Wrap Text
Audited summary final results announcement and cash dividend declaration for the year ended 30 June 2019
RAND MERCHANT INVESTMENT HOLDINGS LIMITED (RMI)
Registration number: 2010/005770/06
JSE ordinary share code: RMI
ISIN code: ZAE000210688
Audited summary final results announcement and cash dividend declaration
for the year ended 30 June 2019
Compound shareholders' return since listing in 2011 19.7% per annum
Normalised earnings down 4% to R4 081 million (2018: R4 266 million) ((5%) to 266.9 cents per share)
Headline earnings down 7% to R3 801 million (2018: R4 081 million) ((8%) to 249.0 cents per share)
RMI is a strategic active manager of a R52 billion financial services portfolio:
Discovery - 25%
Hastings - 29.9%
Momentum Metropolitan - 27.3%
OUTsurance - 89.1%
RMI Investment Managers - 100%
AlphaCode - 100%
OVERVIEW OF RESULTS
RMI's group consolidated normalised earnings decreased by 4% to R4.1 billion for the year ended 30 June 2019. This result is mainly attributable to the significant
increase in spend on new strategic initiatives, an increase in the claims ratio of the short-term insurance operations and the substantial investment in new business
growth activities at OUTsurance.
Discovery's normalised headline earnings decreased by 7% for the year ended 30 June 2019 to R5 billion, a consequence of a significant planned increased
investment in new strategic initiatives and an unexpected spike in large Discovery Life claims in the first half of the year. For the first half of the year, this increased
investment and spike in large mortality claims resulted in a reduction in normalised headline earnings of 16%. Underlying business performance continued to be
strong with businesses in each phase of the growth engine tracking well.
RMI included normalised earnings of R552 million from Hastings for the year ended 30 June 2019. Hastings announced its interim results for the six months
ended 30 June 2019 on 7 August 2019. Gross written premiums increased by 3% to £499.2 million compared to the six months ended 30 June 2018 of £485.6
million. The adjusted operating profit after tax decreased by 43% to £59.7 million (2018: £105.1 million) as a result of market rate reductions, claims inflation
continuing ahead of earned premium inflation, combined with legislative changes which increased underwriting levies. If the impact of the Ogden rate change in
the current period and the VAT recovery in the prior period is excluded, adjusted operating profit decreased by 25% from £90.5 million to £68.1 million.
Momentum Metropolitan reported steady progress with the three-year reset and grow strategy announced a year ago. It delivered diluted normalised headline
earnings of R3.1 billion for the year. This represents an increase of 53% on the prior year. The financial results for the comparative year were impacted by large
negative operating basis changes and investment variances across the South African retail businesses and the rest of Africa. Excluding the impact of operating
basis changes and investment variances in both years, normalised headline earnings improved by 21% year-on-year. The solid results were underpinned by
resilient operational performance in most businesses, supported by efficiency improvements and good underwriting results across the group.
Normalised earnings from OUTsurance, including its shareholding in Hastings, decreased by 13% to R2.6 billion, mainly due to higher claims and cost ratios
across the group, coupled with a lower earnings contribution from its investment in Hastings. Excluding Hastings, normalised earnings decreased by 9% to R2.4
billion. The cost-to-income ratio increased from 25.6% to 28.3%. During 2019, the management team made significant investments in marketing and acquisition
capability to drive profitable top line growth and build the necessary capacity to support the face-to-face distribution strategy of OUTsurance Business. As a result,
annualised new business premium written increased by 27%. In addition, over the past two years, significant investments have been made to bolster data
analytics, information technology and risk and compliance capacity necessitated by the changing regulatory, technology and competitive landscape.
RMI Investment Managers is now in its fourth year of operations, with its financial performance tracking in line with management's expectations of
investments in affiliates at such an early stage of development. The past 12 months have been a very challenging time for the South African investment market
and asset management industry broadly. Despite the JSE All Share Index ending the period up 4.42%, its performance lagged cash (7.27%), bonds (11.50%) and
inflation (4.5%). Global equities and emerging market equities also disappointed, delivering 4.97% and 3.27% respectively over the past year.
Royal Investment Managers is a joint venture between RMI Investment Managers and Royal Bafokeng Holdings (RBH). The portfolio performed in line with
expectations during the year.
The four AlphaCode investments, being Entersekt, Merchant Capital, Prodigy and Luno, all performed in line with expectations.
Funding and holding company costs amounted to R680 million, compared to R684 million in the prior year. RMI repaid R1.1 billion in debt from its surplus cash
resources during the 2019 financial year.
SOURCES OF NORMALISED EARNINGS
RMI regards normalised earnings as the appropriate basis to evaluate business performance as it eliminates the impact of non-recurring items and accounting
anomalies. The total normalised earnings of RMI's investee companies for the year under review are listed in the table below:
For the year ended 30 June
R million 2019 2018 % change
Discovery 5 035 5 401 (7)
Hastings 1 941 2 758 (30)
Momentum Metropolitan 3 074 2 003 53
OUTsurance (excluding Hastings) 2 390 2 639 (9)
- OUTsurance (including Hastings) 2 634 3 012 (13)
- Hastings included in OUTsurance (244) (373) 35
Other1 (22) (25) 12
1. Other includes RMI Investment Managers and AlphaCode investments.
A detailed reconciliation between reported headline earnings and normalised earnings has been provided in the annual financial statements of the respective
investee companies. The annual financial statements of these investee companies are available on their respective websites.
RMI's consolidated normalised earnings for the year under review are listed in the table below:
For the year ended 30 June
R million 2019 2018 % change
Discovery 1 261 1 356 (7)
Hastings 552 778 (29)
Momentum Metropolitan 825 508 62
OUTsurance (excluding Hastings) 2 145 2 333 (8)
- OUTsurance (including Hastings) 2 364 2 661 (11)
- Hastings included in OUTsurance (219) (328) 33
Other1 (22) (25) 12
Funding and holding company costs (680) (684) 1
Normalised earnings 4 081 4 266 (4)
Normalised earnings per share (cents) 266.9 281.5 (5)
1. Other includes RMI Investment Managers and AlphaCode investments.
A reconciliation of the adjustments made to headline earnings to derive normalised earnings is presented below.
MARKET VALUE OF INVESTMENTS
RMI's share price decreased by 9% (2018: decreased by 4%), compared to a 12% increase in the life insurance index (2018: increased by 14%) and a 9%
increase in the non-life insurance index (2018: increased by 23%). RMI has delivered a total annual compound return to shareholders of 19.7% since its listing in
March 2011.
The individual investment performances during the 2019 financial year are outlined below:
- Discovery's share price increased by 1% (2018: increased by 15%);
- Hastings' share price decreased by 23% in Pound Sterling terms (2018: decreased by 19%) and by 24% in Rand terms (2018: decreased by 14%); and
- Momentum Metropolitan's share price increased by 7% (2018: decreased by 13%).
On a "look-through" basis, based on share prices as at 30 June 2019, the value attributed to RMI's unlisted investments decreased by 16% (2018: decreased by
9%) to R22.9 billion (2018: R27.2 billion). These unlisted investments include OUTsurance (excluding OUTsurance's 49% stake in the group's holding in Hastings)
(89.1% held), RMI Investment Managers (100% held) and the AlphaCode investments.
2019 2018 %
R million Audited Audited change
Market value of listed investments 38 726 39 540 (2)
Discovery 24 575 23 887 3
Hastings (RMI's effective holding) 6 543 8 566 (24)
- 29.9% holding 6 912 9 072 (24)
- Attributable to non-controlling interests of OUTsurance (369) (506) 27
Momentum Metropolitan 7 608 7 087 7
Market value of unlisted investments 22 948 27 195 (16)
RMI Investment Managers and AlphaCode 1 035 834 24
Implied market value of RMI's stake in OUTsurance (excluding Hastings) 21 913 26 361 (17)
Gross market value of portfolio 61 674 66 735 (8)
Net liabilities of holding company (9 638) (9 709) (1)
RMI market capitalisation 52 036 57 026 (9)
RMI closing price per share (cents) 3 397 3 745 (9)
FINAL DIVIDEND FOR THE 2019 FINANCIAL YEAR
The board resolved to declare a final dividend of 65.0 cents (2018: 65.0 cents) per ordinary share. The total dividend for the year of 110.0 cents per ordinary share
(2018: 104.0 cents per ordinary share) is covered 2.4 times (2018: 2.7 times) by normalised earnings of 266.9 cents (2018: 281.5 cents) per ordinary share.
To support investment activity, the board will continuously assess RMI's dividend policy through its investment phase and may, if appropriate, reinstate the scrip
distribution alternative and the reinvestment option offered to shareholders during previous dividend cycles. Given RMI's current investment pipeline and share
price, the board decided to declare a cash dividend to shareholders.
OUTLOOK AND FUTURE VALUE CREATION
EXISTING PORTFOLIO
Discovery is well positioned for growth, through a combination of robust established businesses, emerging businesses which are scaling well and new initiatives
which have significant potential. The group is supportive of the aims of the recently published National Health Insurance (NHI) Bill in SA. The publication of the NHI
Bill creates an important opportunity for active collaboration between the Department of Health and the private healthcare sector and the group is seeking clarity
on the potential impact of the Bill on the future role of private healthcare and medical schemes once it is fully implemented. The Bill is not expected to have a
material impact on the Discovery Health business for the near future.
Hastings continues to focus on digital and technology investments, with progress made on enhancing digital capabilities and delivering operational benefits. More
clients are contacting Hastings via digital channels, with the group's mobile app amongst the highest rated insurance apps in the UK. Clients can manage their
policies, view policy documents and make changes via the app, with 38% of policy adjustments completed digitally by clients. More updates to the app will follow
before the end of the calendar year. Since the group rolled out its digital total loss tool which provides clients with quick and easy online claims settlement, 57% of
total loss claims are settled through digital channels. Hastings remains confident in its profitable growth opportunities on the basis of its competitive advantages in
the large motor and home markets and the continuing progress on key initiatives, including renewals, anti-fraud capabilities and digital proposition, along with
successfully embedding its new claims service partners.
Momentum Metropolitan's improvement in normalised headline earnings is testament to the positive impact of its reset and grow strategy. It is imperative for the
group, and for the retail businesses in particular, to increase new business market share in order to compensate for the natural decline in client numbers resulting
from retirements, claims and withdrawals. Investment return and asset-based fee income are furthermore dependent on investment market growth, for which the
outlook is currently muted.
Economic conditions in the South African market are expected to remain challenging in the medium term as a result of the recessionary climate and the
constrained fiscal position. A focus on maintaining pricing discipline and incrementally improving operations remain the best defence during market cyclicality.
OUTsurance believes that delivering a wider insurance product range coupled with an omni-channel distribution capability will result in continuous profitable
growth.
RMI Investment Managers is largely in the consolidation phase of its business model evolution and has, therefore, focused its efforts on optimising the existing
portfolio by truly partnering its boutique investment managers in a supportive but non-interfering manner. The team continues to actively engage in strategic
dialogue with its affiliates with a focus on implementing its shareholder value map, which offers affiliates access to comprehensive strategic support including
operational and financial support, succession planning, talent management and board representation. In addition, the team continues to play a strategic advisory
role in helping its affiliates raise retail assets and foster meaningful and trusted client relationships. Many of the affiliates have also benefited from marketing support
provided by the RMI Investment Managers team. This has enabled the affiliates to expand their branding, marketing and public relations efforts in order to enhance
their brand presence and credibility in the market.
AlphaCode is building on the entrepreneurial legacy record of financial innovation in RMI. AlphaCode identifies, partners and grows the next-generation of financial
services entrepreneurs through incubation, acceleration, collaboration and investment. The flagship initiative, AlphaCode Incubate, has identified and supported 23
black-owned next-generation financial services businesses in the past four years and provided more than R21 million in grant capital to these businesses. In the
last six months, AlphaCode expanded its level of support to these entrepreneurs by making available R23 million of loan funding to three qualifying businesses.
CONCLUSION
Barring a major macro-economic shift, RMI has a high degree of confidence in its portfolio companies and expects their unique attributes to continue to deliver
long-term growth.
Jannie Durand Herman Bosman
Chairman Chief executive officer
Sandton
10 September 2019
CASH DIVIDEND DECLARATION
Notice is hereby given that a gross final cash dividend of 65.0 cents per ordinary share, payable out of income reserves, was declared on 10 September 2019 in
respect of the year ended 30 June 2019.
The dividend will be subject to Dividend Withholding Tax at a rate of 20%, which will result in a net dividend of 52.0 cents per ordinary share for those
shareholders who are not exempt.
The company's tax reference number is 9469/826/16/9. Its issued share capital at the declaration date comprises 1 531 807 770 ordinary shares.
Shareholders' attention is drawn to the following important dates:
Last day to trade in order to participate in this dividend Tuesday, 29 October 2019
Shares commence trading ex-dividend on Wednesday, 30 October 2019
The record date for the dividend payment will be Friday, 1 November 2019
Dividend payment date Monday, 4 November 2019
No dematerialisation or rematerialisation of share certificates may be done between Wednesday, 30 October 2019 and Friday, 1 November 2019 (both days
inclusive).
By order of the RMI board.
Schalk Human
Company secretary
Sandton
10 September 2019
SUMMARY CONSOLIDATED INCOME STATEMENT
for the year ended 30 June
AUDITED %
R million 2019 2018 change
Earned premiums net of reinsurance 15 063 14 173 6
Commission and other income 107 124 (14)
Investment income 632 760 (17)
Interest income on amortised cost financial assets 167 - 100+
Profit on sale of subsidiary and other realised gains - 3 (100)
Net fair value gains/(losses) on financial assets 33 (66) 100+
Income 16 002 14 994 7
Net claims paid (7 171) (6 535) 10
Fair value adjustment to investment contracts and insurance contract provisions (573) (521) 10
Fair value adjustment to financial liabilities (169) (193) (12)
Acquisition, marketing and administration expenses (4 502) (3 905) 15
Profit before finance costs, share of after-tax results of associates and taxation 3 587 3 840 (7)
Net finance costs (729) (765) (5)
Share of after-tax results of associates 2 612 2 328 12
Profit before taxation 5 470 5 403 1
Taxation (1 096) (1 136) (4)
Profit for the year 4 374 4 267 3
Attributable to:
Equity holders of RMI 4 047 3 897 4
Non-controlling interests 327 370 (12)
Profit for the year 4 374 4 267 3
COMPUTATION OF HEADLINE EARNINGS
for the year ended 30 June
AUDITED %
R million 2019 2018 change
Earnings attributable to equity holders 4 047 3 897 4
Adjustment for:
- Gain on previously-held interests in DiscoveryCard business (191) -
- (Gain)/loss on dilution and disposal of equity accounted investments (129) 80
- Impairment relating to held for sale entities 24 -
- Impairment of Intangible assets 23 86
- Impairment of owner-occupied building to below cost 14 -
- Impairment of fixed assets 6 -
- Loss on disposal of property and equipment 5 5
- Impairment of goodwill 4 -
- (Profit)/loss on sale of subsidiary (2) 5
- Impairment of available-for-sale financial assets - 17
- Realised profit on sale of available-for-sale financial assets - (5)
- Release of foreign currency translation reserve - (4)
Headline earnings attributable to equity holders 3 801 4 081 (7)
COMPUTATION OF NORMALISED EARNINGS
for the year ended 30 June
%
R million 2019 2018 change
Headline earnings attributable to equity holders 3 801 4 081 (7)
RMI's share of normalised adjustments made by associates 286 209
- Amortisation of intangible assets relating to business combinations 329 332
- Deferred tax raised on assessed losses (82) (88)
- Unrealised losses/(gains) on foreign exchange contracts not designated as a hedge 24 (19)
- Policyholder funds assessed loss (9) (30)
- Debt restructuring costs resulting from DiscoveryCard joint venture 8 -
- B-BBEE cost 6 6
- Initial expenses related to Prudential Book transfer 6 -
- Costs relating to disposal of equity accounted investments 4 -
- Non-recurring and restructuring expenses - 8
Group treasury shares (6) (24)
Normalised earnings attributable to equity holders 4 081 4 266 (4)
COMPUTATION OF EARNINGS AND DIVIDEND PER SHARE
for the year ended 30 June
AUDITED %
R million 2019 2018 change
Earnings attributable to equity holders 4 047 3 897 4
Headline earnings attributable to equity holders 3 801 4 081 (7)
Number of shares in issue (millions) 1 532 1 523 1
Weighted average number of shares in issue (millions) 1 526 1 513 1
Earnings per share
Earnings per share (cents) 265.1 257.6 3
Diluted earnings per share (cents) 264.0 252.9 4
Headline earnings per share (cents) 249.0 269.7 (8)
Diluted headline earnings per share (cents) 247.8 265.0 (6)
Dividend per share
Interim dividend (cents) 45.0 39.0 15
Final dividend (cents) 65.0 65.0 -
Total dividend 110.0 104.0 6
COMPUTATION OF NORMALISED EARNINGS PER SHARE
for the year ended 30 June
%
R million 2019 2018 change
Normalised earnings attributable to equity holders 4 081 4 266 (4)
Number of shares in issue (millions) 1 532 1 523 1
Weighted average number of shares in issue (millions) 1 529 1 516 1
Normalised earnings per share (cents) 266.9 281.5 (5)
Diluted normalised earnings per share (cents) 265.5 276.6 (4)
SHORT-FORM ANNOUNCEMENT
This short-form announcement is the responsibility of the directors and is only a summary of the information in the full announcement and does not contain full or
complete details. The full announcement was released on the JSE's Stock Exchange News Service (SENS) on 10 September 2019 and can be found on the
company's website at www.rmih.co.za or at https://senspdf.jse.co.za/documents/2019/jse/isse/RMIE/final2019.pdf. The full announcement is available for inspection
at the Company's registered office and copies may also be requested at the company's registered office and at the offices of the sponsor, at no charge, during
office hours. Any investment decision should be based on the full announcement published on the company's website.
ADMINISTRATION
Rand Merchant Investment Holdings Limited (RMI)
Registration number: 2010/005770/06
JSE ordinary share code: RMI
ISIN code: ZAE000210688
Directors
JJ Durand (chairman), HL Bosman (chief executive officer and financial director), JP Burger, P Cooper, (Ms) SEN de Bruyn, LL Dippenaar, PK Harris,
(Ms) A Kekana, P Lagerstrom, (Ms) MM Mahlare, MM Morobe, RT Mupita, O Phetwe and JA Teeger
Alternates
DA Frankel, F Knoetze and UH Lucht
DR Wilson resigned as non-executive alternate director on 1 July 2019 and UH Lucht was appointed as non-executive alternate director on 3 September 2019.
Secretary and registered office
JS Human
Physical address: 3rd Floor, 2 Merchant Place, Corner of Fredman Drive and Rivonia Road, Sandton, 2196
Postal address: PO Box 786273, Sandton, 2146
Telephone: +27 11 282 8166
Telefax: +27 11 282 4210
Web address: www.rmih.co.za
Sponsor
(in terms of JSE Listings Requirements)
Rand Merchant Bank (a division of FirstRand Bank Limited)
Physical address: 1 Merchant Place, Corner of Fredman Drive and Rivonia Road, Sandton, 2196
Transfer secretaries
Computershare Investor Services Proprietary Limited
Physical address: Rosebank Towers, 15 Biermann Avenue, Rosebank
Postal address: PO Box 61051, Marshalltown, 2107
Telephone: +27 11 370 5000
Telefax: +27 11 688 5221
10 September 2019
Date: 10/09/2019 08:00:00
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