MET - Metropolitan Holdings Financial Services Group audited group results
MET
MET
MET - Metropolitan Holdings Financial Services Group audited group results
for the year ended 31 December 2009
Metropolitan Holdings Limited
Incorporated in the Republic of South Africa
Registration Number: 2000/031756/06
JSE share code: MET
NSX share code: MTD
ISIN: ZAE000050456
("Metropolitan" or "the company" or "the group")
METROPOLITAN HOLDINGS FINANCIAL SERVICES GROUP AUDITED GROUP RESULTS FOR THE
YEAR ENDED 31 DECEMBER 2009
HIGHLIGHTS
- 12% return on embedded value
- Embedded value increased 6% to 1 811 cents per share
- Group capital cover increased to 3.7 times
- Diluted earnings per share increased to 188 cents
- Dividend increased to 100 cents per share
REVIEW OF OPERATIONS AND PROSPECTS
Operating environment
The investment markets remained extremely turbulent and unpredictable
throughout the year, long bond interest rates increased further. Increased
inflation and extensive job losses put pressure on our clients` disposable
income, as well as on the group`s capital and operating profits during the
year.
Salient features and highlights
- Diluted core headline earnings per share for the year held up well in a
difficult environment, decreasing by only 7% over 2008 - 5% better than
the 2009 half-year results comparison.
- Earnings and headline earnings, boosted by mark-to-market gains,
increased significantly when compared to the loss disclosed in the prior
year.
- The general economic slow-down affected growth in operating profit
across the group.
- Total recurring new business premium income fell 9%, while the value of
new insurance business declined 52%, driven primarily by the performance
of the direct marketing channel.
-
Investment income on shareholder assets was in line with the previous
year and expectations.
- The economic capital requirement of the group remained stable, reducing
marginally to R4.3 billion, mainly as a result of a decline in projected
economic volatilities and improved capital modelling.
- The group`s overall capital position improved, resulting in a strong
group statutory capital adequacy requirement (CAR) cover of 3.7 times.
- Embedded value per share increased from 1 709 cents (31 December 2008)
to 1 811 cents, despite the group paying out 95 cents per share in
dividends.
- Cash flows from clients came under pressure during the year; net inflows
of R1.5 billion were recorded by the group.
- The ordinary dividend per share was
increased to 100 cents, reflecting
the improved operating outlook.
Operational overview
Retail
- New business PVP (present value of expected premiums) ended 32% lower,
primarily as a result of the closure of loss-making products.
- The mix of new recurring business sold during the period changed, with a
switch from savings to risk policies.
- The increasingly difficult conditions experienced by consumers led to a
higher propensity to lapse or surrender life insurance policies.
However, ongoing focused management action in this area resulted in
better overall persistency during the year than would have been expected
in the current economic conditions.
- The direct marketing partnership, which was extensively scaled back
during the year, had a negative impact on both operating profit and
value of new business (VONB).
- The retail new business margin fell from 2.8% to 1.6% (PVP basis) as a
result of higher discount rates, poor persistency at direct marketing
and the new commission and early terminations dispensation for savings
business.
- Operating profit decreased by 15%, dampened by lower average investment
assets, the effects of the worsening economic environment on certain
product lines and increased new business strain on the sale of
investment products following the implementation of higher minimum
surrender values and the new commission regulations.
Corporate
- Good single premium new business resulted in a 13% increase in new
business PVP.
- In addition, a significant volume of off balance sheet administration
business was written on the new Neon product.
- Risk margins remained under pressure throughout the period, dampening
operating profits compared to 2008.
- The new business PVP margin increased from 0.8% to 0.9%, reflecting the
improved volumes and changes in the business mix.
- Although the growth in off balance sheet administration business did not
contribute to new business premium income, it did impact the new
business margin as it assisted with the recovery of costs and boosted
the value of new business.
- Operating profit ended 8% down, reduced by lower asset-based fees and
weaker risk profits.
International
- New business recurring premium income, from all seven operations, was
boosted by the inclusion of the "new" countries and good performance in
Lesotho, growing 10% compared to 2008.
- With the inclusion of all operations in the number for the first time, a
reduced new business margin of 2.0% (PVP) was recorded.
- We continue to seek strategic alliances and partners in the countries
where we operate, particularly in Kenya, Swaziland and Lesotho.
- Total operating profit fell 5% as a result of higher start-up losses in
the northern operations and increased claims on group business, as well
as the negative effect of a
volatile exchange rate and tough operating
conditions in all markets.
Asset management
- The value of new business, comprising collective investment inflows and
third-party mandates, remained flat at R39 million.
- MetAM delivered good absolute and relative investment performance over
the period, with a particularly strong delivery on equity mandates.
- Net inflows of R1.5 billion were recorded for the year.
- Operating profit, however, declined by 6% as a result of administration
margin compression and lower average investment asset levels.
Health (MHG)
- New business flows increased, mostly as a result of the tremendous
growth in membership of the Government Employees Medical Scheme
(GEMS).
- Total principal members under administration, including franchise, at
the year-end were 855 000 (over two million lives), confirming MHG`s
status as South Africa`s largest administrator of restricted medical
schemes.
- As a result of the continued growth in members, together with improved
operational efficiencies, operating profit before tax increased by 8%.
- Operating profit after tax was reduced by STC on a dividend paid to
Metropolitan Holdings during 2009.
Capital management
- The investment markets remained extremely volatile and unpredictable,
both locally and internationally.
- The group actively monitored its capital position throughout the year in
order to
protect shareholder capital.
- Dynamic asset allocation, capital protection and other strategies were
applied where deemed appropriate.
- Smoothed bonus funds recovered during the year, with all funds ending
the year with strong funding levels well in excess of the 92.5%
reporting threshold.
- The year-end economic capital required by the Metropolitan group was
R4.3 billion, 2.1 times the statutory requirement.
- The actual capital held by the group at year-end exceeded this
requirement by approximately R2 billion.
- The operations remained well capitalised, with a group CAR cover ratio
of 3.7 times.
Prospects
- Metropolitan continues to create prosperity for Africa`s people by
providing appropriate products that are both accessible and affordable.
- Africa, as a largely untapped market, provides a number of opportunities
for the group.
- All the businesses are facing opportunities and threats posed by ongoing
changes in the highly regulated environments in which they operate.
- Food and transport inflation, together with rising unemployment, remain
the biggest challenges to the group`s core target market. Further
deterioration in the above factors will reduce new business prospects
and possibly challenge the persistency of the in-force book.
- The board is satisfied that the group remains strategically well
positioned, thanks to its strong focus on client service, product
innovation, business retention, cost containment, diversification and
capital management.
DIRECTORS` STATEMENT
The directors take pleasure in presenting the audited results of the
Metropolitan Holdings financial services group for the year ended 31 December
2009.
Basis of presentation of financial information
These results have been prepared in accordance with International Financial
Reporting Standards (IFRS) and International Financial Reporting
Interpretations Committee (IFRIC) interpretations issued and effective at the
time of preparing these results, including compliance with IAS 34 Interim
financial reporting. They are also in compliance with the listings
requirements of the JSE Limited
and the Companies Act of South Africa.
The accounting policies of the group have been applied consistently to all
periods presented. The preparation of financial statements in accordance
with IFRS requires the use of certain critical accounting estimates as well
as the exercise of managerial judgement in the application of the group`s
accounting policies. Such judgement, assumptions and estimates are disclosed
in detail in the annual financial statements for the year ended 31 December
2009.
Changes to presentation and restatement of 2008 results
Distribution costs have been reallocated from sales remuneration to other
expenses while fee income on certain investment contracts was changed from
that disclosed in 2008. These changes are not material and have no impact on
group earnings. The full details are disclosed in the
annual financial
statements at 31 December 2009.
CORPORATE GOVERNANCE
The board has satisfied itself that appropriate principles of corporate
governance were applied throughout the year under review.
DIRECTORATE CHANGES AND DIRECTORS` SHAREHOLDING
Wiseman Nkuhlu resigned from the board with effect from 17 March 2009. JJ
Njeke was appointed acting chairman at that time, and then on 26 January 2010
he was appointed chairman. Dr Sonn retired as a director on 11 October 2009
and Andile Sangqu resigned from the board on 8 December 2009. Mary Vilakazi
and Joyce Matlala were appointed to the board on 2 November 2009 and 26
January 2010 respectively. On 7 January 2010 Bongiwe Gobodo-Mbomvu resigned
as company secretary. No further changes have occurred. All transactions in
listed shares involving directors were disclosed on SENS as required.
CAPITAL COMMITMENTS AND CONTINGENT LIABILITIES
The group had no material capital commitments at 31 December 2009. The group
is party to legal proceedings in the normal course of business, and
appropriate provisions are made when losses are expected to materialise.
EVENTS AFTER THE REPORTING PERIOD
No material events occurred between the reporting date and the date of
approval of the annual financial statements.
DIVIDEND DECLARATION
Ordinary listed shares
The dividend policy for ordinary listed shares, approved by the directors and
consistent with prior years, is to provide shareholders with stable dividend
growth that reflects
expected growth in underlying earnings in the medium
term, while allowing the dividend cover to fluctuate.
An interim dividend of 40.00 cents per ordinary share was declared and paid
in September 2009. On 9 March 2010 a final dividend of 60.00 cents per
ordinary share was declared. This dividend is payable to the holders of
ordinary shares recorded in the register of the company at the close of
business on Friday, 9 April 2010 and will be paid on Monday, 12 April 2010.
The last day to trade "cum" dividend will be Wednesday, 31 March 2010. The
shares will trade "ex" dividend from the start of business on Thursday, 1
April 2010. Share certificates may not be dematerialised or rematerialised
between Thursday, 1 April and Friday, 9 April 2010, both days inclusive.
Where applicable, dividends in respect of certificated shareholders will be
transferred electronically to shareholders` bank
accounts on payment date. In
the absence of specific mandates, dividend cheques will be posted to
certificated shareholders on or about payment date. Shareholders who hold
dematerialised shares will have their accounts with their CSDP or broker
credited on Monday, 12 April 2010.
Staff share purchase scheme dividend
A dividend of R7 million (2008: R11 million) was declared on the unlisted
shares in the staff share purchase scheme, as provided for in the trust deed.
Preference share dividend
Dividends of R12 million (8.9% p.a.), R5 million (8.9% p.a.), and R25 million
(15.8% p.a.) were declared on 9 March 2010 on the unlisted A1, A2 and A3
Metropolitan preference shares respectively, and are payable on 31 March
2010.
Dividends of R31 million (14.1% p.a.), R6 million (40.00 cents per share) and
R26 million (15.8% p.a.) were declared in September 2009 on the unlisted A1,
A2 and A3 Metropolitan preference shares respectively, and paid on 30
September 2009.
The declaration rate was determined as set out in the company`s articles.
Preference share dividends are included under finance costs in these results.
AUDIT OPINION
The auditors, PricewaterhouseCoopers Inc, have issued their opinion on the
group financial statements for the year ended 31 December 2009. A copy of
their unqualified report is available for inspection at the company`s
registered office.
INDEPENDENT ACTUARIAL REVIEW
The embedded value and
value of new business results have been reviewed by
Deloitte & Touche.
Signed on behalf of the board
Wilhelm van Zyl Group chief executive
JJ Njeke Group chairman
Cape Town
9 March 2010
Directors:
JJ Njeke (non-executive group chairman), Wilhelm van Zyl (group chief
executive), Phillip Matlakala (executive director), Preston Speckmann (group
finance director), Fatima Jakoet, Peter Lamprecht, Joyce Matlala, Syd Muller,
John Newbury, Bulelwa Paledi, Marius Smith, Johan van Reenen, Mary Vilakazi
Secretary: Thobeka Sishuba-Mashego (designate)
Registration number: 2000/031756/06
Registered office: 7 Parc du Cap, Mispel Road, Bellville 7535
JSE code: MET
NSX code: MTD
ISIN NO. ZAE000050456
Transfer secretaries Sponsor
Link Market Services SA (Pty) Ltd Merrill Lynch
(Registration number 2000/007239/07) South Africa
5th Floor, 11 Diagonal Street, (Pty) Limited
Johannesburg, 2001
P O Box 4844, Johannesburg, 2000
Telephone: +27 11 834 2266
E-mail: info@linkmarketservices.co.za
Summary of financial information
AUDITED GROUP RESULTS FOR THE YEAR ENDED 31 DECEMBER 2009
Basis of presentation of financial information
These results have been prepared in accordance with International Financial
Reporting Standards (IFRS) and International Financial Reporting
Interpretations Committee (IFRIC) interpretations issued and effective at the
time of preparing these results, including compliance with International
Accounting Standard 34 (IAS34) - Interim Financial Reporting. They are also
in compliance with the guidelines issued by the Actuarial Society of South
Africa; the disclosure requirements of the JSE Limited (JSE) and the
Companies Act of South Africa.
The accounting policies
of the group have been applied consistently to all
periods presented. The preparation of financial statements in accordance
with IFRS requires the use of certain critical accounting estimates as well
as the exercise of managerial judgement in the application of the group`s
accounting policies. Such judgement, assumptions and accounting estimates are
disclosed in detail in the annual financial statements for the year ended 31
December 2009.
Restatement of 2008 results
- The disclosure of sales remuneration has been reconsidered.
Distribution costs are no longer considered part of sales remuneration
and have been reallocated to other expenses. This resulted in an
increase of other expenses of R140 million and a corresponding decrease
in sales remuneration. This had no impact on the
group`s earnings. The
distribution costs for the current year would have been R113 million.
- Fee income on certain investment contracts was incorrectly allocated in
the December 2008 results. This resulted in a decrease in fee income of
R80 million with a corresponding change in fair value adjustments. This
had no impact on the group`s earnings.
Standards and interpretations of published standards effective in 2009 and
relevant to the group
- IAS 1 (Revised) - Presentation of financial statements. The revised
standard prohibits the presentation of non-owner changes in equity in
the statement of changes in equity, requiring all such income and
expense items to be presented separately from owner changes in equity.
The group has therefore prepared a statement of comprehensive income as
well
as a statement of changes in equity for the current results.
- The following standards: IFRS 2 (Amendment) - Share-based payments, IFRS
7 (Amendment) - Financial instruments disclosures: Improving disclosures
about financial instruments, IFRIC 16 - Hedges of a net investment in a
foreign operation and AC 503 (Revised) - Accounting for black economic
empowerment transactions had no impact on the group`s earnings.
- The International Accounting Standards Board (IASB) made amendments to
various standards as part of their annual improvements project. These
amendments had no impact on the group`s earnings.
METROPOLITAN HOLDINGS - GROUP RESULTS
CONSOLIDATED STATEMENT OF FINANCIAL POSITION 31.12.2009 31.12.2008
Rm Rm
ASSETS
Intangible assets
464 525
Owner-occupied properties 690 678
Property and equipment 202 186
Investment properties 3 193 3 031
Investment in associates 856 663
Investment in joint venture - 35
Employee benefit assets 232 248
Financial instrument assets (1) 56 201 53 692
Insurance and other receivables 1 579 1 507
Deferred income tax 10 12
Reinsurance contracts 242 212
Current income tax assets 200 14
Cash and cash equivalents
7 702 8 810
Total assets 71 571 69 613
EQUITY
Equity attributable to owners of the parent 6 612 5 847
Minority interests 167 141
Total equity 6 779 5 988
LIABILITIES
Insurance contract liabilities
Long-term insurance contracts (2) 35 807 32 023
Capitation contracts 2 2
Financial instrument liabilities
Investment contracts 23 471 25 209
- with
discretionary participation features 12 022 11 278
(2)
- designated as fair value through income 11 449 13 931
Other financial instrument liabilities (3) 2 308 3 119
Deferred income tax 394 127
Employee benefit obligations 202 188
Other payables 2 601 2 934
Current income tax liabilities 7 23
Total liabilities 64 792 63 625
Total equity and liabilities 71 571 69 613
(1) Financial instrument assets consist of the following:
Assets designated as fair value through
income: R54 441 million (2008:
R50 795 million)
Assets held for trading: R718 million (2008: R1 764 million)
Available-for-sale assets: R2 million (2008: R5 million)
Loans and receivables: R1 040 million (2008: R1 128 million)
(2) Under IFRS4 - Insurance contracts, the group continues to account for
long-term insurance contracts and investment contracts with
discretionary participation features using SA GAAP.
(3) Other financial instrument liabilities consist of the following:
Liabilities designated as fair value through income: R301 million (2008:
R272 million)
Liabilities held for trading: R787 million (2008: R1 498 million)
Liabilities at amortised cost: R1 220 million (2008: R1 349 million)
METROPOLITAN HOLDINGS - GROUP RESULTS
STATEMENT OF ACTUARIAL VALUES OF ASSETS AND 31.12.2009 31.12.2008
LIABILITIES ON REPORTING BASIS Rm Rm
Total assets per statement of financial 71 571 69 613
position
Actuarial value of policy liabilities per (59 278) (57 232)
statement of financial position
Other liabilities per statement of financial (5 514) (6 393)
position
Minority interests per statement of financial (167) (141)
position
Excess - group per reporting basis 6 612 5 847
Net assets - other
businesses (721) (934)
Excess - long-term insurance business (4) 5 891 4 913
LONG-TERM INSURANCE BUSINESS (4)
Change in excess of long-term insurance 978 (802)
business (4)
Increase in share capital (25) (39)
Metropolitan Nigeria (74) -
Change in other reserves 18 (45)
Dividend paid 336 1 053
Total surplus arising 1 233 167
Operating profit 634 734
Investment income on excess 313 309
Net realised and fair value gains/(losses) on
397 (329)
excess
Investment variances (5) 279 (387)
Basis and other changes (390) (197)
Employee benefit assets (6) - 37
Consolidation adjustments 125 75
Income tax expenses/(credits) (7) 357 (170)
Adjustment for finance costs 46 49
Results of long-term insurance business (4) 1 761 121
Results of other group businesses 73 (277)
Results of operations per income statement 1 834 (156)
METROPOLITAN HOLDINGS - GROUP RESULTS
STATEMENT OF ACTUARIAL VALUES OF ASSETS AND 31.12.2009 31.12.2008
LIABILITIES ON STATUTORY BASIS
