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Alexander Forbes Preference Share Investments Ltd HY 2014 results

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  • 1. Unaudited interim results for the six months ended 30 September 2013  Strong operational performance for the first half of financial year by Alexander Forbes Preference Share associate Alexander Forbes Equity Investments Limited Holdings Registration number: 2006/031561/06  Share code: AFP Investment income increases by 13% to R221 million  ISIN code: ZAE 000098067 Headline earnings per linked unit increases by 16% to 88 cents per linked unit for the six month period REVIEW OF ACTIVITIES Introduction Alexander Forbes Preference Share Investments Limited (“AF Pref”) was incorporated on 10 October 2006 following the bid by a private equity consortium to take private the then listed Alexander Forbes Group. The purpose of the company is to serve as the special purpose vehicle through which certain existing shareholders of Alexander Forbes Limited could remain invested following the private equity buyout of the Group with effect 26 July 2007. The ultimate holding company of the Alexander Forbes Group is now Alexander Forbes Equity Holdings Proprietary Limited (“AFEH”). AF Pref issued linked units that are listed on the JSE Limited and these consist of preference shares issued by AF Pref (effectively representing an interest in the ordinary and preference equity of AFEH) and debentures (effectively representing an interest in the debt instruments issued by subsidiaries of AFEH). AF Pref holds 26.5% of the issued ordinary shares in AFEH and also holds 31.8% of the issued preference shares issued by AFEH. In addition, AF Pref holds 100% of the Pay-in-Kind (“PIK”) debentures issued by a subsidiary of AFEH, Alexander Forbes PIK Funding Proprietary Limited (“AF PIK”), as well as 26.5% of the High-yield Term Loan and relevant assets (“HYTL”) issued by Alexander Forbes Funding Proprietary Limited (“AF Funding”). Results for the period This announcement should be read in conjunction with the announcement made available by AFEH, which provides an overview of the results of the AFEH group for the six month period ended 30 September 2013. In summary, AFEH delivered a strong performance with revenue from continuing operations, net of direct product cost, increasing by 18% to R2.1 billion for the first six months. Profit from continuing operations before non-trading items increased by 11% to R475 million. This growth in operating profit is after taking into account the negative impact of the accounting treatment of long term operating lease during the transition period which, if excluded as explained in the previous financial year, results in a normalised growth in operating profit before non-trading items of 22% compared to the first six months of the previous financial
  • 2. year. After non-trading items, finance costs and taxation, the loss for the period from continuing operations of R24 million is 73% lower than the R89 million loss reported in the first six months of the previous financial year. These results are in respect of the continuing operations of AFEH following the disposals of its Risk Services business, Alexander Forbes Consultants and Actuaries in the UK in previous financial years as well the MIS group of companies and Investment Solutions UK, subject to regulatory approval, concluded in the current period under review. In addition, on 4 November 2013, the group announced the disposal of the Guardrisk group of companies, subject to regulatory approvals and competition commission, while the LCP Switzerland disposal became effective on 4 November 2013. Both these operations have been reclassified as discontinued operations for accounting purposes in the period under review. The loss attributable to AFEH equity holders, which includes the result from discontinued operations and net of non controlling interests, of R34 million is 62% lower than the attributable loss of R89 million in the first half of the previous financial year. This loss for the period should be seen in the context of the interest charge inherent in the funding structure of R419 million as well as the accounting amortisation of intangible assets by AFEH amounting to R72 million for the period. AF Pref’s share of this net loss amounts to R9 million, which is equity accounted in the financial statements, and is the main contributor to the loss reported by AF Pref for the period ended 30 September 2013 of R9 million. In addition to the investment in the equity of AFEH, AF Pref also owns certain debt instruments and related assets issued by subsidiaries of AFEH as described above. The investment income represents income earned on these various instruments and is largely offset by interest expense on the debentures issued in turn by AF Pref and which form part of the linked unit in issue. Investment income for the period of R221 million is 13% higher than the first six months of the previous financial year. The corresponding finance cost paid or payable to debenture holders (linked unit holders) amounts to R218 million, 14% up on the first half of the previous financial year. Overall, earnings per linked unit increased by 22% from 72 cents per unit in the previous period to 88 cents per unit in the current period. Headline earnings per linked unit increased by 16% from 76 cents to 88 cents per unit. Further detail of the results of AFEH and its subsidiaries for the period ended 30 September 2013 is contained in the results announcement made available to AF Pref linked unit holders by AFEH. Change in directorate There has been no change to the board of directors since the publication of our results on 19 June 2013. On behalf of the board of directors: JRP Doidge TJ Fearnhead Director Director Johannesburg Johannesburg 2 December 2013 2 December 2013
  • 3. STATEMENT OF COMPREHENSIVE INCOME for the six months ended 30 September 2013 Investment income Operating expenses Finance costs Share of net loss of associates (net of income tax) Loss before taxation Income tax expense Loss for the period 3 4 Attributable to: Ordinary equity holders Preference shareholders Headline earnings/(loss) (cents) - per ordinary share - per preference share - per debenture - per linked unit Basic earnings/(loss) (cents) - per ordinary share - per preference share - per debenture - per linked unit 221 (1) (218) (9) 196 (1) (191) (24) 411 (2) (401) (50) (7) (2) (20) (1) (42) (3) (21) (45) (9) 2 12 months 31 March 2013 Restated (9) Notes 6 months 30 Sep 2012 Restated (21) (45) (9) Rm 6 months 30 Sep 2013 (21) (45) - - - (4) 92 (5) 81 168 88 76 168 - - - (4) 92 (9) 81 (18) 168 88 72 150 (9) (21) (45) 33 19 44 - - (1) 24 (2) (2) 24 (2) (2) 24 (2) (2) 6 STATEMENT OF OTHER COMPREHENSIVE INCOME for the six months ended 30 September 2013 Loss for the period Share of associate other comprehensive income for the period (net of income tax) that will be reclassified to profit or loss Share of associate other comprehensive income for the period (net of income tax) that will not be reclassified to profit or loss Total comprehensive income/(loss) for the period Total comprehensive income/(loss) attributable to: Ordinary equity holders Preference shareholders Total comprehensive income/(loss) for the period
  • 4. STATEMENT OF FINANCIAL POSITION at 30 September 2013 6 months 30 Sep 2013 6 months 30 Sep 2012 Restated 12 months 31 March 2013 Restated 722 2 536 6 702 2 232 1 5 698 2 344 1 5 3 264 2 940 3 048 1 037 (1) (277) 1 037 (58) (244) 1 037 (34) (268) 759 735 735 Debentures – component of linked units Deferred tax Total liabilities 2 494 11 2 198 7 2 304 9 2 505 2 205 2 313 Total equity and liabilities 3 264 2 940 3 048 1 1 1 - - - 759 237 735 237 735 237 3.20 3.10 3.10 759 2 494 735 2 198 735 2 304 3 253 2 933 3 039 237 237 237 13.73 12.38 12.82 Rm ASSETS Investment in associate Financial assets Other receivables Cash and cash equivalents Total assets EQUITY AND LIABILITIES Ordinary shareholders’ equity Preference shareholders’ interest – component of linked units Non-distributable reserve Accumulated loss Total equity Total equity attributable to ordinary shareholders Number of ordinary shares in issue (‘000) Net asset value per ordinary share (Rand per share) Total equity attributable to preference shareholders Number of preference shares in issue (million) Net asset value per preference share (Rand per share) Total equity attributable to linked unit holders Value of debentures attributable to linked unit holders Net asset value per linked units (Rand per unit) Number of linked units in issue (million) Net asset value per linked units (Rand per unit) Notes 7 8
  • 5. STATEMENT OF CHANGES IN EQUITY Rm At 31 March 2012 Share of associate restatement relating to the adoption of IFRS 10 Consolidated Financial Statements, and IAS 19 Revised Employee Benefits At 31 March 2012 Restated Loss for the period Other comprehensive income Total comprehensive profit/(loss) At 30 September 2012 Restated Loss for the period Other comprehensive income Total comprehensive profit/(loss) At 31 March 2013 Restated Loss for the period Other comprehensive income Total comprehensive profit/(loss) At 30 September 2013 Share capital and premium Preference shareholders Nondistributable reserves Accumulated loss Total equity - 1 037 (77) (218) 742 - 1 037 (77) (5) (223) (5) 737 - - 19 (21) - (21) 19 - 1 037 19 (58) (21) (244) (2) 735 - - 24 (24) - (24) 24 - 1 037 24 (34) (24) (268) 735 - - 33 (9) - (9) 33 - 1 037 33 (1) (9) (277) 24 759 STATEMENT OF CASH FLOWS 6 months 30 Sep 2013 6 months 30 Sep 2012 12 months 31 March 2013 1 (29) 29 (1) - (1) (116) 116 1 (1) (1) Cash flow from investing activities - - - Cash flow from financing activities - - - Net movement in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period 1 5 (1) 6 (1) 6 6 5 5 Rm Cash flow from operating activities Cash generated/(utilised) by operations for the period Payment of interest on debentures Investment income on high yield term loan and relevant assets Net cash inflow/(outflow) from operating activities for period
  • 6. NOTES 1. Basis of preparation These results have been prepared in accordance with, and comply with, International Financial Reporting Standards (“IFRS”), and comply with IAS 34 Interim Financial Reporting, the listing requirements of the JSE Limited and the South African Companies Act No 71 of 2008. The accounting policies applied in the preparation of these summary consolidated financial statements are consistent with those applied in the annual financial statements for the year ended 31 March 2013. These summary consolidated financial statements were compiled under the supervision of Deon Viljoen, CA (SA), the Group Chief Financial Officer. 2. 3. 4. Finance costs Interest cost on financial liability held at amortised cost (debentures) 12 months 31 March 2013 162 50 8 1 - 137 50 8 1 - 286 107 15 2 1 196 411 (218) (191) (401) (2) (1) (3) (2) Investment income Interest and investment income on held-to-maturity financial assets: - PIK Debentures - High Yield term loan - Put & call option agreement - Amendment fee Interest on cash balances 6 months 30 Sep 2012 221 Rm 6 months 30 Sep 2013 (1) (3) Income tax expense South African income tax Deferred tax - Current period The deferred tax balance has been adjusted for the increase in the fair value adjustment from the revaluation of the Put and Call option asset.
  • 7. Rm 5. 6 months 30 Sep 2013 6 months 30 Sep 2012 12 months 31 March 2013 Loss attributable to equity holders and preference shareholders The economic rights to return of capital and dividends for equity holders, preference shareholders and debenture holders are detailed in section 5 of the pre-listing statement issued by AF Pref on 10 July 2007 and in the published annual financial statements. 6. Earnings per share The preference shareholders have the economic rights to return of capital and dividends and as such earnings and headline earnings per share are all attributable to preference shareholders and are nil for ordinary shareholders. Basic and headline earnings per share for ordinary shareholders is therefore zero. 6.1 Basic loss per preference share Basic loss per share is calculated by dividing the loss for the period attributable to equity holders by the weighted average number of preference shares in issue during the period. 6.2 Headline loss per preference share Headline loss per preference share is calculated by excluding all impairment charges and capital gains and losses from the loss attributable to shareholders and dividing the resultant headline earnings by the weighted average number of preference shares in issue during the period. Headline earnings are defined in Circular 3/2009 issued by the South African Institute of Chartered Accountants.
  • 8. 6 months 30 Sep 2013 Rm 6. 12 months 31 March 2013 Restated Earnings per share (continued) 6.3 6 months 30 Sep 2012 Restated Calculation of earnings per share and per linked unit Loss for the period (R million) (a) (9) (21) (45) Earnings attributable to debenture holders (R million) (b) 218 191 401 Headline adjusting items: Share of impairment charge and other capital items of associate (c) - 10 44 Weighted average number of preference shares in issue (millions) (d) 237 237 237 Weighted average number of linked units in issue (millions) (e) 237 237 237 (a)/(d) (4) (9) (18) Headline loss per preference share (cents) (a+c)/(d) (4) (5) - Basic earnings per linked unit (cents) (a+b)/(e) 88 72 150 (a+b+c) /(e) 88 76 168 1 038 1 038 1 038 (1) (315) (52) (284) (34) (306) 722 702 698 Basic loss per preference share (cents) Headline earnings per linked unit (cents) 7. Investment in associate Cost Share of accumulated post-acquisition movement in non-distributable reserves Share of cumulative post-acquisition losses Carrying value in balance sheet
  • 9. 6 months 30 Sep 2013 Financial assets Opening balance High-yield term loan repaid Interest accrued Fair value adjustment 2 344 (29) 212 9 2 050 191 (9) 2 050 (116) 395 15 2 536 2 232 2 344 Analysed as follows: High-yield term loan receivable Put and call option asset Investment in PIK debentures 372 104 2 060 409 73 1 750 364 81 1 899 2 536 9. 12 months 31 March 2013 Closing balance 8. 6 months 30 Sep 2012 2 232 2 344 Debenture interest Interest on debentures issued by AF Pref accrues on a daily basis and will, subject to the terms of the debenture agreement, be capitalised semi-annually on the last day of each interest period. In terms of the debenture agreement, AF Pref is entitled, at its election, to either pay the accrued interest in respect of each interest period or capitalise such interest not paid in cash by adding it to the principal outstanding. Typically interest is paid on debentures as soon as possible after any interest is received on the underlying debt instruments owned by AF Pref. The terms of the PIK debentures issued by a subsidiary of AFEH and held by the company anticipate the roll-up of accrued interest until exit date of the private equity holding or refinance date while the High Yield term loan held may either service interest in cash or capitalise such interest from time to time. The most recent scheduled interest payment date of the HYTL, of which AF Pref owns 26.5%, was 18 June 2013. On that date, R110 million of the total interest due for the period of R135 million was paid by the issuer and AF Pref’s portion was received and paid to debenture holders. AFEH announced that as a result of the ongoing work being undertaken as part of the AFEH group’s capital restructure, the decision was made to extend, with the full support of the senior lenders, all compulsory senior debt repayments due over the next 12 months. In addition the decision was also taken to defer interest payment on the high yield term loan due in December 2013 in anticipation of the proposed capital restructure. These actions provide maximum flexibility in determining the transition to the group’s target capital structure while the Guardrisk sale remains subject to regulatory and competitions commission approvals. A comprehensive announcement regarding the capital restructure will be made at or around the time that regulatory approvals are expected for the Guardrisk disposal.
  • 10. 10. Dividends In line with the original expectations of the entity, no dividends are proposed for the foreseeable future. 11. Restatement of comparative information for the impact of new and revised accounting standards on associate During the current period, the company’s associate, Alexander Forbes Equity Holdings (Pty) Ltd, restated its comparative information for the adoption of IFRS 10 Consolidated Financial Statements, and IAS 19 revised Employee Benefits. As a result of this restatement, the company has restated its share of equity accounted earnings from the associate. The impact of these restatements on the statement of comprehensive income, statement of other comprehensive income and the statement of financial position on the AF Pref comparative information is set out in the tables below: As previously reported Share of associate restatement Restated 707 2 232 1 5 (5) - 702 2 232 1 5 2 945 (5) 2 940 - - 1 037 1 037 (58) (239) (5) (58) (244) 740 (5) 735 Debentures – component of linked units Deferred tax Total liabilities 2 304 9 - 2 198 7 2 313 - 2 205 Total equity and liabilities 2 945 - 2 940 IMPACT ON STATEMENT OF FINANCIAL POSITION – SEPTEMBER 2012 ASSETS Investment in associate Financial assets Other receivables Cash and cash equivalents Total assets EQUITY AND LIABILITIES Ordinary shareholders’ equity Preference shareholders’ interest – component of linked units Non-distributable reserve Accumulated loss Total equity There is no adjustment to the statement of comprehensive income or statement of other comprehensive income at September 2012.
  • 11. As previously reported Share of associate restatement Restated (2) 411 (2) (401) (50) IMPACT ON STATEMENT OF COMPREHENSIVE INCOME – MARCH 2013 Investment income Operating expenses Finance costs Share of net loss of associates (net of income tax) Loss before taxation Income tax expense Loss for the period 411 (2) (401) (48) (2) (42) (3) (43) (2) (45) (43) (2) (45) (43) Attributable to: Ordinary equity holders Preference shareholders (40) (3) (2) (45) (43) (2) (45) IMPACT ON STATEMENT OF OTHER COMPREHENSIVE INCOME – MARCH 2013 Loss for the year Share of associate other comprehensive income for the year (net of income tax) will be reclassified to profit or loss Share of associate other comprehensive income for the year (net of income tax) will not be reclassified to profit or loss Total comprehensive income/(loss) for the year Total comprehensive (loss)/ income attributable to: Ordinary equity holders Preference shareholders Total comprehensive income/(loss) for the year 44 44 - (1) (1) 1 (3) (2) 1 (3) (2) 1 (3) (2)
  • 12. As previously reported Share of associate restatement Restated 706 2 344 1 5 (8) - 698 2 344 1 5 3 056 (8) 3 048 - - 1 037 1 037 (33) (261) (1) (7) (34) (268) 743 (8) 735 Debentures – component of linked units Deferred tax Total liabilities 2 304 9 - 2 304 9 2 313 - 2 313 Total equity and liabilities 3 056 - 3 048 IMPACT ON STATEMENT OF FINANCIAL POSITION – MARCH 2013 ASSETS Investment in associate Financial assets Other receivables Cash and cash equivalents Total assets EQUITY AND LIABILITIES Ordinary shareholders’ equity Preference shareholders’ interest – component of linked units Non-distributable reserve Accumulated loss Total equity
  • 13. Independent directors: JRP Doidge (Chairman) TJ Fearnhead B Harmse Non-executive director: DM Viljoen Company secretary and Investor relations: JE Salvado (Ms) Transfer secretaries: Computershare Investor Services Proprietary Limited Ground Floor 70 Marshall Street Johannesburg. PO Box 61051 Marshalltown 2107 rd Registered office: 3 Floor 200 On Main Corner Main and Bowwood Roads Claremont 7708 Sponsor: Rand Merchant Bank (A division of FirstRand Bank Limited) 1 Merchant Place Corner Fredman Drive and Rivonia Road Sandton 2196 Alexander Forbes Preference Share Investments Limited Registration number: 2006/031561/06 Share code: AFP ISIN code: ZAE 000098067 Website: www.alexanderforbes.co.za