
Retail insurance
(discontinued operations) 573 12 510 192 66 116
Retail 1 464 7 1 366 575 13 507
The retail segment delivered a 7% increase in operating income to R1 464 million, while profit from
operations increased 13% to R575 million. The increase in profit from operations for retail
insurance is largely due to improved underwriting results in the short-term insurance business and
stabilised reserving in AF Life individual insurance.
Wealth and investments
Operating income increased 4% mainly due to a 16% improvement in Financial Planning Consultants'
(FPCs) new business flows. The improvement in new business flows reflects the effectiveness of our
member engagement and intervention efforts.
- The preservation rate remained constant at 55%, largely owing to a 60% increase in our member
engagement despite the weak economic environment.
- In addition, the retention rate (the percentage of preserved assets that is retained by
Alexander Forbes) improved by 5% to 43% due to the presence and focused effort of the
FPC business within the institutional member base.
In line with our strategic objective of providing best advice and improving the financial well-being
of our members, we launched Alexander Forbes Retirement Income Solution (AFRIS), which is a unique
life and legacy solution, in FY2018. AFRIS was developed to allow pension funds to meet their
obligations under new regulations. It provides a simple and cost-effective solution for trustees
while alleviating the burden of structuring in-fund solutions within funds of insufficient scale.
This solution also adds value to members by providing a single set of portfolios that are
consistently priced at levels similar to that paid by retirement funds. AFRIS' closing assets under
administration ended the financial year on R2.7 billion, reflecting new business flows of R2.3 billion
for the year.
Profit from operations decreased by 2% to R383 million owing to higher expenses aimed at driving
future growth as well as regulatory and compliance costs. In addition, the decision to discontinue
the provision of retail life policies has resulted in some of those shared costs being absorbed by
the wealth and investment business.
Retail insurance businesses
Gross written premiums in the short-term insurance business increased by 5% to R1.8 billion for the
year, with the business continuing to grow owing to enhanced product offerings and good service levels.
New business increased by 13% in the motor and household portfolio. The loss ratio for the period
under review improved to 62.2% from 64.0% (with personal lines recording an improvement to 65.8%
from 68.1% in the prior year) largely attributable to enhanced underwriting interventions. This is
well below the targeted annual loss ratio of 71%.
The group made a strategic decision to discontinue the provision of AF Life individual insurance
policies from 1 July 2018. The existing policies will continue to be serviced but no new policies
will be written. The operations of the business have been adjusted to reflect the decision, which has
resulted in a decrease in operating expenses.
EMERGING MARKETS
Operating income Profit from operations before
net of direct expenses non-trading and capital items
Rm 2019 % 2018 2019 % 2018
Emerging markets
Namibia 152 (7) 164 30 (44) 54
Botswana 92 23 75 27 93 14
Other 11 - 11 (1) 89 (9)
AFEM head office - - - (24) (14) (28)
Total 255 2 250 32 3 31
Emerging markets delivered a 2% increase in operating income to R255 million mainly owing to:
- a strong performance from the Botswana retirements business. The retirements business accounted
for the improved performance in Botswana's operating income, which was driven mainly by client
acquisitions and the delivery of new business initiatives; and
- largely off-set by poor performance from Namibia. Namibia continues to operate in a recessionary
economic environment coupled with increased competitive pressure, both of which have adversely
impacted the core retirements and investments businesses respectively. Assets under management
have decreased 3% in the twelve months ended 31 March 2019 to R3.6 billion.
In line with the revised strategy, Alexander Forbes will service its clients across Africa through
its advice-led solution platform 'ARRIVE' in close collaboration with Mercer.
CORPORATE COSTS
Operating income Profit from operations before
net of direct expenses non-trading and capital items
Rm 2019 % 2018 2019 % 2018
Corporate costs - - - (221) 44 (153)
Corporate costs include the office of the chief executive officer and chief financial officer, the group
strategy office, as well as costs associated with the listed holding company, including non-executive
directors' fees. The corporate costs also include consulting costs and project costs associated with
the group's implementation of strategy. The significant increase is due to the R50 million termination
cost relating to the exit of the IT contract and higher consulting costs.
PROSPECTS
As we embark on this new chapter, we do so in an economic environment that will likely remain
constrained for the foreseeable future. Our focus for the next year will be on the implementation
of our integrated target operating model and revised strategy to ensure we become more client-centric,
simplify our business and deliver improved results. We expect a stable year where profit growth may
be hampered while we correct some of the previous inefficiencies and invest to grow. We aim to
conclude the disposal of our insurance businesses and commence a restructuring of the legal entities
within the group, to ensure efficient allocation of capital within a capital-light business going
forward. Any surplus capital generated as a result of these actions will be returned to shareholders,
as appropriate.
The market environment is characterised by a maturing industry with many 'one size fits all' product
offerings. Our opportunity lies in our innovative advice and solutions, ensuring that our members
receive the best information and access to advice at various stages through their life journey.
Our operating model is being reset to ensure that we continue being the best at providing advice
and that we remain an innovative, forward-thinking and industry-changing company into the future.
Alexander Forbes remains uniquely positioned as an advice-led provider of integrated retirement
solutions and holistic wealth management and as the largest administrator of retirement funds in
South Africa. This position is well supported by our loyal client and member base, a solid balance
sheet with adequate room to grow supported by strong cash-generation capacity and a highly skilled
employee base. We intend to maximise these attributes to create shareholder value by unlocking the
potential inherent in our core businesses.
INVESTIGATION, SUBSEQUENT ACTIONS AND REPORTABLE IRREGULARITY
The AFGH board initiated an investigation into allegations against the former chief executive officer.
This resulted in the termination of the services of the former chief executive officer and actions to
remedy all the issues identified during the investigation. PricewaterhouseCoopers Incorporated (PwC)
reported these matters as a reportable irregularity (including reporting as such to the Prudential
Authority in accordance with section 252(1)(b) of the Financial Sector Regulation Act 9 of 2017)
and concluded that they have been dealt with and are no longer continuing. PwC has expressed an
unmodified opinion on the financial statements which are available for inspection at the company's
registered office. The resultant legal processes between the former chief executive officer and the
company remain ongoing.
CHANGE IN DIRECTORATE
Messrs NG Payne and T Dloti were appointed as independent non-executive directors effective 1 May
and 1 August 2018 respectively. The service of Mr AA Darfoor as chief executive officer was terminated
on 25 September 2018 and he was replaced by Mr DJ de Villiers on 1 November 2018. Ms N Ford-Hoon
resigned as the chief financial officer with effect from 14 December 2018 and she was replaced by
Mr BP Bydawell on 1 April 2019.
The board wishes to thank Ms M Ramplin for her tremendous commitment, dedication and speed of
execution on some critical items requiring attention while caretaking the chief executive officer role
during the period of transition in the current year.
CORPORATE GOVERNANCE
The company's application of the principles contained in the King IV Report on Corporate Governance
for South Africa (King IV) is disclosed in the King IV report available on the company's website.
No material changes in application have occurred since the publication of that report. Disclosure
in respect of the current reporting will be available no later than 31 July 2019.
On behalf of the board of directors
N Nyembezi DJ de Villiers
Non-executive Chair Chief Executive Officer
14 June 2019
SUMMARY FINANCIAL STATEMENTS
The Alexander Forbes Group Holdings Limited (the group) summary consolidated financial statements
for the year ended 31 March 2019 (results) are prepared in accordance with the requirements of the
JSE Limited (JSE) Listings Requirements for provisional reports, the requirements of International
Financial Reporting Standards (IFRS) and its interpretations as adopted by the International
Accounting Standards Board (IASB), the South African Institute of Chartered Accountants' (SAICA)
Financial Reporting Guides as issued by the Accounting Practices Committee and Financial
Pronouncements as issued by the Financial Reporting Standards Council, the presentation requirements
of IAS 34 Interim Financial Reporting and the requirements of the Companies Act as amended applicable
to summarised financial statements.
The group's results are prepared in accordance with the going concern principle under the historical
cost basis as modified by the fair value accounting of certain assets and liabilities where required
or permitted by IFRS. This report is presented in South African rands, which is the presentation
currency of the group. All amounts are stated in millions of rands (Rm), unless indicated otherwise.
While this report is itself not audited, the consolidated annual financial statements from which the
summary consolidated annual financial statements below have been derived were audited by
PricewaterhouseCoopers Inc., who expressed an unmodified opinion thereon. The audit report does
not necessarily report on all of the information contained in this report. Any forecast financial
information contained herein has not been reviewed or reported on by the company's external auditor.
Shareholders are therefore advised that, in order to obtain a full understanding of the nature of
the auditor's engagement and, more specifically, the nature of the information that has been audited,
they should obtain a copy of the auditor's report together with the accompanying audited group
consolidated annual financial statements, both of which are available for inspection at the company's
registered office. Copies can be downloaded from the company's website following an announcement
in June 2019 on the JSE's Stock Exchange News Service (SENS).
The accounting policies applied in the preparation of the consolidated financial statements from
which the results have been derived are consistent with the accounting policies applied in the
preparation of the group's previous consolidated annual financial statements, except as modified by
the adoption of IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers.
The group adopted IFRS 9 and IFRS 15 with effect from 1 April 2018.
The group has, as permitted by both IFRS 9 and IFRS 15, elected not to restate its comparative
financial statements. Consequently, comparability will not be achieved due to the fact that the
comparative financial information has been prepared on a different basis. The group did, however,
align certain disclosures within these results to provide comparable data. The impact of adopting
IFRS 9 has been applied retrospectively with a cumulative adjustment to the group's opening
1 April 2018 reserves.
These summary consolidated financial statements were compiled under the supervision of
Mr Bruce P Bydawell (chief financial officer), CA(SA), CFA. The board of directors of
Alexander Forbes Group Holdings Limited take full responsibility for the preparation of this
report and that the selected financial information has been correctly extracted from the underlying
audited consolidated annual financial statements.
In terms of the JSE Listings Requirements, the group no longer posts a physical copy of this
announcement to its shareholders. Investors are referred to the company's website
http://www.alexanderforbes.co.za/investors.
The results were made publicly available on 18 June 2019.
SUMMARY CONSOLIDATED INCOME STATEMENT
for the year ended 31 March 2019
Restated
Rm Notes 2019 2018 (1)
Continuing operations
Fee and commission revenue 4 4 058 3 981
Fee and commission expenses (922) (971)
Operating income net of direct expenses 3 136 3 010
Operating expenses (2 458) (2 177)
Profit from operations before non-trading and capital items 678 833
Non-trading and capital items 5 (231) (159)
Operating profit 447 674
Investment income 6 213 208
Finance costs 7 (89) (96)
Reported profit/(loss) arising from accounting for policyholder
investments as treasury shares 12 8 (24)
Share of net loss of associate (net of income tax) (4) -
Profit before taxation 575 762
Income tax expense 8 (259) (260)
Income tax expense relating to group profits (238) (271)
Income tax (expense)/credit relating to policyholder investment returns (21) 11
Profit for the year from continuing operations 316 502
Discontinued operations
Profit/(loss) from discontinued operations (net of tax) 9 72 (175)
Profit for the year 388 327
Profit attributable to:
Owners of the company 334 240
Non-controlling interest 54 87
388 327
Basic earnings per share (cents) 10 27.0 18.9
Diluted earnings per share (cents) 10 26.7 18.8
Weighted average number of shares in issue (net of
treasury shares) (millions) 10 1 237 1 269
1. Restated for the effects of discontinued operations.
SUMMARY CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 March 2019
Restated
Rm 2019 2018 (1)
Profit for the year 388 327
Other comprehensive income:
Foreign currency translation differences - foreign operations 44 (9)
Foreign currency translation reserve reclassified to profit or loss on
loss of control (17) -
Cash flow hedge 40 (37)
Other comprehensive income for the year that may be reclassified to
profit or loss (2) 67 (46)
Remeasurement of post-employment benefit obligations - 3
Other comprehensive income that will not be reclassified to profit or loss (2) - 3
Total comprehensive income for the year 455 284
Total comprehensive income attributable to:
Owners of the company 394 201
Non-controlling interest 61 83
Total comprehensive income for the year 455 284
1. Restated for the effects of discontinued operations.
2. Net of related taxes.
SUMMARY CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at 31 March 2019
Rm Notes 2019 2018
ASSETS
Financial assets held under multi-manager investment contracts 13 299 852 296 758
Financial assets of insurance cell-captive facilities - 352
Property and equipment 139 174
Purchased and developed computer software 151 400
Goodwill 2 537 3 038
Intangible assets 323 390
Investment in associate 24 -
Deferred tax assets 200 175
Financial assets 14 108 445
Insurance receivables - 1 339
Trade and other receivables 419 299
Cash and cash equivalents 5 041 5 794
Assets of disposal group classified as held for sale 9 3 500 82
Total assets 312 294 309 246
EQUITY AND LIABILITIES
Owners of the company 5 751 6 010
Non-controlling interest 299 287
Total equity 6 050 6 297
Financial liabilities held under multi-manager investment contracts 12 299 885 296 825
Financial liabilities of insurance cell-captive facilities - 352
Borrowings 719 719
Employee benefits 154 162
Deferred tax liabilities 113 119
Provisions 369 304
Finance lease liabilities - 51
Operating lease liabilities 199 197
Insurance payables 1 689 3 572
Trade and other payables 631 634
Liabilities of disposal group classified as held for sale 9 2 485 14
Total liabilities 306 244 302 949
Total equity and liabilities 312 294 309 246
SUMMARY CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31 March 2019
Restated
Rm 2019 2018 (1)
Cash flows from operating activities
Cash generated from operations 821 861
Net interest received 100 135
Net cash flows (paid to)/received from insurance and policyholder contracts (215) 348
Net cash flows paid to policyholder investment contracts (2 121) (1 982)
Taxation paid (383) (333)
Dividends paid (531) (829)
Dividends paid to non-controlling interest (2) (11) (14)
Cash flows from operating activities - discontinued operations 292 184
Net cash outflow from operating activities (2 048) (1 630)
Cash flows from investing activities
Payments for intangible assets - (3)
Net cash inflow/(outflow) on financial assets 336 (145)
Payments to investment in associate (23) -
Payments for capital expenditure incurred on property,
equipment and computer software (113) (317)
Proceeds from sale of subsidiaries and businesses 15 -
Cash flows from investing activities - discontinued operations (6) (4)
Net cash inflow/(outflow) from investing activities 209 (469)
Cash flows from financing activities
Purchase of shares in terms of share buy-back transaction and
share incentive schemes (151) (333)
Payments of lease liabilities (51) (9)
Net proceeds from sale of treasury shares held by policyholder investments 26 62
Purchase of treasury shares held under policyholder investment contracts (17) (47)
Proceeds from disposal of treasury shares held under policyholder
investment contracts 43 109
Net cash outflow from financing activities (176) (280)
Decrease in cash and cash equivalents (2 015) (2 379)
Cash and cash equivalents at the beginning of the year 13 702 16 087
Effects of exchange rate changes on cash and cash equivalents 64 (6)
Cash and cash equivalents at the end of the year 11 751 13 702
Analysed as follows:
Cash and cash equivalents of continuing operations 5 041 5 794
Cash held under multi-manager investment contracts 5 772 7 887
Cash held under insurance cell-captive contracts - 6
Cash and cash equivalents of disposal group classified as held for sale 938 15
11 751 13 702
1. Restated for the effects of discontinued operations.
2. Previously disclosed under financing activities.
SUMMARY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2019
Accumu-
lated Non-con-
Share Treasury Other profit/ trolling Total
Rm capital shares reserves (loss) Total interest equity
At 1 April 2017 6 192 (160) (336) 1 205 6 901 218 7 119
Total comprehensive income - - (41) 242 201 83 284
Profit for the year - - - 240 240 87 327
Other comprehensive income - - (41) 2 (39) (4) (43)
Total transactions with owners of the company - (232) 418 (1 278) (1 092) (14) (1 106)
Shares purchased in terms of share buy-back programme
and share incentive schemes (1) - (333) - - (333) - (333)
Settlement of share incentive schemes (2) - 39 (39) - - - -
Movement of treasury shares in policyholder assets - 62 - - 62 - 62
Dividends paid - - - (829) (829) (14) (843)
Movement in share-based payment reserve - - 8 - 8 - 8
Transfer to retained earnings (3) - - 449 (449) - - -
At 31 March 2018 6 192 (392) 41 169 6 010 287 6 297
IFRS 9 transition adjustments (4) - - - (36) (36) (4) (40)
Adjusted balance - 1 April 2018 6 192 (392) 41 133 5 974 283 6 257
Total comprehensive income - - 60 334 394 61 455
Profit for the year - - - 334 334 54 388
Other comprehensive income - - 60 - 60 7 67
Total transactions with owners of the company - (105) 19 (531) (617) (45) (662)
Shares purchased in terms of share buy-back programme (5) - (151) - - (151) - (151)
Settlement of share incentive schemes (6) - 20 (20) - - - -
Movement of treasury shares in policyholder assets - 26 - - 26 - 26
Dividends paid - - - (531) (531) (11) (542)
Movement in share-based payment reserve - - 39 - 39 - 39
Other movements in non-controlling interest (7) - - - - - (34) (34)
At 31 March 2019 6 192 (497) 120 (64) 5 751 299 6 050
1. The group purchased Alexander Forbes Group Holdings Limited (AFH) shares to the value of
R276 million, at an average price of R6.89 per share, in a general buy-back approved by shareholders.
In addition, R57 million of AFH shares were purchased in terms of share incentive schemes.
2. Shares amounting to R39 million relating to the 2014 tranches of the conditional share scheme
(R26 million) and the forfeitable share scheme (R13 million) were settled in the prior year.
3. The group transferred the redemption reserve amounting to R449 million into accumulated profits.
This reserve arose in prior years on the redemption of historic preference shares. The transfer
has a nil impact on total equity, however, resulted in a reduction in accumulated profits.
4. Refer to note 2.2.
5. The group purchased AFH shares to the value of R151 million during the year, at an average price
of R5.11 per share, in a general buy-back approved by shareholders. In addition shares to the
value of R65 million (12.5 million shares) were transferred from treasury shares to the
shareholder-approved share incentive schemes.
6. Shares amounting to R4 million relating to the 2015 tranche of the forfeitable share scheme were
settled. In addition, R16 million relating to the 2018 retention share scheme was also settled.
7. This amount relates to changes in non-controlling interests following the disposal of the group's
Kenyan operations.
SUMMARY CONSOLIDATED GROUP SEGMENTAL INCOME AND PROFIT ANALYSIS
for the year ended 31 March 2019
Operating income Profit from operations
net of direct expenses before non-trading and capital items
Rm 2019 % 2018 2019 % 2018
Corporate & employee benefits 1 380 5 1 319 130 (40) 218
Consulting and retirements 1 176 6 1 111 93 (53) 199
Administration only 112 (22) 143 - - -
Group risk 92 42 65 37 95 19
Investments 764 7 712 402 1 398
Institutional clients 2 144 6 2 031 532 (14) 616
Wealth and investments 891 4 856 383 (2) 391
Retail insurance 573 12 510 192 66 116
Retail clients 1 464 7 1 366 575 13 507
Emerging markets 255 2 250 32 3 31
Corporate - - - (221) 44 (153)
Earnings before non-trading items 3 863 6 3 647 918 (8) 1 001
Accounting for property leases - - - (3) (80) (15)
Total group 3 863 6 3 647 915 (7) 986
Group risk 92 42 65 37 95 19
Retail insurance (short-term and long-term) 573 12 510 192 66 116
Emerging markets 62 - 62 8 (56) 18
Discontinued operations 727 14 637 237 55 153
Total continuing operations 3 136 4 3 010 678 (19) 833
Rm 2019 % 2018
Profit from operations before non-trading and capital items
- continuing operations 678 (19) 833
Adjusted for:
Accounting for property leases 3 15
Normalised profits before non-trading items - continuing operations 681 (20) 848
Non-trading and capital items (excluding professional indemnity
insurance cell-captive results and amortisation of PPA
intangible assets) (200) (54)
Investment income (excluding policyholder investment income) 192 219
Finance costs (89) (96)
Share of net loss of associate (net of tax) (4) -
Normalised profit before tax 580 (37) 917
Normalised income tax expense (248) (304)
Normalised profit after tax 332 (46) 613
Profit from discontinued operations 72 121
Normalised profit for the year 404 (45) 734
Attributable to non-controlling interest (54) (77)
Normalised profit attributable to shareholders 350 (47) 657
Normalised basic earnings per share (cents) 28.1 (45) 51.2
Normalised headline earnings per share (cents) 45.0 (14) 52.4
Normalised weighted average number of shares in issue (millions) 1 246 1 283
A full reconciliation of the normalised earnings to the statutory income statement may be found in
the audited group consolidated annual financial statements.
The segmental analysis above reflects the operating structure under which management currently reports.
The group's executive committee examines the performance both from a product and geographic perspective
and has identified the following reportable segments of the business:
Institutional clients
The corporate & employee benefits division includes consulting, retirements and group risk solutions
for corporates:
- consulting and retirements includes actuarial consulting, healthcare actuarial and consulting,
fund administration, consulting to standalone retirement funds, fund administration and consulting
to umbrella retirement funds and beneficiary funds;
- the administration only segment is separately reported from the consulting division in corporate
& employee benefits and reflects the revenue earned from clients where we earn fees only based on
administration services. This segment was reported separately in the prior year; however, due to
the change of chief operating decision-makers, this segment is now reported under institutional; and
- group risk - group risk and disability insurance through Alexander Forbes Life.
Investments - investment services, including a range of investment portfolios, advice-led solutions
and alternative investments
Retail clients
Retail clients include the following business units:
- wealth and investments - the wealth and investments segment of the retail clients business is
focused on generating revenue through the offering of financial advice, the administration and
management of investments. This segment incorporates Financial Planning Consultants (FPCs),
AF Individual Client Administration (AFICA), AF Preservation Fund and the retail assets under
management in AF Investments; and
- retail insurance - this segment comprises AF Insurance, which provides short-term insurance
solutions to individuals and the AF Life individual insurance business.
Emerging markets
Alexander Forbes emerging markets (emerging markets) operates in five countries across Africa -
Namibia, Botswana, Nigeria, Uganda and Zambia, with a primary offering of corporate & employee
benefits. Namibia, however, has both an institutional and retail offering much like the South African
business, while the Nigerian business operates as a consulting and actuarial practice. We note
that the operations in Kenya have been disposed of in the year (refer to note 9 for further detail).
Corporate
Corporate costs include costs associated with the corporate office of the group which is responsible
for certain functions that include strategic direction, capital management, group finance and
investor relations as well as group projects undertaken as part of the transformation journey.
Normalised segmental results
The group's segmental results are reflected to include the normalised results which is the basis
upon which management manages the group and reflects the economic substance of the group's performance.
The adjustments between the IFRS summary consolidated income statement and the normalised results
are as follows:
Amortisation of intangible assets arising from business combination - Non-trading and capital items
include the ongoing accounting amortisation of intangible assets amounting to R67 million for the
year ended 31 March 2019 (2018: R80 million). The capitalisation of intangible assets and the related
amortisation resulted from the required accounting treatment at the time of the private equity
acquisition of the group in 2007. The amortisation will continue over the expected useful lives
established at the time of the transaction. The accounting for amortisation has no impact on the
cash flows of the group.
Professional indemnity insurance cell-captive results - The profits and losses of the facility are
a result of the premiums paid, claims experienced and the changes made to the provision for expected
future claims. The recorded profits and losses of the cell-captive facility should trend to zero
over the longer term. The annual premiums paid for this insurance is included in the operating
expenses of each segment. The group is required to consolidate the financial results of the
cell-captive which are recorded in the non-trading and capital items.
Accounting for property lease - The accounting treatment for long-term leases, particularly at the
Sandton head office, continues to have a small positive impact on the operating profit growth rate
while the absolute value is an expense of R3 million for the year ended 31 March 2019
(2018: R15 million). The impact is isolated and removed from normalised results to afford a better
comparison and to reflect the true premises' cost over the long term.
Reported profit/(loss) arising from accounting for policyholder investment in treasury shares -
In terms of IFRS, as presently constituted, any Alexander Forbes shares acquired by underlying
asset managers (under a discretionary mandate) and held by the group's multi-manager investment
subsidiary for policyholders (the shares) are required to be accounted for in Alexander Forbes'
consolidated financial statements as treasury shares. As a result any fair value gains or losses
made on the shares, which are economically matched to the policyholder liabilities, are recognised
in the group's income statement.
Investment income and taxation payable on behalf of policyholders - The group's tax expense
includes both deferred and income taxation payable on behalf of policyholders within the
AF investments insurance licensed entity. The recognition of the recovery of this tax expense is
included in the group's investment income. The normalised results exclude the policyholder tax
expense and the related investment income which directly off-set this tax expense.
SUMMARY NOTES
for the year ended 31 March 2019
1. BASIS OF PREPARATION
The Alexander Forbes Group Holdings Limited (the group) summary consolidated financial statements,
including the statement of financial position, income statement, statement of other comprehensive
income, statement of changes in equity and statement of cash flows, for the year ended
31 March 2019 (results) are prepared in accordance with the requirements of the JSE Limited
(JSE) Listings Requirements, the requirements of International Financial Reporting Standards
(IFRS) and its interpretations as adopted by the International Accounting Standards Board (IASB),
the South African Institute of Chartered Accountants' (SAICA) Financial Reporting Guides as
issued by the Accounting Practices Committee and Financial Pronouncements as issued by the
Financial Reporting Standards Council, the presentation requirements of IAS 34 Interim Financial
Reporting and the requirements of the South African Companies Act applicable to summary
financial statements.
The group's results are prepared in accordance with the going concern principle under the
historical cost basis as modified by the fair value accounting of certain assets and liabilities
where required or permitted by IFRS. This report is presented in South African rands, which is
the presentation currency of the group. All amounts are stated in millions of rands (Rm),
unless indicated otherwise.
The accounting policies applied in the preparation of the consolidated annual financial statements
from which the results have been derived are consistent with the accounting policies applied
in the preparation of the group's previous audited consolidated annual financial statements,
except as modified by the adoption of IFRS 9 Financial Instruments and IFRS 15 Revenue from
Contracts with Customers. The group adopted IFRS 9 and IFRS 15 with effect from 1 April 2018.
The group has, as permitted by both IFRS 9 and IFRS 15, elected not to restate its comparative
financial statements. Therefore comparability will not be achieved due to the fact that the
comparative financial information has been prepared on a different basis. The impact of adopting
IFRS 9 has been applied retrospectively with an adjustment to the group's opening 1 April 2018
accumulated profits. For more detail refer to notes 2.1 and 2.2.
While this report is itself not audited, the consolidated annual financial statements from which
the summary consolidated annual financial statements below have been correctly derived were
audited by PricewaterhouseCoopers Inc., who expressed an unmodified opinion thereon. The audit
report does not necessarily report on all of the information contained in this report.
Shareholders are therefore advised that, in order to obtain a full understanding of the nature
of the auditor's engagement and, more specifically, the nature of the information that has been
audited, they should obtain a copy of the auditor's report together with the accompanying
audited consolidated annual financial statements, both of which are available for inspection at
the company's registered office. Copies can be downloaded from the company's website following
an announcement in June 2019 on the JSE's Securities Exchange News Service (SENS).
These summary consolidated financial statements were compiled under the supervision of
Mr Bruce P Bydawell (chief financial officer), CA(SA), CFA. The board of directors of
Alexander Forbes Group Holdings Limited take full responsibility for the preparation of this
report and that the selected financial information has been correctly extracted from the
underlying audited consolidated annual financial statements.
2. CHANGES IN SIGNIFICANT ACCOUNTING POLICIES
This note explains the impact of the adoption of IFRS 9 Financial Instruments and IFRS 15
Revenue from Contracts with Customers on the group's financial statements and discloses the new
accounting policies that have been applied from 1 April 2018, where they are different to those
applied in prior years. The changes in accounting policies are also reflected in the group's
consolidated financial statements for the year ending 31 March 2019. The effect of initially
applying these standards are mainly attributed to an increase in impairment losses recognised
on financial assets as well as reclassification of payments to customers from direct expenses to
fee and commission revenue.
2.1 IFRS 15 Revenue from Contracts with Customers
IFRS 15 establishes a comprehensive framework for determining whether, how much and when
revenue is recognised. It replaced IAS 18 Revenue, IAS 11 Construction Contracts and
related interpretations. The group has adopted IFRS 15 using the cumulative effect method
(with practical expedients), however with no material financial effect of initially applying
this standard recognised at the date of initial application, 1 April 2018. Accordingly,
the information presented for 2018 has not been restated - i.e. it is presented, as previously
reported, under IAS 18, IAS 11 and related interpretations.
The details of the new significant accounting policies and the nature of the changes to
previous accounting policies in relation to the group's various goods and services are set
out below.
Under IFRS 15 revenue is recognised when a customer obtains control of the goods or services.
Determining the timing of the transfer of control - at a point in time or over time
- requires judgement.
Type of product/service:
Consulting fees; Administration fees (Consulting and administration)
Nature, timing of satisfaction of performance obligations, significant payment terms:
Consulting fees - comprise fees earned in respect of advisory services. Fees derived from
consulting services are recognised over time as the customer receives benefits as services
are performed. Prior to the adoption of IFRS 15 revenue from consulting services was recognised
based on the stage of completion as the related services were rendered. There are no differences
between the amounts recognised under IFRS 15 and those that would have been recognised
under previous accounting standards. Consulting contracts do not have significant financing
arrangements and no discounts are provided to clients.
Impact of change in accounting policy:
IFRS 15 did not have a significant impact on the group's results.
Type of product/service:
Actuarial consulting fees (Consulting)
Nature, timing of satisfaction of performance obligations, significant payment terms:
Actuarial consulting fees - comprise fees earned in respect of actuarial reports and other
ad hoc reports prepared for our clients. Actuarial consulting arrangements bear a fixed fee
which is only payable on delivery of an actuarial report. Fees derived from actuarial consulting
services are recognised at a point in time as the customer receives benefit on delivery of
the actuarial report. Prior to the adoption of IFRS 15 revenue from consulting services
was recognised based on the stage of completion as the related services were rendered.
Impact of change in accounting policy:
IFRS 15 did not have a significant impact on the group's results.
Type of product/service:
Insured commission income (Commission)
Nature, timing of satisfaction of performance obligations, significant payment terms:
Insured commission income - is derived from brokerage services and consulting services.
The revenue relating to brokerage services is recognised on placement of a client.
The consulting services portion is treated in the same way as described above under
consulting and administration fees. The commission is received upfront and management has
concluded, based on history, that it is highly probable that there will not be a significant
reversal of revenue. There are no differences between the amounts recognised under IFRS 15
and those that would have been recognised under previous accounting standards.
Impact of change in accounting policy:
IFRS 15 did not have a significant impact on the group's results.
Type of product/service:
Healthcare commission income (Commission)
Nature, timing of satisfaction of performance obligations, significant payment terms:
Healthcare commission income - comprises commissions earned in respect of healthcare products.
Prior to IFRS 15 the company recognised the income on a monthly basis. The brokerage services
contracts are renewable on an annual basis.
Under IFRS 15 the company has identified a single performance obligation which is satisfied
over time. The company shall continue to recognise and record the commission income on a
monthly basis. Consequently, there are no differences between the amounts recognised under
IFRS 15 and those that would have been recognised under previous accounting standards.
Payments made to healthcare clients were classified as direct costs. On the adoption of
IFRS 15 these costs are now deducted from the fees generated from those clients, thereby
reducing the amount of revenue that would have been recognised. The effect on operating
income net of direct expenses is nil.
Impact of change in accounting policy:
IFRS 15 did not have a significant impact on the group's results.
Type of product/service:
Transition management fees (Asset based)
Nature, timing of satisfaction of performance obligations, significant payment terms:
Transition management fees - comprise fees earned for services provided in relation to the
transfer of investment assets. Prior to IFRS 15 transition management fees were recognised
in income on transfer by reference to the net asset value of the assets transferred.
Under IFRS 15 the company has identified a single performance obligation which is satisfied
at a point in time. The company shall continue to recognise transition management fees in
income on transfer of investment assets by reference to the net asset value of the assets
transferred.
Impact of change in accounting policy:
IFRS 15 did not have a significant impact on the group's results.
Type of product/service:
Multi-manager investment fees (Asset based)
Nature, timing of satisfaction of performance obligations, significant payment terms:
Multi-manager investment fees - comprise fees earned for multi-manager investment and
administration. Under IFRS 15 management has identified one performance obligation,
being ongoing investment management and administration services; the reason being that
initial administration fees cannot be associated with services provided at inception of
the contract. Consequently, initial administration fees will continue to be brought to
book upon inception of the investment contract and recognised on a straight-line basis
over the expected period of the contract.
Ongoing investment management and administration services are considered a series of distinct
services that are substantially the same and have the same pattern of transfer to the client.
These are recognised over time and determined on a daily basis. Consequently, there are no
differences between the amounts recognised under IFRS 15 and those that would have been
recognised under previous accounting standards.
Impact of change in accounting policy:
IFRS 15 did not have a significant impact on the group's results.
2.2 IFRS 9 Financial Instruments
IFRS 9 sets out requirements for recognising and measuring financial assets, financial
liabilities and some contracts to buy or sell non-financial items. This standard replaces
IAS 39 Financial Instruments: Recognition and Measurement.
The effect of adopting IFRS 9 on the carrying amounts of financial assets at 1 April 2018
relates solely to the new impairment requirements, as described further below.
Loan receivable
The group has a loan receivable currently carried at R29 million. Under the previous
accounting standard (IAS 39) there was no objective evidence that this loan receivable was
impaired. IFRS 9 contains a new impairment model which will result in earlier recognition
of losses. The likely outcomes for the collection of this receivable are variable, with a
greater likelihood that the group will suffer credit losses to the full value of the loan
receivable. Consequently, this loan receivable has been provided for in full and against
opening accumulated profits.
Trade receivable
A subsidiary within the group has a long-outstanding trade receivable amounting to
R11 million. Under the previous accounting standard (IAS 39) there was no objective
evidence that the counterparty to the trade receivable was unable to pay. IFRS 9 contains
a new impairment model which will result in earlier recognition of losses. In applying the
new guidance management expects a greater likelihood that the group will suffer credit
losses to the full value of the trade receivable. Consequently, this trade receivable has
been provided for in full and against opening accumulated profits.
The following table summarises the impact, net of tax, of transition to IFRS 9 on the
opening balance of reserves, accumulated profits and NCI.
Rm 2019
Opening accumulated profits
Recognition of expected credit losses under IFRS 9 (net of related taxes) (36)
Impact at 1 April 2018 (36)
Non-controlling interest
Recognition of expected credit losses under IFRS 9 (net of related taxes) (4)
Impact at 1 April 2018 (4)
Financial assets
As reported 108
IFRS 9 expected credit losses 29
Amounts without adoption of IFRS 9 137
Trade and other receivables
As reported 419
IFRS 9 expected credit losses 11
Amounts without adoption of IFRS 9 430
3. EXCHANGE RATES
Certain transactions of the group occur in foreign currencies. In the current year the most
significant foreign currency is the Great British pound (GBP). The GBP transactions and balances
have been translated using the exchange rates below. Other less material foreign transactions
and balances have been translated to rand using appropriate weighted average rates and closing
rates respectively.
2019 2018
Weighted average (ZAR:GBP rate) 18.5 17.0
Closing (ZAR:GBP rate) 18.8 16.6
4. FEE AND COMMISSION REVENUE
The group's operations and main revenue streams are those described in the last annual financial
statements. The group's revenue is derived from contracts with customers. The nature and effect
of initially applying IFRS 15 Revenue from Contracts with Customers on the group's financial
statements are disclosed in note 2.1.
Disaggregation of revenue
Primary segments
Institutional Retail Emerging markets Total
Rm 2019 2018 2019 2018 2019 2018 2019 2018
Secondary segments
Consulting and retirements 1 598 1 534 - - - - 1 598 1 534
Investments 836 829 - - - - 836 829
Wealth and investments - - 1 282 1 251 - - 1 282 1 251
Emerging markets - - - - 206 199 206 199
Administration only 136 168 - - - - 136 168
Total 2 570 2 531 1 282 1 251 206 199 4 058 3 981
Revenue by type
Consulting and advice fees 267 276 542 511 55 52 864 839
Administration fees 705 696 225 224 117 112 1 047 1 032
Commission 296 283 8 8 7 6 311 297
Investment management fees 1 302 1 276 507 508 27 29 1 836 1 813
Total 2 570 2 531 1 282 1 251 206 199 4 058 3 981
Revenue by region
South Africa 2 566 2 522 1 228 1 210 - - 3 794 3 732
Namibia - - - - 106 116 106 116
Botswana - - - - 92 76 92 76
Jersey and Channel Islands 4 9 54 41 - - 58 50
Other - - - - 8 7 8 7
Total 2 570 2 531 1 282 1 251 206 199 4 058 3 981
Timing of revenue recognition
Products transferred at a
point in time 27 27 51 46 - - 78 73
Services transferred over time 2 543 2 504 1 231 1 205 206 199 3 980 3 908
Total 2 570 2 531 1 282 1 251 206 199 4 058 3 981
Restated
Rm 2019 2018 (1)
5. NON-TRADING AND CAPITAL ITEMS
Professional indemnity insurance cell-captive result 36 (25)
Amortisation of intangible assets arising from business combination (67) (80)
Costs relating to strategic consulting engagement (34) (34)
Goodwill written off (2) - -
Goodwill written off - (317)
Goodwill written off - reclassified to discontinued operations - 317
Software written off (3) (150) (17)
Software written off (290) (17)
Software written off - reclassified to discontinued operations 140 -
Other (4) (16) (3)
Total non-trading and capital items (231) (159)
6. INVESTMENT INCOME
Interest income 178 210
Investment and dividend income 14 16
Foreign exchange losses on intergroup loans - (7)
Investment income from general operations 192 219
Investment returns linked to policyholder tax expense 21 (11)
Total investment income 213 208
7. FINANCE COSTS
Interest on revolving credit facility (59) (60)
Cost of hedging (5) (7) (17)
Other interest (23) (19)
Total finance costs (89) (96)
1. Restated for the effects of discontinued operations.
2. Goodwill allocated to the group risk cash-generating unit (CGU) was fully written off in the
prior year. This business has been classified as a discontinued operation.
3. Following a thorough review of the strategic roadmap and related projects within the
IT programme by board, the group has decided to terminate the contract with the primary
implementation partner, resulting in a R50 million termination payment as full and final
settlement. In addition, the group assessed the recoverability of software in development
and concluded that no future economic benefit will flow and consequently software amounting
to R290 million was written off (of which R287 million relates to the termination of the
IT programme). R140 million of the total relates to the insurance business, classified as a
discontinued operation (refer to note 9.2).
4. Other items comprise mainly of the increase in provisions relating to proposed client settlements.
5. These costs represent the movement in forward points on a foreign exchange contract relating
to the IT programme. This forward exchange contract was closed out during the year.
Restated
Rm 2019 2018 (1)
8. INCOME TAX EXPENSE
South African income tax
Current tax (279) (288)
Current year (279) (274)
Prior year - (14)
Deferred tax 67 39
Current year 66 34
Prior year 1 5
Foreign income tax
Current tax (14) (16)
Foreign withholding tax (4) (6)
Securities transfer tax (8) -
Income tax expense relating to corporate profits (238) (271)
Income tax (expense)/credit on policyholder investment returns (21) 11
Current tax - current year (7) (44)
Deferred tax - current year (14) 55
Income tax expense (259) (260)
1. Restated for the effects of discontinued operations.
9. DISCONTINUED OPERATIONS
In March 2019, the group announced a revised strategy that resulted in the decision to exit the
insurance businesses as well as sub-scale African operations. This is in line with the decision
to refocus the business providing advice-led integrated retirement solutions and holistic
wealth management.
Consequently, the insurance operations of the group (both short-term insurance and group risk)
as well as sub-scale African operations have been classified as discontinued operations during
the current period. The assets and liabilities of these operations are presented as assets and
liabilities of disposal group classified as held for sale at the date of discontinuance.
The results of operations of the discontinued entities are reported separately in the income
statement with the prior year also being restated to take this into effect.
In addition, the group's Kenyan business unit which was classified as a discontinued operation
in prior years has been disposed of, resulting in a profit of R56 million (see note 9.3).
9.1 Net profit of business units discontinued up to effective date of disposal
The following represents the trading profit/(loss) in respect of the discontinued operations.
Prior-year figures have been restated accordingly.
Rm Notes 2019 2018
Fee and commission revenue 79 194
Insurance revenue 2 716 2 505
Interest revenue - effective interest method 53 43
Less: Fee and commission revenue from previously
discontinued operations - (81)
Total revenue (1) 2 848 2 661
Fee and commission expenses (103) (99)
Insurance claims, commissions and withdrawals (1 859) (1 774)
Net expenses from reinsurance contracts (159) (151)
Operating income net of direct expenses (1) 727 637
Operating expenses (497) (549)
Less: Operating expenses from previously discontinued operations 7 65
Profit from operations before non-trading and capital items 237 153
Add: (Loss)/profit from previously discontinued operations (7) 16
Non-trading and capital items 9.2 (149) (310)
Operating profit/(loss) 81 (141)
Investment income 18 17
Finance costs (2) (1)
Share of net profit of associate - 1
Profit/(loss) before tax 97 (124)
Income tax expense (81) (51)
Profit/(loss) for the year from discontinued operations 16 (175)
Profit on disposal of subsidiary and associate 9.3 56 -
Total profit/(loss) from discontinued operations 72 (175)
Profit attributable to:
Owners of the company 67 (183)
Non-controlling interest 5 8
72 (175)
9.2 Non-trading and capital items
Software written off (140) -
Goodwill relating to group risk written off - (317)
Costs related to proposed client settlement
- Enhanced Transfer Values (2) (122) -
Reimbursement related to historical client settlement
- Enhanced Transfer Values (2) 122 -
Other (9) 7
(149) (310)
1. Excluding previously discontinued operations relating to the group's Kenyan and
international operations. The Kenyan business unit was disposed of in the current year.
2. In the prior year we referred to a specific matter which was being reviewed by a foreign
regulator in respect of a legacy subsidiary business that had been disposed of in a
prior year inclusive of certain warrantees. The matter has now reached a quantifiable
stage and management has accordingly raised a provision for this claim. The group is
adequately insured for claims as a result of such errors and omissions. In addition,
management has obtained confirmation from the insurance underwriters indicating that the
event is covered in terms of the policy, consequently it has become virtually certain
that an inflow of economic benefits will arise and, as a result, the insurance asset and
related income are recognised in these financial statements. Accordingly, there is a
nil impact to the group's income statement.
Rm 2019 2018
9.3 Disposal of subsidiary and associate
Carrying value of net assets sold (70) -
Non-controlling interest 34 -
Foreign currency translation reserve of disposed entities 21 -
Carrying value disposed of (15) -
Proceeds on disposal 74 -
Capital gains tax (3) -
Profit on disposal of subsidiary 56 -
Net proceeds on disposal 71 -
Less: Proceeds receivable (1) (41) -
Net consideration received in cash 30 -
Cash and cash equivalents disposed of (15) -
Net cash inflow 15 -
9.4 Assets and liabilities of disposal group classified as held for sale
Assets of insurance cell-captives 555 -
Long-term assets 15 25
Goodwill 501 -
Deferred tax asset 5 1
Insurance receivables 1 464 -
Trade and other receivables 22 41
Cash and cash equivalents 938 15
Total assets 3 500 82
Liabilities of insurance cell-captives 555 -
Insurance payables 1 772 -
Deferred tax liability 1 2
Provisions - non-current 20 1
Taxation payables 21 -
Trade and other payables 116 11
Total liabilities 2 485 14
Total equity 1 015 68
1. Proceeds receivable relate to amounts held in escrow to be released when the tax
assessment for the entity is released by applicable revenue authorities.
10. EARNINGS PER SHARE
10.1 Basic earnings per ordinary share
Basic earnings per share is calculated by dividing the profit for the year attributable to
equity holders by the weighted average number of ordinary shares in issue during the year.
10.2 Headline earnings per ordinary share
Headline earnings per share is calculated by excluding applicable non-trading and capital
gains and losses from the profit attributable to ordinary shareholders and dividing the
resultant headline earnings by the weighted average number of ordinary shares in issue
during the year. Headline earnings is defined in Circular 4/2018 issued by the South African
Institute of Chartered Accountants.
10.3 Diluted earnings per ordinary share
Diluted earnings per ordinary share is calculated by adjusting the profit attributable to
equity holders for any changes in income or expense that would result from the conversion
of dilutive potential ordinary shares and dividing the result by the weighted average
number of ordinary shares increased by the weighted average number of additional ordinary
shares that would have been outstanding, assuming the conversion of all dilutive potential
shares.
10.4 Normalised earnings per share
Normalised earnings per share is calculated by dividing the normalised profit for the year
attributable to owners of the company per the group segmental income and profit analysis
by the weighted average number of shares in issue, adjusted for shares held by policyholders
classified as treasury shares.
2019 2018
10.5 Number of shares (million)
Weighted average number of shares 1 341 1 341
Weighted average shares held by policyholders classified
as treasury shares (9) (14)
Weighted average treasury shares (95) (58)
Weighted average number of shares in issue (net of treasury shares) 1 237 1 269
Dilutive shares 14 6
Diluted weighted average number of shares 1 251 1 275
Actual number of shares in issue 1 341 1 341
Actual treasury shares (118) (95)
Actual shares in issue net of treasury shares 1 223 1 246
Normalised number of shares
Weighted average number of shares in issue 1 237 1 269
Shares held by policyholders classified as treasury shares 9 14
Normalised number of shares in issue 1 246 1 283
Rm 2019 2018
10.6 Calculation of basic and headline earnings from total operations
Profit attributable to owners of the company 334 240
Adjusting items (net of tax and non-controlling interest):
Profit on disposal of subsidiary - discontinued operations (50) -
Software written off - continuing operations 135 15
Software written off - discontinued operations 126 -
Goodwill written off - discontinued operations - 317
Other capital items - (9)
Headline earnings for the year 545 563
Earnings per share from total operations (1)
Basic earnings per share (cents) 27.0 18.9
Headline earnings per share (cents) 44.0 44.4
Diluted basic earnings per share (cents) 26.7 18.8
Diluted headline earnings per share (cents) 43.5 44.2
The group has an approved share scheme for employees that may result
in dilution on both earnings per share and headline earnings per
share at the future date of vesting. The dilutive effect is
conditional on employee retention and performance during the year
for each award. The above dilutive effect is calculated based on
the performance of the company for the current year in relation
to the performance criteria.
In addition, the company may issue shares to the empowerment
shareholder in future in terms of the circular issued to
shareholders on 2 December 2016. These shares have an immaterial
anti-dilutive impact and are accordingly not included in the
diluted number of shares above.
10.7 Calculation of normalised earnings from total operations
Normalised profit for the year from continuing operations per
group segmental income and profit analysis (2) 332 613
Adjusting items (net of tax and non-controlling interest):
Profit from discontinued operations (2) 72 121
Attributable to non-controlling interests (54) (77)
Normalised profit attributable to owners of the company 350 657
Adjusting items (net of tax and non-controlling interest):
Profit on disposal of subsidiary - discontinued operations (50) -
Software written off - continuing operations 135 15
Software written off - discontinued operations 126 -
Normalised headline earnings from total operations from
total operations 561 672
Normalised basic earnings per share (1) (cents) 28.1 51.2
Normalised headline earnings per share (1) (cents) 45.0 52.4
1. Amounts computed using unrounded numbers.
2. Restated for the effects of discontinued operations.
Rm 2019 2018
10.8 Calculation of basic and headline earnings from
continuing operations (1)
Profit after tax from continuing operations 316 502
Less: Profit attributable to non-controlling interests (49) (79)
Profit attributable to owners of the company 267 423
Adjusting items (net of tax and non-controlling interest):
- Software written-off 135 15
Headline earnings from continuing operations 402 438
Basic earnings per share from continuing operations (2) (cents) 21.6 33.3
Headline earnings per share from continuing operations (2) (cents) 32.5 34.5
Diluted basic earnings per share from continuing
operations (2) (cents) 21.3 33.2
Diluted headline earnings per share from continuing
operations (2) (cents) 32.1 34.4
10.9 Calculation of basic and headline earnings from
discontinued operations (1)
Profit/(loss) after tax from discontinued operations 72 (175)
Less: Profit attributable to non-controlling interests (5) (8)
Profit/(loss) from discontinued operations attributable to
owners of the company 67 (183)
Adjusting items (net of tax and non-controlling interest):
Profit on disposal of subsidiary (50) -
Software written off 126 -
Goodwill written off - 317
Other capital items - (9)
Headline earnings from discontinued operations 143 125
Basic earnings/(loss) per share from discontinued
operations (2) (cents) 5.4 (14.4)
Headline earnings per share from discontinued
operations (2) (cents) 11.5 9.9
Diluted basic earnings/(loss) per share from discontinued
operations (2) (cents) 5.4 (14.4)
Diluted headline earnings per share from discontinued
operations (2) (cents) 11.4 9.8
11. OPERATING LEASE COMMITMENTS
Due within one year 195 184
Due between one and five years 610 755
Due after five years 339 354
Total operating lease commitments 1 144 1 293
1. Restated for the effects of discontinued operations.
2. Amounts computed using unrounded numbers.
12. FINANCIAL ASSETS AND LIABILITIES HELD UNDER MULTI-MANAGER INVESTMENT CONTRACTS
The policyholder assets held by the group's multi-manager investment subsidiary, AF Investments
Limited, in South Africa and Namibia are recognised on the balance sheet in terms of IFRS.
These assets are directly matched by linked obligations to policyholders.
As a result of the group being listed, the investments by underlying asset managers in the
Alexander Forbes Group Holdings listed shares are recognised as treasury shares and all fair
value adjustments recognised on these treasury shares are reversed, while the corresponding
fair value adjustments on the financial liability continue to be recognised in the income
statement. The resultant profit for the year of R8 million (2018: R24 million loss) has been
disclosed separately on the face of the income statement. This treatment also impacts the
number of shares in issue, the impact of which is disclosed in note 10.
Below is a reconciliation of the assets held under multi-manager investment contracts with the
linked liabilities under such contracts:
Rm 2019 2018
Total financial assets held under multi-manager investment contracts
(per statement of financial position) 299 852 296 758
Reversal of adjustments made under IFRS:
Alexander Forbes shares held as policyholder assets and reclassified in
the group statement of financial position as treasury shares 47 73
Financial effects of accounting for policyholder investments as
treasury shares - prior year (6) (30)
Financial effects of accounting for policyholder investments as
treasury shares - current year (8) 24
Total financial liabilities held for policyholders under multi-manager
investment contracts 299 885 296 825
13. FINANCIAL ASSETS
Non-current financial assets 49 90
Current financial assets 59 355
Total financial assets 108 445
Financial assets classified as available for sale - 14
Financial assets at fair value through profit and loss (1) 59 264
Financial assets at amortised cost 36 85
Financial assets at fair value through other comprehensive income - designated 13 82
Total financial assets 108 445
14. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS
14.1 Financial risk factors
The group's activities expose it to a variety of financial risks: market risk (including
currency risk, fair value interest rate risk, cash flow interest rate risk and price risk),
credit risk and liquidity risk.
The summary consolidated financial statements do not include all financial risk management
information and disclosures required in the annual financial statements and this disclosure
should be read in conjunction with the group's annual financial statements as at 31 March 2019.
There have been no material changes in the risk management or in any risk management
policies since the year-end except as amended by IFRS 9 Financial Instruments. Refer to
note 2.2.
14.2 Liquidity risk
Compared to the 31 March 2018 year-end, there was no material change in the contractual
undiscounted cash outflows for financial liabilities.
1. The decline in financial assets designated as fair value through profit or loss is due
to the group's investment in unit trusts which are readily convertible to known amounts
of cash and are subject to an insignificant risk of changes in value, thereby qualifying
to be classified as cash and cash equivalents.
14.3 Fair value hierarchy
The group classifies fair value measurements using a fair value hierarchy that reflects the
significance of the inputs used in making the measurements. The fair value hierarchy has
the following levels:
- Level 1: Quoted prices in active markets for identical assets or liabilities.
- Level 2: Inputs other than quoted prices that are observable for the asset or liability,
either directly or indirectly.
- Level 3: Inputs for valuation that are not based on observable market data (that is,
inputs are unobservable).
The table below analyses financial instruments carried at fair value, by valuation method.
Rm Level 1 Level 2 Level 3 Total
2019
Financial assets measured at fair value
Financial assets held under multi-manager
investment contracts 180 190 112 475 7 187 299 852
General operations - 701 13 714
Total financial assets measured at fair value 180 190 113 176 7 200 300 566
Financial liabilities designated at fair value
Financial liabilities held under multi-manager
investment contracts - 292 841 7 044 299 885
Total financial liabilities designated at fair value - 292 841 7 044 299 885
Rm
2018
Financial assets measured at fair value
Financial assets held under multi-manager
investment contracts 176 993 107 014 4 864 288 871
Financial assets of insurance cell-captive facilities 178 168 - 346
General operations - 346 14 360
Total financial assets measured at fair value 177 171 107 528 4 878 289 577
Cash held under multi-manager investment contracts - 7 887 - 7 887
Cash held under insurance cell-captive contracts - 6 - 6
- 7 893 - 7 893
Financial liabilities designated at fair value
Financial liabilities held under multi-manager
investment contracts - 291 937 4 888 296 825
Financial liabilities of insurance cell-captive facilities - 352 - 352
Total financial liabilities designated at fair value - 292 289 4 888 297 177
Transfers between Levels 1 and 2
Movements in financial assets associated with multi-manager investment contracts and
insurance cell-captive facilities are directed by clients. These movements are a result
of investments and withdrawals made. There were no transfers between Levels 1 and 2 during
the year which were as a result of a change in valuation methodology.
Level 3 reconciliation
Level 3 financial assets and liabilities comprise mainly policyholder and cell-owner assets
and liabilities. Financial assets and financial liabilities in this level are insignificant
in relation to total financial assets and financial liabilities respectively. In addition,
the movements in Level 3 financial assets are directly linked to the movements in the
linked investment liability. Any fair value gains and losses resulting from policyholder
or cell-owner financial assets and financial liabilities have no impact on profit or loss.
There was no change in the valuation methodology of Level 3 assets during the year under review.
Sensitivity analysis for Level 3 financial assets
The following table presents significant inputs to show the sensitivity of Level 3
measurements and assumptions used to determine the fair value of the financial assets:
Instrument Valuation technique Significant inputs
Suspended listed equities Exchange trade price Last exchange traded price
Community property company assets Discounted cash flow model Capitalisation rates and discounts rates
Infrastructure and development assets Equity Equity
Distribution discount model, cost, Interest rates and exchange traded prices
mark to market, price earnings
multiple and liquidation value
Debt Debt
Discounted cash flow model Interest rates fixed and floating
The group's overall profit or loss is not sensitive to the inputs of the models applied to
derive fair value.
14.4 Valuation methods and assumptions for valuation techniques
There were no changes in the valuation methods and assumptions for valuation techniques
since 31 March 2018. A detailed description of the valuation methods and assumptions for
valuation techniques is available in our annual financial statements for the year ended
31 March 2019.
14.5 Fair value of financial assets and financial liabilities measured at amortised cost
The fair value of the following financial assets and liabilities measured at amortised cost
approximate their carrying amount:
- Trade and other receivables
- Cash and cash equivalents
- Trade and other payables
- Insurance payables
- Borrowings
15. RESTATEMENT OF COMPARATIVE INFORMATION
As part of the ongoing financial statements enhancement process and in line with guidance
published by the JSE proactive monitoring panel, management has identified two classification
errors on the 2018 statement of cash flows that require restatement. The first relates to dividends
paid to non-controlling interest (NCI) which were previously classified under cash flows from
financing activities while dividends to shareholders were classified under cash flows from operating
activities. In line with the JSE's recommendation, management has now reclassified dividends paid
to NCI out of cash flows from financing activities into cash flows from operating activities.
In addition, the group previously reflected cash transactions relating to treasury shares
(held under policyholder investments) under cash flows from operating activities. Management has
now reclassified those cash transactions relating to treasury shares (held under policyholder
investments) out of cash flows from operating activities into cash flows from financing activities.
Group statement of cash flows
for the year ended 31 March 2018
Restated As reported
Rm 2018 Adjustment Discontinued 2018
Cash flows from operating activities
Cash generated from operations 861 - (152) 1 013
Net interest received 135 - (16) 151
Taxation paid (333) - - (333)
Dividends paid to equity holders (829) - - (829)
Net cash flow received from insurance and policyholder contracts 348 - - 348
Net cash flows paid to policyholder investment contracts (1 982) (62) - (1 920)
Payments made to non-controlling interests (14) (14) - -
Cash flows from operating activities - discontinued operations 184 - 168 16
Net cash outflow from operating activities (1 630) (76) - (1 554)
Cash flows from investing activities
Acquisition of intangible asset (3) - - (3)
Net cash outflow on financial assets (145) - - (145)
Payments for capital expenditure net of proceeds on disposal (317) - 4 (321)
Cash flows from investing activities - discontinued operations (4) - (4) -
Net cash outflow from investing activities (469) - - (469)
Cash flows from financing activities
Payments of lease liabilities (9) - - (9)
Purchase of shares in terms of share buy-back transaction (276) - - (276)
Purchase of shares in terms of share incentive schemes (57) - - (57)
Net proceeds from sale of treasury shares held by
policyholder investments 62 62 - -
Purchase of treasury shares held under policyholder investments (47) (47) - -
Disposal of treasury shares held by policyholder investments 109 109 - -
Dividends paid to non-controlling interests - 14 - (14)
Net cash outflow from financing activities (280) 76 - (356)
Decrease in cash and cash equivalents (2 379) - - (2 379)
Cash and cash equivalents at the beginning of the year 16 087 - - 16 087
Foreign subsidiaries exchange differences (6) - - (6)
Cash and cash equivalents at the end of the year 13 702 - - 13 702
Analysed as follows:
Cash and cash equivalents of continuing operations 5 794 - - 5 794
Cash held under multi-manager investment contracts 7 887 - - 7 887
Cash held in insurance cell-captive facilities 6 - - 6
Cash and cash equivalents of discontinued operations 15 - - 15
13 702 - - 13 702
16. EVENTS OCCURRING AFTER REPORTING PERIOD
There are no events subsequent to the year-end which require reporting.
Independent directors
N Nyembezi (Chairman), MD Collier, RM Head, M Ramplin, NG Payne, BJ Memela-Khambula, T Dloti
Non-executive directors
DJ Anderson, WS O'Regan, B Radebe
Executive directors
DJ de Villiers (chief executive officer)
BP Bydawell (chief financial officer) (appointed effective 1 April 2019)
Executive: governance, legal and compliance (company secretary)
CH Wessels
Investor relations
Z Amra
Registered office
Alexander Forbes, 115 West Street, Sandown, 2196
Transfer secretaries
Computershare Investor Services Proprietary Limited
Rosebank Towers, 15 Biermann Avenue, Rosebank, 2196
PO Box 61051, Marshalltown, 2107
Sponsor
Rand Merchant Bank (A division of FirstRand Bank Limited)
1 Merchant Place, corner of Fredman Drive and Rivonia Road, Sandton, 2196
Website
http://www.alexanderforbes.co.za
Date of issue: 18 June 2019
Date: 18/06/2019 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
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