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Alexander Forbes Group Holdings Limited(previously Alexander Forbes Equity Holdings Proprietary Limited)
(Incorporated in the Republic of South Africa)(Registration number 2006/025226/06)
JSE share code: AFH ISIN: ZAE000191516
PRE-LISTING STATEMENT
This pre-listing statement relates to an offer for subscription by Alexander Forbes Group Holdings Limited (the “Company”) and a concurrent offer for sale by certain of the Company’s existing shareholders (the “Selling Shareholders”), subject to certain conditions (the “Offer”), to institutional investors and, by invitation, to other selected investors who will be subscribing for or purchasing Offer Shares (as defined below) with a minimum acquisition cost of R1 ,000 ,000, in South Africa, and to selected institutional investors in other jurisdictions (the “Applicants”), of 431,940,542 Shares (as defined below) in the share capital of the Company (assuming an Offer Price at the mid-point of the Offer Price Range, as defined below) (the “Offer Shares”). The Offer Shares comprise 44, 117,647 Shares to be issued by the Company (the “Subscription Shares”) and 387,822,895 Shares to be sold by the Selling Shareholders (the “Sale Shares”), comprising in aggregate 33. 4 percent of the total issued share capital of the Company at Listing. A further 64,791,081 Shares (the “Overallotment Shares”) may be sold by the Selling Shareholders pursuant to a 30-day option which the Selling Shareholders intend to grant to the joint global coordinators and the joint bookrunners for the Offer (the “Joint Bookrunners”) for the purpose of covering short positions resulting from overallotments or from sales of Offer Shares at or before the end of the Stabilisation Period (the “Overallotment Option”). Offer Shares rank pari passu with existing Shares in all respects. This pre-listing statement is not an invitation to the general public to subscribe for or purchase the Offer Shares, but is issued in compliance with the Listings Requirements (“Listings Requirements”) of JSE Limited (the “JSE”).
It is currently estimated that the price at which the Offer Shares will be offered for sale or subscription pursuant to this pre-listing statement (the “Offer Price”) will be between R 6.90 and R 8.05 per Offer Share (the “Offer Price Range”). However, the Offer Price may be outside the Offer Price Range.
The Offer Shares will be delivered in dematerialised form only and, accordingly, no documents of title will be issued to successful Applicants.
The JSE has granted the Company a listing in respect of up to 1,298,524,384 Shares (the “Listing”) in the “Financial Services” sector under the abbreviated name “ AFORBES ”, share code “AFH” and ISIN: ZAE000191516, subject to the fulfilment of certain conditions (including the JSE’s spread and free float requirements, as set out in the Listings Requirements, being attained). The Company intends to make an application to the JSE for the listing of Shares to be issued pursuant to the 2014 Exit Transaction Incentive Plan, which Shares are expected to be listed on or around the Listing Date. Following the Listing, all the issued Shares of the Company are expected to be listed on the exchange operated by the JSE.
Joint Bookrunner, Joint Global
Coordinator and Joint Financial Advis or
Joint Bookrunner and
Joint Global Coordinator
Joint Bookrunner, Joint Global
Coordinator and Joint Financial Advis or
Deutsche Bank AG, London Branch
Morgan Stanley & Co. International plc
Rand Merchant Bank
Joint Transaction Sponsor JSE Sponsor and Lead
Transaction Sponsor
Deutsche Securities (SA) Proprietary Limited
Rand Merchant Bank
South African legal advisor
to the Company
U.S. counsel & English
legal advisor to the Company
South African legal advisor to
the Joint Bookrunners
U.S. counsel & English legal
advisor to the Joint Bookrunners
Bowman Gilfi llan Inc. Davis Polk & Wardwell London LLP
Edward Nathan Sonnenbergs Inc.
Freshfields Bruckhaus Deringer LLP
At the date of Listing (the “Listing Date”), the authorised share capital of the Company will comprise 2 ,500 ,000 ,000 ordinary no par value shares (the “Shares”) and 45 ,000 ,000 “B” preference shares each having a par value of R0.01 (the “B” Preference Shares”), and the entire issued share capital will be comprised of no more than 1 , 304, 434, 505 Shares and 21 ,161 ,113 “B” Preference Shares. All of the “B” Preference Shares will be redeemed immediately upon Listing at a premium of R 157 ,438 ,681 . There will be no other class of shares authorised or in issue by the Company at the Listing Date.
The Offer is subject to a minimum subscription. The minimum subscription which must be realised by the Company is that which enables it to ensure (in conjunction with the Shares sold by the Selling Shareholders) that the Company has, once the Offer is completed, such number and composition of shareholders as will enable it to meet the minimum free float and shareholder spread requirements, as prescribed by the Listings Requirements and acceptable to the JSE, as referred to below. There is no minimum capital requirement to be realised by the Offer. The Listing will not proceed if the minimum subscription is not achieved, and any acceptance of the Offer shall not take effect and no person shall have any claim whatsoever against the Company, the Selling Shareholders, the Joint Bookrunners or any other person as a result of the failure of any condition.
The Listings Requirements provide that a minimum of 20 percent of the Shares must be held by the public and the number of public shareholders must be at least 300, all as defined by the Listings Requirements.
The Offer is not an offer to the public as contemplated in the South African Companies Act (the “Companies Act”) and this pre-listing statement does not, nor does it intend to, constitute a “registered prospectus”, as contemplated by the Companies Act. Accordingly, no prospectus has been filed with the South African Companies and Intellectual Property Commission in respect of the Offer. The JSE has approved this pre-listing statement.
The Offer Shares have not been and will not be registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”). In addition, the Company has not been and will not be registered under the U.S. Investment Company Act of 1940, as amended (the “U.S. Investment Company Act”), and related rules. In the United States, the Offer is being made only to persons who are both: (i) qualified institutional buyers, in reliance upon Rule 144A under the U.S. Securities Act (“Rule 144A”) and (ii) qualified purchasers, as defined in Section 2(a)(51) of the U.S. Investment Company Act, Purchasers in the United States or who are U.S. persons will be required to execute and deliver a U.S. Investment Letter set forth in Appendix A. Prospective purchasers or subscribers that are qualified institutional buyers are hereby notified that the Company and the Selling Shareholders may be relying on the exemption from the provisions of Section 5 of the U.S. Securities Act provided by Rule 144A. Outside the United States, the Offer is being made to institutional investors in reliance on Regulation S under the U.S. Securities Act (“Regulation S”).
None of the U.S. Securities and Exchange Commission (the “SEC”), any other U.S. federal or state securities commission nor any U.S. regulatory authority has approved or disapproved of the Shares nor have such authorities reviewed or passed upon the accuracy or adequacy of this pre-listing statement. Any representation to the contrary is a criminal offence in the United States.
Opening date of the Offer: 09:00 on Monday, 7 July 2014
Expected last date for indication of interest for the purposes of the bookbuild: 1 2:00 on Thursday, 17 July 2014
Publication date of the final Offer Price and final number of Offer Shares: Friday, 18 July 2014
Successful applicants advised of allocations: Friday, 18 July 2014
Expected Listing Date: 09:00 on Thursday, 24 July 2014
All times referred to in this pre-listing statement are times in South Africa .
The Offer is subject to the conditions set out in “Particulars of the Offer —The Offer”.
The directors of the Company, whose names are given in the “Management and Corporate Governance —Directors of the Company” section on page 7 0 of this pre-listing statement, collectively and individually, accept full responsibility for the accuracy of the information contained herein and certify that, to the best of their knowledge and belief, there are no facts that have been omitted which would make any statement false or misleading, and that all reasonable enquiries to ascertain such facts have been made and that this pre-listing statement contains all information required by law, the Companies Act and the Listings Requirements.
The auditors and independent reporting accountants, whose reports are contained in this pre-listing statement, have given and have not withdrawn their written consents to the inclusion of their reports in the form and context in which they appear herein. Each of the Joint Bookrunners, Transaction Sponsors, legal advisors and auditors and independent reporting accountants named in this pre-listing statement have consented in writing to act in those capacities as stated in this pre-listing statement and have not withdrawn their consent prior to the publication of this pre-listing statement.
This pre-listing statement is only available in English and copies thereof may be obtained (by persons invited to participate in the Offer) during normal business hours from 7 July 2014 until 17 July 2014 from the Company and each of the Joint Bookrunners, at their respective physical addresses which appear in the “Corporate Information” section on pages v and vi of this pre-listing statement. This pre-listing statement will also be available on the Company’s website at www.alexanderforbes.co.za from 7 July 2014 until 17 July 2014.
It should be noted that the acquisition of the Offer Shares involves risks and investors are referred to the “Risk Factors” section beginning on page 18 of this pre-listing statement.
Annexure 1 contains a list of definitions of terms used in this document, including these cover pages.
Date of issue 7 July 2014
i
Certain Defi nitions
For purposes of this pre-listing statement, references to the “Company” refer to Alexander Forbes Group
Holdings Limited, the issuer of the Offer Shares. References to “Alexander Forbes” and “Group” are to
Alexander Forbes Group Holdings Limited and its consolidated subsidiaries, except where the context requires
otherwise. See also “Presentation of Financial and Other Information”.
Last Practicable Date
Unless the context clearly indicates otherwise, all information provided in this pre-listing statement is provided
as at the Last Practicable Date, being Friday, 27 June 2014.
Special Note in Regard to the Offer
This is not an offer to the general public and only constitutes an offer for the subscription and sale of the Offer
Shares in South Africa to selected investors who fall within the exemptions set out in Section 96(1)(a) or (b) of
the Companies Act and, accordingly, would not be considered to be the “public” for the purposes of the
Companies Act, and to selected investors in other jurisdictions to whom the Offer will specifi cally be addressed
and is only addressed to persons to whom it may lawfully be made.
The distribution of this pre-listing statement and the making of the Offer may be restricted by law. It is the
responsibility of any person into whose possession this pre-listing statement comes to inform themselves
about and observe any such restrictions. Any failure to comply with any of those restrictions may constitute
a violation of the laws of any such jurisdiction. This pre-listing statement does not constitute an offer of, or
an invitation to subscribe for or purchase, any of the Offer Shares in any jurisdiction in which such offer,
subscription or sale would be unlawful.
To the extent that this pre-listing statement is provided to persons outside South Africa the following is noted:
Notice to New Hampshire Residents
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENCE HAS
BEEN FILED UNDER RSA 421 B WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY
IS EFFECTIVELY REGISTERED OR A PERSON IS LICENCED IN THE STATE OF NEW HAMPSHIRE
CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER RSA 421 B
IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN
EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE
SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR
RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL
TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY
REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
Certain Regulatory Issues Related to the United Kingdom
This pre-listing supplement is only being distributed to and is only directed at: (i) persons who are outside the
United Kingdom, or (ii) to investment professionals falling within Article 19(5) of the Financial Services and
Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) or (iii) high net-worth entities falling within
Articles 49(2)(a) to (d) of the Order, and other persons to whom it may lawfully be communicated (all such
persons together being referred to as “relevant persons”). This document is directed only at relevant persons
and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment
activity to which this document relates is available only to relevant persons and will be engaged in only with
relevant persons.
Notice to European Economic Area Investors
This pre-listing statement has been prepared on the basis that all offers of the Offer Shares would be made
pursuant to an exemption under the Prospectus Directive (as defi ned below), as implemented in member states
of the European Economic Area (the “EEA”), from the requirement to produce a prospectus for offers of the
Offer Shares. Accordingly, any person who made or intended to make any offer within the EEA of Offer
Shares which were subject of the placement contemplated in this pre-listing statement could only do so in
circumstances in which no obligation arises for the Company or any of the Joint Bookrunners to produce a
prospectus for such offer. Neither the Company nor any of the Joint Bookrunners has authorised, nor do they
authorise, the making of any offer of Offer Shares through any fi nancial intermediary, other than offers made
by the Joint Bookrunners which constitute the fi nal placement of Offer Shares contemplated in this pre-listing
statement.
In relation to each member state of the EEA which has implemented the Prospectus Directive (each, a “relevant
member state”), no Offer Shares have been offered or will be offered pursuant to the Offers contemplated by
this pre-listing statement to the public in that relevant member state, except in that relevant member state at
any time under the following exemptions under the Prospectus Directive, if they have been implemented in
that relevant member state:
ii
• to any legal entity which is a qualified investor as defined in the Prospectus Directive;
• by the Joint Bookrunners to fewer than 100 or, if the relevant member state has implemented the relevant
provision of the 2010 PD Amending Directive, 150 natural or legal persons (other than qualified investors
as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining
the prior consent of the Joint Bookrunners; or
• in any other circumstances falling within Article 3(2) of the Prospectus Directive ;
provided that no such offer of Offer Shares required the Company or any of the Joint Bookrunners to
publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant
to Article 16 of the Prospectus Directive.
For the purposes of this legal notice, the expression an “offer to the public” in relation to any Offer Shares in
any relevant member state means the communication in any form and by any means of suffi cient information
on the terms of the Offer and any Offer Shares to be offered so as to enable an investor to decide to purchase
any Offer Shares, as the same may be varied in that member state by any measure implementing the Prospectus
Directive in that member state, the expression “Prospectus Directive” means Directive 2003/71/EC (and
amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the relevant
member state) and includes any relevant implementing measure in the relevant member state and the
expression “2010 PD Amending Directive” means Directive 2010/73/EU.
Stabilisation
In connection with the Offer, the Stabilisation Manager may, subject to applicable law, overallot or effect
transactions with a view to supporting the market price of the Shares at a level above that which might
otherwise prevail for a limited period after the Listing Date. There is, however, no assurance that the
Stabilisation Manager will undertake any such actions and it is under no obligation to do so. Such actions may
be effected on the JSE, and will be carried out in accordance with the Listings Requirements and other
applicable rules and regulations. Such stabilisation, if commenced, may be discontinued at any time without
prior notice and will in any event be discontinued after the stabilisation period. Such stabilising action may
under no circumstances continue beyond the 30th calendar day after the Listing Date.
Special Note Regarding Forward-Looking Statements
The following cautionary statements identify important factors that could cause the Group’s actual results to
differ materially from those projected in the forward-looking statements made in this pre-listing statement.
Any statements about the Company’s expectations, beliefs, plans, objectives, assumptions or future events or
performance are not historical facts and may be forward-looking. These statements are often, but not always,
made through the use of words or phrases such as “will”, “will likely result”, “are expected to”, “will continue”,
“believe”, “is anticipated”, “estimated”, “intends”, “expects”, “plans”, “seek”, “projection” and “outlook”. These
statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially
from those expressed in them. Any forward-looking statements are qualifi ed in their entirety by reference to
the factors discussed throughout this pre-listing statement. Key factors that have a direct bearing on the
Group’s results of operations include:
• the ability to successfully implement its growth strategies;
• the impact of changes in legislation and regulation in South Africa and other jurisdictions in which it
operates;
• the impact of macro-economic conditions in the countries in which it operates;
• operational risks inherent in the Group’s business;
• the impact of investigations or legal proceedings in respect of the Group’s business;
• possible “errors and omissions” claims against the Group;
• the impact of competition;
• fluctuations in the financial markets;
• the impact of adverse trends in the insurance industry and other industries in which the Group operates;
and
• the Group’s ability to attract and retain qualified personnel.
Because the risk factors referred to in this pre-listing statement could cause actual results or outcomes to
differ materially from those expressed in any forward-looking statements made in this pre-listing statement
by the Company or on the Company’s behalf, undue reliance should not be placed on any of these forward-
looking statements. Further, any forward-looking statement speaks only as at the date on which it is made,
and the Company undertakes no obligation to update any forward-looking statement to refl ect events or
circumstances after the date on which the statement is made or to refl ect the occurrence of unanticipated
iii
events. New factors will emerge in the future, and it is not possible for the Company to predict such factors.
In addition, the Company cannot assess the effect of each factor on the Group’s business or the extent to which
any factor, or combination of factors, may cause actual results to differ materially from those described in any
forward-looking statements.
Currencies and Exchange Rates
The Company publishes its consolidated fi nancial statements expressed in South African Rand. References to
“South African Rand”, “Rand” or “R” are to the lawful currency of South Africa, references to “pound sterling”
or “£” are to the lawful currency of the United Kingdom, references to “euro” or “€” are to the lawful currency
of the member states of the European Union that adopted the single currency in accordance with the Treaty
establishing the European Community and references to “U.S. dollars”, “US$” or “$” are to the lawful currency
of the United States. In this pre-listing statement, unless otherwise indicated, all amounts are expressed in
South African Rand.
For certain information regarding rates of exchange between the South African Rand and the euro and the
U.S. dollar, see “Exchange Rates and Exchange Control — Exchange Rates”.
Presentation of Financial and Other Information
The Group’s fi nancial year ends on 31 March in each year. The Group’s Report of Historical Financial
Information for the years ended 31 March 2014, 2013 and 2012 (which it refers to as “fi nancial year 2014”,
“fi nancial year 2013” and “fi nancial year 2012”, respectively) contained in Annexure 2 to this pre-listing
statement (the “Consolidated Financial Statements”) have been prepared in accordance with International
Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”) and the
Listings Requirements.
References to “net revenue” and “trading profi t” in this pre-listing statement are to the “operating income net
of direct expenses” and “profi t from operations before non-trading and capital items” line items, respectively,
in the Consolidated Financial Statements.
In connection with the preparation of the Consolidated Financial Statements , the Group has made certain
adjustments to its previously reported historical fi nancial information. The Group has restated certain
comparable fi gures for fi nancial year 2013 and fi nancial year 2012 in accordance with IFRS to refl ect the
impact of the disposal of Guardrisk Group Proprietary Limited (“Guardrisk”) and other businesses and their
reclassifi cation as discontinued operations, and the adoption of IAS 19 Employee Benefi ts (Revised) and
IFRS 10 Consolidated Financial Statements. See Note 50 to the Consolidated Financial Statements and
“Management’s Discussion and Analysis of Financial Condition and Results of Operations —Factors Affecting Comparability of Results —Divestments and Changes in Segment Reporting” for a discussion of these
restatements.
In addition, the Consolidated Financial Statements refl ect the effects of certain adjustments resulting from the
settlement with the South African Revenue Service (the “SARS ”) relating to tax deductions for interest
expenses incurred by the Group between 2007 and 2014 in connection with debt raised for the reorganisation
of the Group’s business following the 2007 Acquisition (as defi ned below) (the “SARS Settlement”), which was
a post-balance sheet event that occurred between the date of authorisation of the Group’s annual fi nancial
statements on 9 June 2014 and the date of authorisation of the Consolidated Financial Statements included in
Annexure 2 to this pre-listing statement. See Notes 8, 37.3, 44 and 50 to the Consolidated Financial Statements
and “Business —Investigations and Legal Proceedings —SARS Settlement”. All fi nancial information for
fi nancial year 2013 and fi nancial year 2012 in this pre-listing statement is presented on a consistent basis
with the fi nancial information for fi nancial year 2014 .
Unless otherwise indicated, all fi nancial information in this pre-listing statement is presented on a continuing
operations basis.
In this pre-listing statement, the Company presents certain non-IFRS measures, particularly EBITDA, in
describing the Group’s results of operations and fi nancial position. The Company defi nes EBITDA as trading
profi t before property lease adjustment and depreciation and amortisation. The Company uses this as an
internal measure of performance to benchmark and compare performance against other companies. The
Company believes that EBITDA serves as a useful supplementary fi nancial indicator to investors since it is
commonly reported and widely accepted by analysts and investors in measuring a company’s ability to service
its long-term debt and other fi xed obligations and to fund its continued growth. Further, EBITDA is a widely
accepted indicator in comparing a company’s underlying operating profi tability with that of other companies
in the same industry. EBITDA should not be considered as an alternative to measures of net profi t/(loss), as an
indicator of operating performance, as a measure of cash fl ow from operations nor as an indicator of liquidity
and should not be considered in isolation. Funds depicted by this measure may not be available for the
Company’s discretionary use (due to covenant restrictions, debt service payments and other commitments). It
should be noted that EBITDA is not a uniform or standardised measure and the calculation of EBITDA,
accordingly, may vary signifi cantly from company to company, and by itself the Company’s presentation and
calculation of EBITDA may not be comparable to that of other companies.
iv
Some fi nancial information in this pre-listing statement has been rounded and, as a result, the numerical
fi gures shown as totals in this pre-listing statement may vary slightly from the exact arithmetic aggregation
of the fi gures that precede them.
The fi nancial information included in this pre-listing statement is not intended to comply with SEC
requirements. Compliance with such requirements would require, among other things, compliance with the
requirements of Regulation S-X and exclusion of certain non-IFRS measures.
Market and Industry Information
Information relating to markets, market size, market share, market position, growth rates, average prices
and other industry data pertaining to the Company’s business contained in this pre-listing statement consists
of estimates based on data compiled by professional organisations and analysts, data from external sources,
the Company’s knowledge of sales and markets and the Company’s calculations based on such information. In
many cases, there is no readily available external information (whether from trade associations, government
bodies or other organisations) to validate market-related analyses and estimates, thus requiring the Company
to rely on internally developed estimates. While the Company has compiled, extracted and reproduced market
or other industry data from external sources which the Company believes is reliable, including third-party,
industry or general publications, the Company has not independently verifi ed all of such data. The Company
cannot assure readers of this pre-listing statement of the accuracy and completeness of, or take any
responsibility for, such data. Similarly, while the Company believes its internal estimates to be reasonable,
they have not been verifi ed by any independent sources, and the Company cannot assure readers of this pre-
listing statement as to their accuracy.
Jurisdiction and Service of Process in the United States and Enforcement of Foreign Judgements in South Africa
The Company is a public company incorporated under the laws of South Africa. None of its directors or
executive offi cers are residents of the United States, and all or a substantial portion of the assets of the
Company and of such persons are located outside the United States. As a result, it may not be possible for
investors to effect service of process within the United States upon such persons or to enforce any judgements
obtained in the courts of the United States against them, and judgements obtained in United States courts,
including judgements predicated upon the civil liability provisions of the securities laws of the United States
or any state or territory within the United States. A foreign judgement is not directly enforceable in South
Africa, but constitutes a cause of action which will be enforced by South African courts, provided that:
• the court which pronounced the judgement had jurisdiction and international competence to entertain
the case according to the principles recognised by South African law with reference to the jurisdiction
of foreign courts. A foreign judgment is likely not to be recognised in South Africa if the foreign court
exercised jurisdiction over the defendant solely by virtue of an attachment to found jurisdiction;
• the judgement is final and conclusive (that is, it cannot be altered by the court which pronounced it);
• the judgement has not lapsed;
• the recognition and enforcement of the judgement by South African courts would not be contrary to public
policy, including observance of the rules of natural justice which require that the documents initiating the
foreign proceeding were properly served on the defendant and that the defendant was given the right to be
heard and represented by counsel in a free and fair trial before an impartial tribunal;
• the judgement was not obtained by fraudulent means;
• the judgement does not involve the enforcement of a penal or revenue law of the foreign state; and
• the enforcement of the judgement is not otherwise precluded by the provisions of the Protection of
Businesses Act, 1978, as amended, of South Africa.
It is the policy of South African courts to award compensation for the loss or damage actually sustained by
the person to whom the compensation is awarded. Although the award of punitive damages is generally
unknown to the South African legal system, such awards are not necessarily contrary to public policy.
Whether the enforcement or recognition of a foreign judgement is contrary to public policy will depend on the
facts of each case. Exorbitant, unconscionable or excessive awards will generally be contrary to public policy.
South African courts cannot enter into the merits of a foreign judgement and cannot act as a court of appeal
or review over a foreign court. South African courts will usually implement their own procedural laws and,
where an action based on a contract governed by a foreign law is brought before a South African court, the
capacity of the parties to the contract will usually be determined in accordance with South African law. It is
doubtful whether an original action based on United States federal securities laws can be brought before
South African courts. A plaintiff who is not resident in South Africa may be required to provide security for
costs in the event of proceedings being initiated in South Africa. Furthermore, the rules of the High Court of
South Africa require that documents executed outside South Africa may need to be authenticated for use in
South Africa.
v
CORPORATE INFORMATION
Directors
Independent non-executive directors
Mark Derrick Collier (Lead independent)
Deenadayalen Konar
Hilgard Pieter Meyer
Barend Petersen
Executive directors
Edward Christian Kieswetter (Group Chief
Executive Offi cer)
Deon Marius Viljoen (Group Chief Financial Offi cer)
Company’s registered offi ce
Alexander Forbes Group Holdings Limited
(Registration number 2006/025226/06)
115 West Street
Sandton 2196
(PO Box 787240, Sandton 2196)
Johannesburg, South Africa
Incorporated on 15 August 2006 in South Africa
Company secretary
Janice Salvado
(address same as the Company)
Joint Global Coordinator and Joint Bookrunner
Deutsche Bank AG, London Branch
(Registration number BR000005)
Winchester House
1 Great Winchester Street
London EC2N 2DB
United Kingdom
Joint Global Coordinator and Joint Bookrunner
Morgan Stanley & Co. International plc
(Registration number 165935)
25 Cabot Square
Canary Wharf
London E14 4QA
United Kingdom
U.S. counsel and English legal advisorto the Company
Davis Polk & Wardwell London LLP
99 Gresham Street
London EC2V 7NG
United Kingdom
South African legal advisor to the Company
Bowman Gilfi llan Inc.
165 West Street
Sandton 2196
(PO Box 785812, Sandton 2146)
Johannesburg, South Africa
Non-executive directors
Matthews Sello Moloko (Chairman)
Anthonie Christoffel de Beer (alternate)
Jean-Charles Emmanuel Douin (alternate)
Dave D Govender
Lori Hall-Kimm
Natalie Catherine Kolbe
Jabulani Steven Masondo (alternate)
David Ngobeni
André Roux
Robert Ngetha Waithaka (alternate)
John Adrian van Wyk
Joint Transaction Sponsor
Deutsche Securities (SA) Proprietary Limited
(A non-bank member of the Deutsche Bank Group)
(Registration number 1995/011798/07)
3 Exchange Square
87 Maude Street
Sandton 2196
(Private Bag X9933, Sandton 2146)
Johannesburg, South Africa
Joint Global Coordinator, Joint Bookrunner, JSE Sponsor, Lead Transaction Sponsor and Stabilisation Manager
Rand Merchant Bank
a division of FirstRand Bank Limited
(Registration number 1929/001225/06)
1 Merchant Place
Rivonia Road
Sandton 2196
(PO Box 786273, Sandton 2146)
Johannesburg, South Africa
U.S. counsel and English legal advisor to the Joint Global Coordinators and Joint Bookrunners
Freshfi elds Bruckhaus Deringer LLP
65 Fleet Street
London EC4Y 1HS
United Kingdom
South African legal advisor to the Joint Global Coordinators and Joint Bookrunners
Edward Nathan Sonnenbergs Inc.
150 West Street
Sandton 2196
(PO Box 783347, Sandton 2146)
Johannesburg, South Africa
Transfer secretaries
Computershare Investor Services
(Proprietary) Limited
(Registration number 2004/003647/07)
Ground Floor
70 Marshall Street 2001
(PO Box 61051, Marshalltown 2107)
Johannesburg, South Africa
vi
Auditors and independent reporting accountants
PricewaterhouseCoopers Inc.
Registered accountants and auditors
(Registration number 1998/012055/21)
2 Eglin Road
Sunninghill 2157
(Private Bag X36, Sunninghill 2157)
Johannesburg, South Africa
Commercial banker
First National Bank
a division of FirstRand Bank Limited
(Registration number 1929/001225/06)
1 First Place
Corner Simmonds and Pritchard Streets
Johannesburg 2001
(PO Box 1153, Johannesburg 2000)
South Africa
vii
TABLE OF CONTENTS
Page
Summary 1
Important Dates and Times 10
Risk Factors 11
Use of Proceeds and Reasons for the Offer 24
Strategic Investor 25
Business 26
Industry Overview 52
Regulation 62
Management and Corporate Governance 7 0
Selected Historical Consolidated Financial Information 83
Management’s Discussion and Analysis of Financial Condition and Results of Operations 86
Dividends and Dividend Policy 1 09
Incorporation and Share Capital 11 0
Restructure 1 14
Related Party Transactions 1 16
Particulars of the Offer 1 17
Transfer and Selling Restrictions 1 22
Taxation 1 25
Exchange Rates and Exchange Control 13 0
Additional Information 1 32
Legal Matters 1 36
Independent Reporting Accountants 1 37
Annexure 1: Defi nitions, Glossary and Interpretation 1 38
Annexure 2: Report of the Historical Financial Information of the Group for the Years Ended 31 March 2014, 2013 and 2012 1 45
Annexure 3: Independent Reporting Accountant’s Report on the Historical Financial Information of the Group 2 58
Annexure 4: Pro Forma Consolidated Financial Information 2 59
Annexure 5: Independent Reporting Accountant’s Report on the Pro Forma Financial Information 2 65
Annexure 6: Additional Particulars of the Directors of the Company and its Major Subsidiaries and Senior Management of the Group 267
Annexure 7: Issues and Offers in the Company and its Subsidiaries 2 73
Annexure 8: Details of Group Companies 2 85
Annexure 9: Details of Principal Immovable Properties Leased or Owned 3 09
Annexure 10: Details of Material Borrowings and Material Inter-Company Loans 3 17
Annexure 11: Extracts from the Memorandum of Incorporation of the Company 3 24
Annexure 12: Material Agreements 3 29
Annexure 13: Third-Party Management 3 35
Annexure 14: Material Disposals and Acquisitions 3 41
Annexure 15: Corporate Governance 3 46
Annexure 16: Summary of New Long-Term Incentive Share Plan 3 60
Annexure 17: Selling Shareholders 3 64
Appendix A: Form of U.S. Investment letter 3 65
Appendix B: Private Placing Application Form 37 0
Contact details 3 72
1
SUMMARY
This summary highlights information from this pre-listing statement. It is not complete and does not contain all of the information that readers of this pre-listing statement should consider before investing in the Offer Shares. Investors should read this pre-listing statement carefully in its entirety, including the “Risk Factors” section, the fi nancial statements provided and the notes to those fi nancial statements.
Overview
Alexander Forbes is a specialised fi nancial services group headquartered in South Africa focusing on employee benefi ts solutions for institutional clients and the fi nancial wellbeing of its individual clients, in particular employees of the Group’s institutional clients. The main services provided by the Group include retirement funds and asset consulting, actuarial consulting, investment and administration services, employee risk benefi ts and healthcare consulting, multi-manager investment and platform solutions, individual fi nancial advice and personal lines insurance. The Group’s primary clients span both the private and public sector market segments, including employers, retirement funds, investment and other special purpose funds on the institutional side, and individual members and benefi ciaries of these retirement funds, as well as the wider individual market, on the retail side. Alexander Forbes’ principal geographic focus is South Africa, where it has been operating since 1935 and is a market leader in its core businesses, sub-Saharan Africa, the UK and other selected jurisdictions which have employee benefi ts legislative frameworks similar to South Africa.
Alexander Forbes, through Alexander Forbes Financial Services Proprietary Limited (“AFFS”), is a leading employee benefi ts consulting, actuarial, investment and administration services provider and retirement fund administrator, with assets under administration of R275 billion as at 31 March 2014. Alexander Forbes also administers one of the largest private umbrella retirement funds in South Africa by assets, which had R49.5 billion assets under administration as at 31 March 2014. Alexander Forbes, through Investment Solutions, is the largest multi-manager investment company in sub-Saharan Africa, with assets under administration and management of R285 billion as at 31 March 2014, of which assets under management comprised R256 billion.
As at 31 March 2014, the Group employed approximately 3 ,900 people, including insurance specialists, investment professionals and over 200 qualifi ed actuaries.
In fi nancial year 2014, the Group generated net revenue of R4.4 billion and trading profi t of R1.0 billion as compared with R3.7 billion and R0.9 billion, respectively, for fi nancial year 2013. In fi nancial year 2014, 64.2% of the Group’s net revenue and 80.3% of trading profi t was derived from the South African operations, 5.7% of net revenue and 4.6% of trading profi t was derived from the sub-Saharan African (excluding South Africa) operations, and 30.1% of net revenue and 19.6% of trading profi t was derived from the non-African (primarily UK) business. Unless otherwise noted, all fi nancial information in this pre-listing statement is presented on a continuing operations basis. See “Presentation of Financial and Other Information”.
Key Strengths
Alexander Forbes believes that the following competitive strengths contribute to its success and distinguish it from its competitors:
• Market leader in institutional employee benefits and multi-manager investments in its home market in South Africa and in other sub-Saharan African countries;
• Institutional integrity with a high performance culture;
• Well-positioned to respond to changing industry and regulatory dynamics;
• Successful track record of organically developing new businesses and creating shareholder value;
• Holistic offering across the value chain;
• Deep understanding of the retail (individual) member base to support the Retail growth initiative;
• Leading and scalable multi-management platform;
• Well-positioned to capture the sub-Saharan African growth opportunity;
• Long-standing institutional client relationships with high market shares and high customer retention rates;
• Predictable revenue base and cash generative model;
• Capital efficient business model;
• Continuous investment into systems and core infrastructure; and
• Stable and experienced management team.
Growth Strategy
Alexander Forbes intends to capitalise on its unique market positioning and improve the performance of its operations by continuing to grow its core institutional businesses and pursuing the Retail, public sector and sub-Saharan Africa growth strategies. These growth strategies are Group-wide initiatives focused on leveraging the core institutional client base and the Group’s market positioning in its core businesses.
2
• Retail growth Strategy. Historically, the Group’s various retail businesses have functioned independently. In the last few years, as part of the Group’s strategic intent, a conscious decision was taken to drive the Retail growth strategy with greater focus, including establishing a dedicated retail cluster (the “Retail Cluster”) under a single business leader. While retaining the specialised focus in each of the respective business lines, the Retail Cluster seeks to use the Group’s trusted advisor status with its clients and provide them with a common, holistic client experience to help secure their financial wellbeing, and at the same time better leveraging the client base to deepen vertical sales integration. The cornerstone of the Retail growth strategy is to leverage off the Group’s strong relationships with the institutional clients of the pension funds it administers, and build earlier and deeper relationships with the individual clients within the respective funds. See “Business —Growth Strategy and Prospects — Retail Growth Strategy”.
• Public sector growth strategy. Alexander Forbes already has significant public sector business and, based on recent public sector market research, believes that there is further potential to grow its position by mapping its current integrated value offerings and providing innovative consulting and administration services and solutions in response to identified needs in both the institutional and retail segments. Alexander Forbes established a dedicated team, the Public Sector Division, in order to focus resources on growing its public sector client base. This team’s focus is on setting the overarching public sector strategy and supporting the implementation thereof through effective engagement strategies in order to build lasting relationships with public sector clients and stakeholders and communicate Alexander Forbes’ holistic value proposition to both new and existing clients. After identifying opportunities and building the new business pipeline, this team also assists the various Alexander Forbes businesses in tendering for new business and retaining existing public sector clients. See “Business — Growth Strategy and Prospects — Capturing Public Sector Opportunities”.
• Sub-Saharan Africa growth strategy. Many countries in sub-Saharan Africa are expected to experience medium to high economic growth rates over the medium term. Financial services markets in a number of these countries are still at an early stage of development, which represents an opportunity for Alexander Forbes to grow into the relatively underdeveloped and underpenetrated markets, building on AfriNet’s success in Namibia, Botswana, Kenya and experience in developing businesses in Nigeria, Uganda and Zambia. Pension and social security reforms are among the key criteria taken into account in connection with the Group’s expansion in sub-Saharan Africa. The Group aims to take advantage of favourable legislative changes to expand its operations in the region in the short to medium term. In addition, the continued expansion of South African companies into other parts of the African continent in search of incremental growth presents further opportunities for Alexander Forbes to follow its corporate clients as they expand. In expanding into new territories, AfriNet plans to continue to leverage off its institutional experience and expertise, replicating the successful South African business model, while adapting to the specific domestic commercial and regulatory environment in each country. See “Business —Growth Strategy —Growth in sub-Saharan Africa”.
Strategic Investor
On 20 June 2014, the Selling Shareholders entered into a Sale of Shares Agreement with Mercer Africa Limited (“Mercer”), which was amended on 4 July 2014 (the “Sale of Shares Agreement”), pursuant to which Mercer has agreed to purchase from the Selling Shareholders: (i) 14.9% of the Shares of the Company on the Listing Date or such later date as may be agreed between the parties (the “First Closing Date”) and (ii) an additional 19.1% of the Shares of the Company on the later of the 5th business day after the fulfi lment of certain conditions precedent and 30 September 2014 (the “Second Closing Date”) . Mercer’s obligations to purchase the Shares on the First Closing Date and the Second Closing Date are subject to obtaining requisite regulatory approvals and the fulfi lment of certain other conditions. The First Closing Date is expected to coincide with the Listing Date, but may be delayed if the relevant regulatory approvals are not obtained by the Listing Date.
Mercer is a wholly-owned subsidiary of Mercer Consulting Group Inc. (“Mercer Consulting”) and part of the Marsh & McLennan Companies, Inc. (“MMC”) which is a global professional services fi rm providing advice and solutions in the areas of risk, strategy and human capital. MMC is listed on the New York Stock Exchange and, as of the Last Practicable Date, had market capitalisation of approximately US$28 billion. MMC is the parent company of a number of the world’s leading risk experts and specialty consultants, including Marsh (insurance broker, intermediary and risk advis or), which already has a strong presence in South Africa through Alexander Forbes’ Risk and Insurance Services business which it acquired in 2012 and 2013, Mercer (health, retirement, talent and investments services), Oliver Wyman Group (management, economic and brand consulting services) and Guy Carpenter (risk and reinsurance specialist).
Mercer Consulting is a global consulting leader in health, retirement, talent and investment services. Mercer Consulting operates in more than 130 countries and as of 31 March 2014 had more than 20 ,000 employees. As a result of its investment in the Group, Mercer Consulting expects to gain exposure to growth prospects in South Africa and broader sub-Saharan Africa to support its own global clients who expand into Africa. In addition, Mercer Consulting will also be able to support Alexander Forbes’ clients currently operating outside of Africa and those planning to expand beyond Africa, as well as contribute its strategic expertise and global perspective to the Group’s operations.
On the same date as the Sale of Shares Agreement, the Company also entered into a Relationship Agreement with Mercer (the “Relationship Agreement”), which will become effective on the First Closing Date and will govern certain aspects of the relationship between the parties. See “Strategic Investor” and Annexure 12 for further details.
3
SUMMARY OF THE OFFER
The Offer The Offer comprises an offer for subscription by the Company and a concurrent
offer for sale by the Selling Shareholders made up as follows (assuming an Offer
Price at the mid-point of the Offer Price Range):
• an offer for subscription of 44,117,6 47 Subscription Shares; and
• an offer for sale by the Selling Shareholders of 387,822,895 Sale Shares.
The Offer Shares will represent approximately 33. 4 percent of the issued Shares of
the Company following the issuance of the Subscription Shares.
Investors, acting as principal, will only be allowed to acquire Offer Shares for
an aggregate acquisition cost of no less than R1 ,000 ,000 (one million Rand), except
in the case of persons falling within one of the specifi ed categories listed in
Section 96(1)(a) of the Companies Act.
The Offer consists of:
• an offer to selected institutional and other selected investors in South Africa (the
Offer is not an invitation to the general public to subscribe for or purchase the
Offer Shares);
• an offering in the United States to persons who are both qualified purchasers as
defined in the U.S. Investment Company Act (“QPs”) and qualified institutional
buyers, as defined in Rule 144A (“QIBs”), and in reliance on Rule 144A; and
• an offering outside South Africa and the United States to selected institutional
investors in reliance on Regulation S.
Use of the proceeds and
reasons for Offer
The main purposes of the Offer and the Listing are to:
• provide the Selling Shareholders with an opportunity to dispose of a portion of
their investment in the Company ;
• enhance the profile and general public awareness of the Company;
• enable the Company to access capital markets, if required ; and
• allow the Group to further pursue its strategic growth plan.
The net proceeds from the subscription for the Subscription Shares are estimated to
be R29 4 million, after deducting commissions and Offer expenses payable by the
Group which are expected to be R3 6 million.
R179 million of the net proceeds from the Subscription Shares will be used to redeem
the “B” Preference Shares held by Golden Falls Trading 485 Proprietary Limited
(“Golden Falls”). The remainder of the net proceeds will be used to increase the
Group’s regulatory capital holdings in line with the anticipated FSB regulatory
requirements for consolidated supervision and to reduce outstanding debt.
Indicative timetable The following table provides the expected dates of certain important steps related to
the Offer:
Publication of this pre-listing statement: Monday, 7 July 2014
Opening date of the Offer: 09:00 Monday, 7 July 2014
Last date for indication of interest for the
purpose of the book build: 1 2:00 Thursday, 17 July 2014
Expected closing date: 1 2:00 Thursday, 17 July 2014
Offer price released on SENS: Friday, 18 July 2014
Successful applicants advised of allocations: Friday, 18 July 2014
Offer price published in the press: Monday, 21 July 2014
Settlement and proposed Listing
Date on the JSE: Thursday, 24 July 2014
Any material change will be released on SENS and published in South African
newspapers.
4
Joint Bookrunners The Joint Global Coordinators and Joint Bookrunners for the Offer are Deutsche
Bank AG, London Branch, Morgan Stanley & Co. International plc and Rand
Merchant Bank, a division of FirstRand Bank Limited.
Admission and listing The JSE has granted the Company a listing in respect of up to 1 ,29 8 ,5 24 , 384 shares
(the “Listing”) in the “Financial Services – Asset Managers” sector under the
abbreviated name “ AFORBES ”, share code “AFH” and ISIN: ZAE000191516, subject
to the fulfi lment of certain conditions (including the JSE’s spread and free fl oat
requirements, as set out in the Listings Requirements, being attained).
Subscription conditions The Offer is subject to a minimum subscription. The minimum subscription which must be realised by the Company is that which enables it to ensure (in conjunction with the Shares sold by the Selling Shareholders) that the Company has, once the Offer is completed, such number and composition of shareholders as will enable it to meet the minimum free fl oat and shareholder spread requirements, as prescribed by the Listings Requirements and acceptable to the JSE, as referred to below. There is no minimum capital requirement to be realised by the Offer. The Listing will not proceed if the minimum subscription is not achieved, and any acceptance of the Offer shall not take effect and no person shall have any claim whatsoever against the Company, the Selling Shareholders, the Joint Bookrunners or any other person as a result of the failure of any condition.
The Listings Requirements provide that a minimum of 20 percent of the Shares
must be held by the public and the number of public shareholders must be at least
300, all as defi ned by the Listings Requirements.
Lock-up agreement The Company and the Selling Shareholders have agreed with the Joint Bookrunners
that they will not, without the prior written consent of the Joint Bookrunners, issue,
sell or otherwise dispose of any additional Shares for 180 days following the
Listing Date, subject to certain exceptions set out in “Particulars of the Offer” .
The lock-ups referred to in this paragraph and in the “Particulars of the Offer”
section apply to Shares held by the executive directors and members of senior
management through Alexander Forbes Management Trust, but shall not, however,
apply to the Shares unbundled by Alexander Forbes Preference Share Investments
Limited (“AF Pref”) to holders of its “ S” preference shares (the “AF Pref holders”),
including any Selling Shareholders, executive directors or members of senior
management who may be holding “ S” preference shares in AF Pref. See “ Incorporation
and Share Capital —Shareholding —AF Pref Unbundling” and “Management and
Corporate Governance —Directors’ Interests” .
The lock-ups referred to in this paragraph and in the “Particulars of the Offer”
section shall not preclude any person who acquires Offer Shares in connection with
the Offer from trading in and transferring any Shares , except for any Offer Shares
acquired by certain executive director and senior manager participants in the 2014
ETI (as defi ned herein). A participant in the 2014 ETI will not be entitled to dispose
of the Shares awarded to him or her for (a) 180 days (in relation to 40% of the total
number of Shares issued to the participant pursuant to the 2014 ETI) and (b) 365
days (in relation to the balance of the Shares issued to the participant pursuant to
the 2014 ETI), in each case, calculated from the Listing Date. See “Management and
Corporate Governance —Directors’ Incentives and Interests in Transaction —2014
Exit Transaction Incentive” .
Overallotment The Selling Shareholders intend to grant to the Joint Bookrunners a 30-day option
to purchase additional ordinary shares up to a maximum of 15 percent of the Offer
Shares, on the same terms and conditions as those applicable to the Offer, for the
purpose of covering short positions resulting from overallotments or from sales of
Offer Shares at or before the end of the Stabilisation Period.
Transaction Sponsors Rand Merchant Bank, a division of FirstRand Bank Limited, is the lead transaction
sponsor for the Company. Deutsche Securities (SA) Proprietary Limited is the joint
transaction sponsor for the Company.
Stabilisation Manager Rand Merchant Bank, a division of FirstRand Bank Limited, is the stabilisation
manager.
5
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following selected consolidated financial information is derived from the Consolidated Financial Statements
which were prepared in accordance with IFRS and the Listings Requirements. The financial information for
the years ended 31 March 2013 and 2012 has been restated for the effects of the disposal of Guardrisk and
other businesses, which have been classified as discontinued operations, and the adoption of IAS 19 Employee
Benefits (Revised) and IFRS 10 Consolidated Financial Statements. See “Presentation of Financial and Other
Information” for more details. In addition, the Consolidated Financial Statements reflect the effects of certain
adjustments resulting from the SARS Settlement, which was a post-balance sheet event. See Notes 8, 37.3 44
and 50 to the Consolidated Financial Statements and “Business —Investigations and Legal Proceedings —SARS
Settlement” .
The consolidated financial information of the Group as at and for the financial years ended 31 March 2014,
2013 and 2012 presented in this pre-listing statement has been audited by PricewaterhouseCoopers Inc.
(“PricewaterhouseCoopers”), auditors and independent reporting accountants, as stated in their report
included in Annexure 3 to this pre-listing statement.
The selected consolidated financial and other information presented below should be read in conjunction with
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated
Financial Statements included in Annexure 2 to this pre-listing statement.
Consolidated Income Statement Data
Year ended 31 March
2014 2013 2012
(R million)
Continuing operationsFee and commission income 4 ,776 4 ,038 3 ,603
Less: Direct expenses attributable to fee and commission
income (801) (651) (591)
Net income from insurance operations 417 350 310
Net revenue 4 ,392 3 ,737 3 ,322Operating expenses (3 ,352) (2 ,812) (2 ,460)
Trading profi t 1 ,040 925 862Non-trading and capital items (108) (113) (108)
Operating profi t 932 812 754Investment income 233 129 161
Finance costs (843) (848) (816)
Share of net profi t of associates (net of income tax) 2 1 1
Profi t before taxation 324 94 100Income tax expense (487) (192) (316)
Profi t/(loss) for the year from continuing operations (163) (98) (216)Discontinued operationsProfi t/(loss) on discontinued operations (net of income tax) 542 (10) 157
Profi t/(loss) for the year 379 (108) (59)
Profi t/(loss) attributable to:
Equity holders 269 (191) (136)
Non-controlling interest 110 83 77
379 (108) (59)
6
Consolidated Balance Sheet Data
Year ended 31 March
2014 2013 2012
(R million)
ASSETSFinancial assets held under multi-manager
investment contracts 253 ,747 222 ,790 209 ,994
Financial assets of cell-captive insurance facilities 315 11 ,374 9 ,484
Property and equipment 335 239 165
Purchased and developed computer software 80 129 166
Goodwill 3 ,985 4 ,490 4 ,652
Intangible assets 886 1 ,211 1 ,437
Investments in associates 6 4 3
Deferred tax assets 117 164 110
Financial assets 409 2 ,064 1 ,209
Insurance receivables 814 1 ,073 896
Trade and other receivables 873 935 913
Cash and cash equivalents 3 ,907 3 ,626 3 ,062
Assets of disposal group classifi ed as held for sale 91 29 ,938 288
Total assets 265 ,565 278 ,037 232 ,379
EQUITY AND LIABILITIESShare capital and premium 5 ,819 3 ,261 3 ,261
Treasury shares (405) (21) (29)
Accumulated loss (889) (1 ,162) (967)
Other reserves 102 (8) (173)
Equity holders’ funds 4 ,627 2, 070 2 ,092
Non-controlling interest 210 194 185
Total equity 4 , 837 2 ,264 2 ,277
Financial liabilities held under multi-manager investment
contracts 253 ,747 222 ,790 209 ,994
Liabilities of cell-captive insurance facilities 315 11 ,374 9 ,484
Borrowings 1 ,652 5 ,409 5 ,448
Employee benefi ts 168 181 170
Deferred tax benefi ts 432 450 491
Provisions 284 284 265
Finance lease liability 90 93 –
Operating lease liability 119 40 29
Deferred income 25 72 69
Insurance payables 2 ,270 3 ,985 2 ,693
Trade and other payables 1 ,591 1 ,353 1 ,328
Liabilities of disposal group classifi ed as held for sale 35 29 ,742 131
Total liabilities 260 ,728 275 , 773 230 ,102
Total equity and liabilities 265 , 565 278 ,037 232 ,379
7
Consolidated Cash Flow Data
Year ended 31 March
2014 2013 2012
(R million)
Net cash (outfl ow)/infl ow from operating activities (5 ,357) (1 ,743) (2 ,068)
Net cash (outfl ow)/infl ow from investing activities 1 ,042 151 (560)
Net cash (outfl ow) from fi nancing activities (678) (326) (689)
Cash and cash equivalents at end of year 12 ,129 16 ,975 18 ,83 3
Other Financial Data
Year ended 31 March
2014 2013 2012
EBITDA(1) (R million) 1 ,23 1 1 ,037 938
EBITDA growth – (%) 18.8 10.6 –
1. The Company defines EBITDA as trading profit before property lease adjustment and depreciation and amortisation. EBITDA includes
interest earnings that are directly attributable to operations, as well as interest earned on minimum regulatory capital balances, such as
in the case of the Group’s insurance operations and Financial Advisory and Intermediary Services Act, 2002 (“FAIS”) regulated operations.
EBITDA excludes profits and losses that are considered once-off in nature and not integral to the Group’s operations. This also includes
items reflected as non-trading and of a capital nature. EBITDA is not an IFRS measure and EBITDA should not be considered as an
alternative to measures of net profit/(loss), as an indicator of operating performance, as a measure of cash flow from operations nor as an
indicator of liquidity and should not be considered in isolation. The reconciliation of trading profit to EBITDA is as follows:
Year ended 31 March
2014 2013 2012
(R million)
Trading profi t 1 ,040 925 862Property lease adjustment 4 7 8 (37)
Consolidation of E&O insurance cell-captive 64 24 37
Depreciation and amortisation 80 80 76
EBITDA 1 ,23 1 1 ,037 938
Pro Forma Consolidated Financial Information
The pro forma consolidated income statement and pro forma consolidated balance sheet (the “pro forma
consolidated financial information”) as of and for the year ended 31 March 2014 have been prepared to show
the impact of the Restructure and the Offer, as if the Restructure and the Offer had occurred on 1 April 2013
for purposes of the pro forma income statement and on 31 March 2014 for the purposes of the pro forma
balance sheet. The pro forma consolidated financial information is presented for illustrative purposes only
and, because of its nature, may not fairly reflect the Group’s results or financial position going forward. This
information should be read in conjunction with, and is qualified in its entirety by reference to, the pro forma
consolidated financial information of the Group included in Annexure 4 to this pre-listing statement. The
pro forma consolidated financial information is the responsibility of the directors of the Company.
The pro forma consolidated financial information has been prepared using accounting policies that are
consistent with IFRS and with the basis on which the historical financial information has been prepared in
terms of the Group’s accounting policies.
The independent reporting accountant’s report on the pro forma consolidated financial information is set out
in Annexure 5. Such report is included solely to comply with the requirements of the Listings Requirements
in South Africa. Such pro forma consolidated financial information has not been prepared in accordance with
the requirements of Regulation S-X of the SEC or generally accepted accounting practices in the United States.
In addition, the rules and regulations related to the preparation of pro forma consolidated financial information
in other jurisdictions may also vary significantly from the requirements applicable in South Africa. The
reporting on the pro forma consolidated financial information by PricewaterhouseCoopers has not been
carried out in accordance with the auditing standards generally accepted in the United States and accordingly
should not be relied upon by investors as if it had been carried out in accordance with those standards or any
other standards besides the South African requirements discussed above.
8
Pro Forma Consolidated Financial Effects
Year ended 31 March 2014
Actual(1)Impact of the Restructure(2)
Pro forma after the
Restructure Adjustments
(3)(4)(5)(6)(7)(8)
Pro forma after
the Offer
(R million unless otherwise stated)
Operating profit 932 – 932 ( 300 ) 63 2
Investment income 233 – 233 – 233
Finance costs (843) 715 (128) (1) (12 9)
Share of associate income 2 – 2 – 2
Profit before taxation 324 715 1 ,039 ( 301 ) 7 38
Income tax expense (487) (71) (558) 6 8 (4 9 0)
Profit/(loss) for the year from
continuing operations (163) 644 481 ( 233) 2 48
Discontinued operations
Profit/(loss) on discontinued
operations (net of income tax) 542 – 542 – 542
Profit/(loss) for the year 379 644 1 ,023 ( 233) 79 0
Weighted average number of
Shares in issue (millions) 345 810 1 ,155 1 48 1 ,3 03
Basic earnings/(loss) per Share (cents)Continuing operations ( 77) 34 1 2
Discontinuing operations 155 46 4 1
Total operations 78 80 5 3
Headline earnings/(loss) per Share (cents)Continuing operations ( 77) 33 1 2
Discontinuing operations 24 7 6
Total operations ( 53) 40 1 8
Year ended 31 March 2014
Actual(1) Adjustments
(3)(4)(5)(6)
Pro forma after
the Offer
Number of Shares in issue net A treasury shares (millions) 1 ,155 148 1 ,3 03
Net asset value per Share (cents) 401 ( 10) 3 91
Tangible net asset value per Share (cents) (28) 39 11
All effects are recurring except where otherwise stated.
1. Extracted from the Consolidated Financial Statements.
2. On 31 March 2014, the Group restructured its capital which resulted in a change in its debt structure (the “Restructure” ). See “Restructure” .
The impact of the Restructure on finance costs is not included in the Group’s consolidated income statement for financial year 2014 because
the Restructure was implemented on 31 March 2014 . The Restructure adjustment is based on the assumption that the Restructure was
undertaken on 1 April 2013. The impact of this change will be realised in the interest paid by the Group net of taxation. The taxation is
adjusted by the tax deductions made in the underlying subsidiaries for 2014. The taxation impact is affected by unrecognised deferred
tax assets in certain subsidiaries. The R715 million reversal of finance costs relates to:
Rand million
Senior preference shares 90
High-yield term loan 29 2
Put and call options 60
PIK debentures 337
Amortisation of fees 13
Interest rate hedge 20
Interest cost of new term loan ( 97)
Total 715
9
The fair value gains and losses on the put and call options and interest rate hedge were recognised as part of finance costs. These instruments were settled as part of the Restructure. Consequently, the net losses of R60 million and R20 million, respectively, have been removed from the income statement based on the assumption that the Restructure occurred on 1 April 2013.
3. The adjustment reflects the impact of the Listing on the Alexander Forbes Management Trust. The Alexander Forbes Management Trust will be deconsolidated as a result of the changes to the control over the Alexander Forbes Management Trust after the Listing. In addition, the Remuneration Committee has approved the write-off of a loan of R24 million between the Alexander Forbes Management Trust and the Company which is subject to the Listing taking effect and which effect is non-recurring.
4. The adjustment reflects the deconsolidation of the B-BBEE Funding SPV (the “BEE SPV”) and the Alexander Forbes Management Share Trust Funding SPV (the “Management SPV”) resulting from the sale of the Company’s shares in the BEE SPV and the Management SPV as part of the Offer and utilisation of the proceeds to repay the underlying funding. The deconsolidation has no income statement impact as the funding was raised on 31 March 2014 and had no impact on the Group’s consolidated income statement for financial year 2014.
5. As part of the Offer, an estimated 44,117,647 Subscription Shares will be issued at an assumed price of R7.48. Of the net proceeds, R179 million will be used to redeem the “B” Preference Shares held by Golden Falls at R8.44 per “B” Preference Share. The remainder of the net proceeds will be used to increase regulatory capital holdings in line with the anticipated South African Financial Services Board (the “FSB”) regulatory requirements for consolidated supervision as discussed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Consolidated Supervision” and to reduce the Group’s outstanding debt, which will give rise to a reduction in finance costs of R12 million.
6. The incentive adjustments are one-off costs triggered by the Listing which will not be recurring and which include:
• a “Make-Good” payment in the amount of R57 million paid to the Alexander Forbes Management Trust, as described in “Management and Corporate Governance – Directors’ Incentives and Interests in Transaction – Management Payment Agreement (“Make-Good” Payment)”;
• the 2011 Executive Long-Term Incentive Plan, as described in “Management and Corporate Governance—Directors’ Incentives and Interests in Transaction—2011 Executive Long-Term Incentive Plan as Amended and Revised in June 2014”, with 50%, or R44 million, payable upon the completion of the transaction and the other 50% payable over 18 months, of which 12/18, or R29 million, has been accrued; and
• the 2014 Exit Transaction Incentive Plan, as described in “Management and Corporate Governance—Directors’ Incentives and Interests in Transaction—2014 Exit Transaction Incentive”, of which an amount of R59 million before taxation is reflected in the income statement. The settlement of this incentive will be made through the issue of 7,848,710 shares at an assumed price of R7.48.
Interest at an average rate of 7.93% is charged on the cash outflow arising from the settlement of the incentive awards.
7. Management and staff will be incentivised through a share incentive scheme. See “Management and Corporate Governance—Share Schemes – Long-Term Incentive Share Plan”. The IFRS 2 scheme costs of R53 million will be reflected in the income statement in the first year of the scheme and no share dilution is expected. The pro forma impact of the share-based payment has been reflected for one year on the income statement only, because the share scheme vests evenly over three years. Under IFRS 2, the income statement expense is calculated as the fair value of the award, assumed at R7.48 per Share, multiplied by the period of the vesting period completed. As the Pro Forma Consolidated Income Statement assumes the award is granted on 1 April 2013, one year of the three-year service period will have been completed as at 31 March 2014.
8. Transaction costs of the Offer are estimated to be R86 million, of which R36 million will be paid for by the Group and the remainder will be paid by the Selling Shareholders. These costs, which primarily relate to the Listing, will be expensed through the income statement and will not be recurring.
Dividend Policy
Following the Listing, the board of directors intends to declare a dividend on at least an annual basis. It is intended that the total annual dividend will be split between an interim dividend and final dividend. The Group’s dividend policy is set at a target range of 1.5x – 2.0x earnings cover.
In preparation for the implementation by the FSB of consolidated group supervision, the board of directors does not anticipate that an interim dividend for the six-month period to 30 September 2014 will be declared. The board of directors will consider making the final dividend payment for the year ended 31 March 2015, after taking account of the regulatory capital position on a consolidated basis.
Any regulatory capital shortfall is expected to be eliminated by the proceeds from the subscription for the Subscription Shares and as the Group generates positive operational cash flows such that the Group will be in full regulatory compliance when consolidated group supervision is implemented by the FSB (currently expected to take place on 1 January 2016).
The board retains absolute discretion to determine actual dividend declarations and will take the following factors into consideration:• the growth of the minimum capital requirements of the Group’s businesses;• the capital requirements to support investments in the Group’s growth initiatives; and• changes or prospective changes in the operating environment or operational performance of the Group.
It is the Group’s intention to return any excess capital above its capital targets to shareholders in the form of Share repurchases and special dividends.
For further details on dividends and the Group’s dividend policy, see “Dividends and Dividend Policy”.
Risk Factors
The section of this pre-listing statement entitled “Risk Factors” describes certain risk factors that should be considered together with the other information in this pre-listing statement before making a decision to purchase or subscribe for any Offer Shares. Although information has been provided in this pre-listing statement in relation to the Offer Shares, a prospective purchaser or subscriber should use his or her own judgement and seek advice from an independent financial advisor as to the appropriate value of the Offer Shares.
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IMPORTANT DATES AND TIMES
Opening date of the Offer: 09:00 on Monday, 7 July 2014
Expected last date for indication of interest for the purposes of
the bookbuild: 1 2:00 on Thursday, 17 July 2014
Publication date of the final Offer Price and final number of
Offer Shares: Friday, 18 July 2014
Successful applicants advised of allocations: Friday, 18 July 2014
Expected Listing Date: 09:00 on Thursday, 24 July 2014
All times referred to in this pre-listing statement are times in
South Africa.
JSE Approval
The JSE has granted formal approval for the listing of up to 1 ,29 8,524,384 Shares with effect from the
commencement of trading on the JSE on 24 July 2014, subject to the Company meeting the JSE’s free float
and shareholder spread requirements.
Conditions Precedent to the Offer and Listing
The Offer remains conditional upon the Listing of all of the Offer Shares on the JSE, failing which the Offer
and any acceptance thereof shall not be of any force or effect and no person shall have any claim whatsoever
against the Company, the Selling Shareholders, any of the Joint Bookrunners or any other person as a result
of the failure of any condition. If the directors in their discretion determine not to proceed with the Offer, the
Company shall not be obliged to proceed with the Offer but reserves the right to do so.
Date of Information Provided
Unless the context clearly indicates otherwise, all information provided in this pre-listing statement is provided
as at the Last Practicable Date.
11
RISK FACTORS
You should carefully consider the risk factors described below and all other information contained in this
pre -listing statement before you decide to invest in the Offer Shares. If any of the following risk factors, as well
as other risks and uncertainties that are not currently known to the Company or that it currently believes are
not material, actually occur, the Group’s business, financial condition and results of operations could be
materially and adversely affected. Accordingly, the trading price of the Offer Shares could decline due to any
of these risks occurring and investors could lose part or all of their investment.
Risks Related to the Group’s Operations and Business
Market fluctuations and general economic, market and political conditions may adversely affect the Group’s business and results of operations.
The Group’s business and results of operations may be materially adversely affected by conditions in the global
financial markets and by economic conditions generally. Stressed conditions, volatility and disruptions in
financial markets and assets can have an adverse effect on the Group, in part because the Group manages a
large investment portfolio and its insurance liabilities are sensitive to changing market factors. Global market
factors, including interest rates, credit spreads, equity prices, foreign currency exchange rates, consumer
spending, business investment, government spending, the volatility and strength of the capital markets,
deflation and inflation can all affect the Group’s financial condition, as well as the volume, profitability and
results of its operations.
In recent years, the financial markets experienced significant volatility and the medium-term outlook for the
global economy remains mixed. To the extent these uncertain market conditions persist, the Group’s revenues
and net investment income are likely to remain under pressure. In addition, in the event of extreme prolonged
market events, such as the recent global economic crisis, the Group could incur significant capital and/or
operating losses. In an economic downturn characterised by high unemployment, lower family income, lower
corporate earnings, lower business investment and lower consumer spending, the demand for its financial and
insurance products could be adversely affected.
In addition, the recent financial crisis has precipitated, and may continue to raise the possibility of, legislative,
judicial, regulatory and other governmental action. See “ — Changes in legislation and regulation and actions
by regulatory authorities in South Africa and other jurisdictions in which the Group operates may have an
adverse effect on its business” and “Risks Related to the Republic of South Africa —Recent trends that have had
an adverse effect on global economic and financial market conditions have also had an impact in South Africa,
and such trends, or other developments in South Africa, could have an adverse impact on the Group’s business”.
There are certain risks associated with investing in emerging markets, such as South Africa and other sub-Saharan countries where the Group operates.
South Africa and other sub-Saharan countries where the Group operates are generally considered by
international investors to be emerging markets, which are typically thought to have certain characteristics and
be subject to greater risks than more developed markets. These risks include:
• adverse changes in governmental, economic and tax policies;
• volatility in capital markets;
• abrupt changes in currency values;
• high levels of inflation;
• exchange controls;
• relatively low levels of disposable consumer income;
• relatively high levels of crime;
• relatively unstable institutions;
• unpredictable changes in the legal and regulatory environments;
• varying approaches to transparency and corporate governance;
• inconsistent application of existing laws and regulations; and
• slow or insufficient legal remedies.
The Group may face additional risks in certain of the sub-Saharan African countries in which it operates and
in which it may operate in the future. These include political uncertainty, corruption, poor infrastructure, low
12
educational levels and a low standard of living. Such factors could have a negative impact on the Group’s
ability to maintain and grow its business in those countries.
Consumer habits and behaviour in emerging markets also tend to change more quickly than in more developed
markets. Any such change may adversely affect the demand for the Group’s services and products or may
affect the ability of the Group to offer services and products that are successful in the market.
Furthermore, emerging markets are subject to rapid changes and any adverse change in economic, political
or social conditions in South Africa or other sub-Saharan countries where the Group operates, or in emerging
markets generally, may adversely affect the demand for the Group’s services and products, which may have a
material adverse effect on its operations, profitability and financial condition. Any such adverse change may
negatively affect investor sentiment towards South Africa, other sub-Saharan countries where the Group
operates or emerging markets generally.
Changes in legislation and regulation and actions by regulatory authorities in South Africa and other jurisdictions in which the Group operates may have an adverse effect on its business.
Certain of the Group’s activities are subject to licensing requirements and extensive regulation under the laws
of South Africa, other African jurisdictions, the European Union and the United Kingdom, among others. See
“Regulation” for a summary of some of the key regulations to which the Group is subject. The continued
operation of its business units depends on the validity of, and its continued good standing under, the licences
and approvals pursuant to which they operate, as well as compliance with applicable laws and regulations in
the jurisdictions where the Group operates.
Laws, regulations and policies currently governing the Group’s businesses and subsidiaries may change at
any time in ways that may have an adverse effect on its business, and it cannot predict the timing or nature
of any future regulatory or enforcement initiatives in respect thereof. If the Group fails to address, or appears
to fail to address, appropriately any of these changes or initiatives, its reputation could be harmed and it could
be subject to additional legal risk, including enforcement actions, fines and penalties. Possible sanctions that
may be imposed include the suspension or removal of individual directors or employees, limitations on
engaging in a particular business for specified periods of time, revocation of licences, censures and fines, as
well as refunds of fees to clients.
In some instances, the Group follows practices based on its interpretations of laws or regulations, or those
generally followed by the industry, which may prove to be different from those of the relevant regulatory
authorities. Accordingly, the possibility exists that the Group may be precluded or temporarily suspended
from carrying on some or all of its activities or otherwise be subject to sanction in a given jurisdiction.
For example, the financial services sector in South Africa has faced increasing regulation in recent years and
the Group’s direct compliance costs in South Africa have increased fourfold between 2007 and 2013. Most
significant for the Group is the Solvency Assessment and Management (“SAM”) regime in South Africa, which
will have a significant impact on required solvency and capital levels. The new SAM regime, which will be
implemented on 1 January 2016, will impose more stringent regulatory requirements on both long-term and
short-term insurers, requiring them to maintain adequate solvency capital based on risks faced on a day-to-day
basis. The South African registered insurer entities of the Group, Alexander Forbes Insurance Company
Limited (“AFIC”), Investment Solutions Limited, SuperFlex Limited (“Superflex”) and Alexander Forbes Life
Limited, will be directly subject to compliance with the revised solvency capital regulatory requirements, while
the proposed consolidated supervision rules and related group capital requirements will need to be complied
with across the Group. Maintaining higher capital solvency may lead to increased compliance costs, reporting
requirements and employee time spent on compliance or result in restrictions on maintaining and developing
the business or limitations on the Group’s ability to pay dividends. For example, the Group could be subject to
monthly reporting requirements if its capital adequacy requirements (“CAR”) ratio, or the CAR ratio of one of
its subsidiaries, deteriorates. In addition, the FSB is currently assessing remuneration models of financial
services providers as part of its broader cross-sector Retail Distribution Review. The Group is also subject to
numerous South African and foreign jurisdiction laws and regulations designed to protect sensitive or
confidential client and employee data, such as the South African Protection of Personal Information Act
(“POPIA”) and the EU Directive on Data Protection.
Furthermore, the Group’s regulated entities are subject to oversight and monitoring by regulatory authorities,
as well as substantive legal and regulatory requirements, and any such requirements could change in the
future. Such changes could make it more costly to operate or cause the Group to otherwise change the way it
does business. The implementation of the so called “twin peaks” model of financial regulation in South Africa
will result in the establishment of two regulators, namely, the new Prudential Authority within the Reserve
Bank, responsible for the safety and soundness of financial services providers, and the Market Conduct
Authority, whose duties it will be to protect customers of financial services firms and to supervise the way
financial service providers (“FSPs”) operate. The proposed restructuring of the regulatory environment for
financial institutions will result in dual-regulated entities, being those entities that undertake activities that
give rise to both prudential and market conduct regulations. Under the new “twin peaks” dispensation the
Group’s dual-regulated subsidiaries will be subject to increased regulation and supervision by more than one
regulator.
13
There can be no assurance that the Group’s various businesses will continue to be conducted in any given
jurisdiction as they have been in the past. Any significant impairment of the Group’s ability to conduct its
business as it historically has done could have a material adverse effect on its business, financial condition or
results of operations.
A number of the services and products that the Group provides are regulated and regulatory changes that affect its target clients could have a significant effect on the way it operates and, in turn, on its financial condition and results of operations.
The Group provides financial, risk management and administration solutions and advisory services for
employee benefit plans and its individual clients, including the individual members of such plans. Employee
benefit plans are often structured with consideration of applicable legal and regulatory requirements.
Regulatory requirements in these areas change from time to time, and they may change in ways that adversely
affect solutions that the Group provides or may provide in the future. Regulatory changes could require the
Group to modify the way in which it offers or prices its services or products, or could increase the costs
associated with providing those services or products. Any such consequence could have a material adverse
effect on the Group’s financial condition, results of operations or cash flows.
For example, the South African government has proposed to reform the current retirement system, which
proposal, among other items, contemplates the formation of an auto-enrolment or a mandatory contribution
system designed to benefit lower wage earners. Private retirement funds would then become elective retirement
benefit vehicles aimed at supplementing the central saving fund benefits of upper income earners to the extent
that they may be insufficient. A number of important details have yet to be finalised, and thus implementation
is not expected to occur in the short term. At this time, it is unclear what the proposed legislation will
ultimately require and, if passed, when it would become effective and what types of transitional arrangements
would be provided for. Any such reform could affect the manner in which retirement plans are structured and
could therefore change the types of advice, products and expertise that clients demand. Reform of the type,
and in the form, currently proposed could have a materially adverse effect on the Group’s results of operations.
Similarly, the government has proposed regulations under the Short-Term Insurance Act, 1998 (“STIA”) and
the Long-Term Insurance Act, 1998 (“LTIA”), which are intended to more clearly define the demarcation
between health insurance policies and medical schemes (the “demarcation regulations”). This will have an
effect on the advice given and products offered by the Group to its clients. The demarcation regulations will
allow for certain health insurance policies to be excluded from the definition of a “business of a medical
scheme” under the Medical Schemes Act. The latest version of the demarcation regulations was published on
30 April 2014 for public comment. In order to not undermine the business of medical schemes in South Africa,
the demarcation regulations contemplate an alignment of broker commission between health insurance and
medical schemes products. The demarcation regulations prescribe that commission payable in respect of
contracts identified as accident and health policies will be subject to the maximum compensation prescribed
under the Medical Schemes Act, 1998. The prescribed commissions available to brokers in respect of the sale
of accident and health policies will thus be reduced from around 20% of premium to the lesser of R71 per
month or 3% of premium. This could impact the Group’s healthcare business, as 3% of the Group’s revenues
were generated by such commissions in financial year 2014.
Reforms in pensions legislation may have a material adverse effect on the Group’s business and results of operations.
The Group’s strategy is to expand its operations into jurisdictions which have similar pensions legislation to
South Africa, i.e., where the legislation provides for private pensions provision. This allows the Group to
leverage its South African services platform and replicate the business model in other countries. Although
reforms in pensions legislations have generally been favourable and provided the Group with an opportunity
to expand into other sub-Saharan African countries, if future legislative or governmental reforms result in
the unavailability of private pensions provisions in countries where it currently operates or jurisdictions into
which it expands, this may affect the Group’s business strategy and have a material adverse effect on the
Group’s business and results of operations.
The Group faces competitive pressures in all of its businesses.
The South African, other African and European markets in which the Group competes are highly competitive,
with strong and increasing competition in all its business lines. Its competitors include employee benefits
consultants, mutual funds companies (collective investment schemes), asset management firms, commercial
banks and other insurance companies, some of which are regulated differently than the Group is, may have
greater resources than the Group does, offer alternative products or more competitive pricing or have access
to better distribution channels compared to the Group. In addition, the Group may be affected by the growing
trend of disintermediation of sales of products directly to the end-customer or by the ability of the end-
customer to purchase services and products directly from the provider.
Competition in the Group’s business areas is often based on price, product quality, convenience, reputation,
loyalty and conversion of current clients to new business, as well as the conversion of corporate client
beneficiaries (employees) to independent retail clients, the ability to provide full service package advice and
solutions, customer service support and the ability to identify and satisfy emerging consumer preferences.
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The Group competes with a significant number of companies of varying sizes, including divisions or
subsidiaries of large multi national companies. These competitors may succeed in developing new or enhanced
products that are more attractive to consumers than the Group’s products and advice. These competitors may
also be more successful in converting clients to new business and at marketing and selling their products to
new corporate and retail clients. These competitive pressures may cause pricing declines and/or losses in
market share for the Group’s products, and its business, financial condition or results of operations could be
materially and adversely affected.
The Group’s brand is key to the success of the business and the business may be negatively affected by adverse publicity, regulatory action or litigation with respect to its operations and other activities, other well-known companies in the industry and the industry generally.
The Group’s relationships with its clients are built on trust and maintaining a good reputation is critical to
the Group’s continued success. The Group’s brand name and reputation are important corporate assets that
help distinguish its products and services from those of its competitors. Adverse publicity and damage to the
Group’s reputation or brand arising from failure or perceived failure to comply with legal and regulatory
requirements, financial reporting irregularities involving other large and well-known companies, increasing
regulatory and law enforcement scrutiny of “know your customer” anti-money laundering and anti-terrorist-
financing procedures and their effectiveness, regulatory investigations of the mutual fund, pension and
insurance industries, and litigation that arises from any of the foregoing, could result in increased regulatory
supervision, affect the Group’s ability to attract and retain customers, result in suits, enforcement actions,
fines and penalties or could have other adverse effects on the Group in ways that are not predictable. For
example, the Group in the past has engaged in the notional bulking of client accounts, for which the Group
has worked with the FSB to settle payments to its affected clients. All settlement offers released to the Group’s
active clients have been finalised and management believes that all liabilities with respect to closed and
liquidated funds have been fully provided for.
Any challenges to business practices that could result in reputational or monetary damages such as the one
described above would require the Group to expend significant management time and other resources in
seeking to offset such adverse effects.
The Group is subject to possible “errors and omissions” claims by clients and other claims in respect of its business or operations and its business, results of operations, financial condition or liquidity may be materially adversely affected by the outcome of certain actual and potential claims, lawsuits and proceedings.
The Group’s business units provide numerous services and products to clients in South Africa and other
markets where it operates. As a result, it is exposed to various actual and potential claims, lawsuits and other
proceedings relating to alleged errors and omissions (“E&O”), or non-compliance with laws and regulations,
in the conduct of its ordinary course of business. Clients or third parties can, and from time to time do, allege
that they suffered damages as a result of the Group’s failure to adequately perform its duties. Claimants often
seek compensation for damages. In addition, in the Group’s advisory and other businesses, disclosure to
clients and potential clients of fees and other terms of service, as well as disclaimers as to the extent of the
Group’s responsibilities, are often required by law. Inadequate disclosure could expose the Group to regulatory
sanctions as well as legal liability. As with all businesses of this type, the risk exists that significant adverse
developments in past claims, or a significant increase in the frequency or severity of future claims, for E&O,
to the extent that they are not indemnified by insurers, could have a material adverse effect on the Group’s
business and results of operations.
Although the Group takes steps to reduce its potential exposure to E&O claims by, among other things,
prevention and remediation efforts and employee education and training, it is not possible to prevent such
exposure completely.
The Group purchases professional indemnity insurance but remains exposed to the retention and losses above
the policy limits. The Group establishes loss reserves related to E&O based on an actuarial forecast analysis of
its E&O claims experience, which it believes are adequate to provide for the self-insured retention. Nevertheless,
given the unpredictability of E&O claims and of litigation which could flow from them, it is possible that
losses could exceed the Group’s level of loss reserves and an adverse outcome in a particular matter could have
a material adverse effect on its business, results of operations or financial condition. For further information
about the Group’s E&O exposure and related insurance coverage, including self-insurance, see “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and the notes to the Consolidated
Financial Statements included in Annexure 2 to this pre-listing statement.
The Group advises or acts on behalf of clients regarding their investments. The results of these investments are uncertain and subject to a number of factors, some of which are not within the Group’s control.
The Group provides advice to clients on investment strategies, which can include advice on setting investment
objectives, asset allocation, and hedging strategies, selection (or removal) of investment managers, the
15
investment in different investment instruments and products, and the selection of other investment service
providers, such as custodians and transition managers. For some clients (other than policyholders of
Investment Solutions and Superflex), the Group is responsible for making decisions on these matters and may
implement such decisions in a fiduciary/agency capacity albeit without assuming title or custody over the
underlying funds or assets invested. Asset classes may experience poor absolute performance or be no longer
suitable for the clients’ circumstances, and third parties that the Group recommends or selects, such as
investment managers, may underperform their benchmarks due to poor market performance, negligence or
other reasons, resulting in lower than expected investment returns or losses of some, or all, of the capital that
has been invested.
In addition, in connection with the Group’s pension fund administration business, the Group may not control
the amount of contributions made to each fund, as this decision is made at the discretion of the pension trustee
and employer. For example, while the Alexander Forbes Staff Pension Fund, a defined benefit pension fund for
certain of the Group’s employees, has for a number of years been closed to new entrants and its trustees are
employees of the Group, the trustees of this fund are entitled to determine the amounts payable by the
participating companies within the Group as employer contributions to the fund. The Group may not control
the amount of the contributions payable by employers to this fund, as this decision is made at the discretion
of the trustees. If the fund is in deficit in the future, the participating companies within the Group would
assume the risk of any shortfall. Any losses arising from the above scenarios may be attributable in whole or
in part to failures on the Group’s part or to events entirely outside of its control. Regardless of the cause, such
losses may negatively impact the overall level of client satisfaction, which in turn will directly affect client
retention.
The investment performance of the Group relative to its peers and the overall performance of the equity and debt markets in which its clients invest could each have an impact on the Group’s revenue.
The success of the Group’s Investment Solutions business and, to a lesser extent, the AFFS business, which
had R285 billion of assets under administration and management and R323 billion of assets under
administration as of 31 March 2014, respectively, and generated 16.3% and 40.0% of the Group’s net revenue
in financial year 2014, respectively, is affected by investment performance. This is linked to the performance
of the underlying investment markets in which its clients invest as well as the relative investment performance
of its own portfolios compared to their benchmarks and their competitors. Portfolio performance and the
overall state of the equity and debt markets will impact the size of its assets under management and thus the
level of fees Investment Solutions receives (which are calculated based on a percentage of assets under
management). In addition, investment performance also impacts the overall level of client satisfaction, which
in turn will directly affect client retention.
Adverse conditions in the debt and equity markets or falling investor confidence among the clients or potential
clients could have an adverse effect on the Group’s business and results of operations.
If the fees that the Group pays to its underlying asset managers increase, the Group’s net profit may decline.
In addition to investment performance, the success of the Group’s Investment Solutions business is also
affected by the fees charged to Investment Solutions by the underlying asset managers used in its multi-
manager portfolios, as its net fee income depends in part on the spread between the fees it charges its clients
and the fees it pays out to the underlying asset managers. If these asset managers increase the fees they
charge to Investment Solutions, the Group’s margins would be adversely affected unless Investment Solutions
were able to obtain lower fees with alternative asset managers, increase the fees it charges to its clients or
enter into long-term fee deals with the underlying asset managers. In addition, prospective clients may be
deterred by the increase in fees and turn to the Group’s competitors who may be able to offer more competitive
pricing.
If any of Investment Solutions’ management, administration or service contracts are terminated, not renewed or amended to reduce fees, the Group’s financial results may be affected.
Some segments of the investment manager and investment consulting sectors have experienced a trend
towards lower management and consulting fees, and pricing based on value-added offerings. Given this trend,
Investment Solutions may not be able to maintain its current fee structure or client base. Reduction of the fees
for new or existing clients could have an adverse impact on its results.
In addition, the Group’s revenue and profit could be adversely affected if the terms of Investment Solutions’
multi-manager and other consulting agreements are significantly altered or these agreements are terminated
or not renewed by the funds it advises or the asset managers it selects for the portfolios. Investment Solutions’
revenues are dependent on fees earned under multi-manager, consultant and related portfolio and investment
platform services agreements that it has with the funds it advises. These revenues could be adversely affected
if these agreements are altered significantly or terminated. The decline in revenue that might result from
alteration or termination of its multi-manager or consulting services agreements could have a material
adverse impact on the Group’s revenues and profits.
16
The reserves the Group establishes in its insurance companies may not be adequate to cover future claims and benefits.
The Group offers both short-term and long-term insurance products to retail and small and medium-sized
businesses through various subsidiaries in its AFFS, Alexander Forbes Insurance (“AFI”) and AfriNet
divisions. The Group typically focuses on high frequency, low severity claims, and typically reinsures in
excess of 75% of its exposure. AFI, in its capacity as a reinsurer, could also be exposed to significantly higher
claims than it takes on in its role as an insurer. In connection with these operations, the Group establishes
reserves to cover its estimated ultimate liability for claims and claim adjustment expenses for short-term
insurance and to cover future policy benefits for long-term insurance. Reserves do not represent an exact
calculation of liability, but rather are estimates of the expected cost of the ultimate settlement of claims and
benefits. These estimates are derived from actuarial and statistical projections based on facts and circumstances
known at a given time and estimates of trends in claims severity and other variable factors, including new
bases of liability and general economic conditions. The process of estimating loss reserves involves a high
degree of judgement and is subject to a number of variables. These variables can be affected by both internal
and external events, such as changes in claims handling procedures, economic inflation, legal trends and
legislative changes, among others. The impact of many of these items on ultimate costs for claims and benefits
is difficult to estimate. Changes in trends or other variable factors underlying its reserve estimates could
result in claims in excess of reserves.
The business, financial condition, results of operations and liquidity of the Group’s insurance companies may be adversely affected by the emergence of unexpected and unintended claim and coverage issues.
As industry practices and legal, regulatory, judicial, social and other environmental conditions change,
unexpected and unintended issues related to insurance claims and coverage may emerge. These issues may
either extend insurance coverage beyond the Group’s underwriting intent or increase the frequency or severity
of claims. In some instances, these changes may not become apparent until some time after the Group has
issued insurance contracts that are affected by the changes. In addition, the Group’s business may be negatively
impacted by increasing loss ratios, the increased cost of which it may be unable to pass on to policyholders.
As a result, the full extent of liability under its insurance contracts may not be known for many years after a
contract is issued, and this liability may have a material adverse effect on the Group’s business, financial
condition, results of operations and liquidity at the time it becomes known.
Reinsurance may not be adequate to protect the Group against losses and it may incur losses due to the inability or unwillingness of its reinsurers to meet their obligations.
In the normal course of its insurance underwriting operations, the Group seeks to reinsure itself and otherwise
reduce losses that may arise from catastrophes or other events that cause unfavourable underwriting results
through reinsurance. The Group typically reinsures in excess of 75% of its exposure. Under the reinsurance
arrangements, reinsurers assume a portion of the losses and related expenses; however, the Group remains
liable as the direct insurer on all reinsured risks. Consequently, ceded reinsurance arrangements do not
eliminate its obligation to pay claims and the Group is subject to its reinsurers’ credit risk with respect to its
ability to recover amounts due from them. Although the Group periodically evaluates the financial condition
of its reinsurers to minimise its exposure to significant losses from reinsurer insolvencies, its reinsurers may
become financially unsound by the time their financial obligation becomes due.
Reinsurers have also increased their focus on claims management and hence are increasingly more likely to
reject claims they believe do not fully meet the conditions of the reinsurance arrangements. The reinsurance
market has become increasingly concentrated following recent mergers and acquisitions, which has reduced
the number of major reinsurance providers. The inability or refusal of any reinsurer to meet its financial
obligations to the Group could negatively impact the Group’s results of operations. In addition, the availability,
amount and cost of reinsurance depend on general market conditions and may fluctuate significantly.
Reinsurance may not be available to the Group in the future at commercially reasonable rates, which may
increase the cost thereof and subsequently decrease the Group’s profitability as well as add to the volatility of
its underwriting results.
Operational risks inherent in the Group’s business could have a negative impact on its financial condition and results of operations.
Operational risks are present in all of the Group’s businesses, including the risk of direct or indirect loss
resulting from inadequate or failed internal and external processes, systems and human error or from external
events. The Group’s business is dependent on processing a high volume of complex transactions across
numerous and diverse products, and is subject to a number of different legal and regulatory regimes.
The Group’s continued success in effectively managing and growing its businesses, both in South Africa and
in other countries in which it operates, also depends on its ability to integrate the varied accounting, financial,
information and operational systems of its various businesses. Moreover, adapting or developing its existing
IT systems to meet internal needs, as well as client needs, industry demands and new regulatory requirements,
is also critical to the Group’s development. This need could present operational issues or require, from time to
time, capital spending. It may also require the Group to re-evaluate the current value and expected useful lives
of its IT systems, which could negatively impact the Group’s results of operations.
17
The Group depends on IT networks and systems to process, transmit and store electronic information and to
communicate among its locations around the world and with its partners and clients. Any security breaches
resulting in an unauthorised disclosure of confidential information could harm the Group’s reputation or
result in a violation of applicable data protection laws and regulations and potentially lead to fines, shutdowns
or disruptions of its systems.
In addition, any disruptions in the Group’s operations caused by fire, natural or man-made disasters,
unplanned power outages or reductions, interruption of telephone or broadband services, terrorist attacks,
cyber-attacks against its computer networks or other unauthorised access to customer and other data, or
other similar occurrences, could have an adverse impact on its operations. Any disruption of service could also
have an adverse impact on client confidence and the Group’s general reputation, which in turn could have an
adverse impact on the Group’s results of operations.
Limited protection of the Group’s intellectual property could harm its business, and the Group faces the risk that its services or products may infringe upon the intellectual property rights of others.
There can be no assurance that trade secret, trademark and copyright law protections are adequate to deter
misappropriation of the Group’s intellectual property (including its software, which may become an
increasingly important part of its business). Existing laws of some countries in which the Group provides
services or products may offer only limited protection of its intellectual property rights. Redressing
infringements may consume significant management time and financial resources. Also, the Group may be
unable to detect the unauthorised use of its intellectual property and take the necessary steps to enforce its
rights, which may have a material adverse impact on its business, financial condition or results of operations.
Furthermore, there can be no assurance that the Group’s services and products, or the products of others that
it offers to its clients, do not infringe on the intellectual property rights of third parties, and the Group may
have infringement claims asserted against it or its clients. These claims may harm its reputation, result in
financial liability and prevent it from offering some services or products.
The Group relies on third parties to provide certain services and its failure to perform these services could harm its business.
As part of providing services to clients and managing its business, the Group relies on a number of third-
party service providers, including those set out in Annexure 13. Its ability to perform effectively depends in
part on the ability of these service providers to meet their obligations, as well as on the Group’s effective
oversight of their performance. The quality of its services could suffer or it could be required to incur
unanticipated costs if its third-party service providers do not perform as expected or their services are
disrupted. This could have a material adverse effect on the Group’s business and results of operations.
The Group is exposed to various risks associated with geographic expansion.
The Group has expanded, and expects to continue to expand, its international operations, which subjects it to
associated legal, economic, operational and market risks. These risks include, among others:
• the economic and political conditions in foreign countries;
• the potential fluctuation in local exchange rates;
• the imposition of or changes to local investment, local ownership requirements or other restrictions by
governments and regulatory bodies;
• the imposition of controls or limitations on the conversion of foreign currencies or remittance of dividends
and other payments from foreign subsidiaries;
• the imposition of withholding and other taxes on remittances and other payments from subsidiaries;
• potential limitations on access to local funding;
• difficulties in monitoring operations and employees in geographically dispersed locations; and
• costs and difficulties in complying with a wide variety of foreign laws.
In particular, the Group operates in, and is likely to seek to expand to, other regions in sub-Saharan Africa.
Certain of these countries have experienced and may continue to experience significant political uncertainty.
Such uncertainty and the resulting economic and social consequences thereof could affect the Group’s future
growth and expansion, and its results of operation.
The appearance of conflicts of interest related to a perceived lack of independence between advisors and product providers inherent in the Group’s business model could arise and adversely affect the Group.
Although the Group believes that there are significant benefits to combining an advisory business with its
product offerings and multi-manager platform and, except as otherwise disclosed to its clients, it believes its
product providers operate entirely independently and offer best advice, there could be perceived conflicts of
interest arising from such a combination. Such perceptions could be based on a view that the Group directs
business to itself even when the products or platform may not be the best suited for the client’s needs, or that
18
there is inadequate disclosure of the relationship or that advice is biased so as to increase the levels of
commissions and fees and thus the compensation of its senior management. For the investment businesses,
including the multi-manager investment business, the Group has delegated to the asset managers not only
the full discretion as to the selection of investments, and the timing of purchases and sales, but also the right
to vote in respect of voting securities (which, as the Group is the owner of record of the assets under
management in its Investment Solutions operations, includes the vote in respect of voting securities in the
first instance) in its clients’ portfolios, within certain agreed upon parameters.
Although the Group provides detailed disclosure of potential conflicts of interest, it could nonetheless be
subject to a loss of clients resulting from a perceived lack of independence between advisors and product
providers and, if the level of client defections were significant, it could pose a significant challenge to its
business model.
The Group may be unable to anticipate or adapt to changes in client preferences, which may result in decreased demand for its products and services.
If pension, insurance or investment trends in the South African, other African and European markets in
which the Group competes change and, as a result, sales of any of its products or services decline, the Group’s
cash flows and profitability may be adversely affected and it may not be able to offset any such decline with
sales of alternative products or services. Although the Group monitors market developments closely and has
a track record of innovation, its success depends in part on its ability to anticipate and offer solutions that
appeal to changing client preferences. If it is not able to anticipate, identify, develop and market products and
services, and to give advice that is responsive to prevailing client preferences and needs, demand for its
products and services may decline and its business, financial condition and results of operations may be
materially and adversely affected. In addition, the Group may incur significant costs related to developing and
marketing new products and services, expanding its existing operations or hiring new staff in anticipation of
what it perceives to be potential changes in client preference or potential increases in demand. Such investments
may not result in anticipated volume of sales, cash flows and profitability.
The Group may, as part of its growth strategies, make acquisitions and divestments and faces risks when it does so, and it could be adversely affected were it to be unsuccessful in integrating the businesses it acquires or if it has difficulty in acquiring other businesses.
The Group may undertake acquisitions in the future in order to take advantage of opportunities to further
grow its business or divest businesses. There could be unforeseen liabilities or asset impairments, including
goodwill impairments, that arise in connection with the businesses that the Group may sell or acquire in the
future. In addition, acquired businesses may not achieve the levels of revenue, profit, cash flow or productivity
the Group anticipates or otherwise perform as the Group expects, or the Group may face difficulties in
integrating acquired businesses. The Group also faces additional risks related to acquisitions, including that
it could overpay for acquired businesses and that any acquired business could significantly underperform
relative to its expectations. With respect to divestments, the Group may be subject to outstanding potential
indemnities as well as non-compete provisions. For example, the Group is subject to non-compete undertakings
with varying durations, which have been provided in favour of the acquirers of the divestments, and which
restrict certain activities of the Group in the business line sold in the relevant identified territories to which
the non-compete applies. Pursuant to these divestments, the Group may also be subject to outstanding potential
indemnities and other claims which may arise in relation to the divestments and for which the Group could
be liable until such time as the applicable period during which a claim may be brought expires.
While it is believed that the Group’s acquisitions and divestments will improve its competitiveness and
profitability, there can be no assurance that the Group’s past or future acquisitions will be accretive to earnings
or that its acquisitions and divestitures otherwise meet its operational or strategic expectations. Further, the
Group may not be successful in identifying appropriate acquisition candidates or consummating acquisitions
on terms acceptable or favourable to the Group.
If the Group is unsuccessful in implementing its growth strategies, its business may be adversely affected.
The Group is pursuing a variety of strategies to leverage the strengths of the Group and to create growth in
its business. The Group’s success in implementing these business strategies could be affected by a number of
factors beyond its control, including legal and regulatory changes, changes in the global capital markets,
deterioration of general macro-economic, social and political conditions in its principal market, South Africa,
or the other jurisdictions in which it operates, or other factors that it may not be able to anticipate or mitigate.
Its success in implementing its growth strategies is also affected by factors within its control, such as available
capital, allocation of resources and judgements that it makes as to strategic and other steps to grow its
business or otherwise take advantage of market opportunities. In addition, the Group faces the risk that its
operational controls may not be sufficient or appropriate for new types or levels of business or for new
regulatory environments. The success of any growth will depend in part on its ability to successfully implement
effective systems, including accounting, financial, information and operational systems, consistent with its
growth. If it is unsuccessful in implementing its growth strategies, the Group may be unable to maintain its
cash flows and profitability.
19
The loss of any member of the Group’s senior management, other key personnel or a significant number of its client-facing staff could negatively affect its financial results, marketing and other objectives.
The loss of or failure to attract key personnel could significantly impede the Group’s financial plans, growth,
marketing and other objectives. The Group’s success depends to a substantial extent not only on the ability
and experience of its senior management, but also on the individuals and teams that service its clients and
maintain its client relationships. The sectors in which the Group operates have in the past experienced intense
competition for the services of specialised employees, including actuaries, fund managers, accountants,
consultants and other service providers, and the Group has previously lost key individuals and teams to
competitors, or to clients. As a result of this competition, the Group has in the past increased staff salaries to
retain staff. In addition, because of the nature of the Group’s business, certain individuals that it may want
to hire may be subject to additional requirements, such as an approval by its various regulators.
The Group’s future success will depend in large part on its ability to attract and retain additional highly-
skilled and qualified personnel and to expand, train and manage its employee base, which may also lead to
increased labour costs in the form of employees’ salaries or otherwise. There can be no assurance that the
Group will continue to be successful in doing so, and this could have a material adverse effect on its business
and results of operations.
The Group is exposed to risks in respect of its B-BBEE transformation and meeting published B-BBEE goals for the financial services industry in South Africa.
Broad-based black economic empowerment (“B-BBEE”) is the government’s policy to address the economic
divide in South African society as a result of historical discrimination. The Broad-Based Black Economic
Empowerment Act, 53 of 2003 (“B-BBEE Act”) is the primary legislation through which this B-BBEE policy is
implemented. In terms of the B-BBEE Act, B-BBEE consists of measures and initiatives that are aimed at
increasing levels of equity ownership by previously disadvantaged South Africans in businesses operating in
South Africa, increasing the numbers of black people who participate in management roles in business,
improving the skills of black employees, assisting small and medium-sized businesses that are majority-
owned by black people, procuring goods and services from businesses that are good contributors to B-BBEE
and corporate social investment. The levels of B-BBEE within participants in the financial services industry
are measured in terms of the Financial Sector Code (the “FS Code”), which was published in November 2012.
The scorecard under the FS Code measures B-BBEE compliance in the following categories: shareholding,
management, employment equity, skills development, procurement, enterprise development, social investment,
access to financial services and empowerment financing. In order to successfully compete and procure new
business and maintain customers in the financial services industry, in particular in the public sector, the
Group must comply with the FS Code and implement its own B-BBEE transformation initiatives. Should the
Group fail to meet the performance measures of the scorecard and maintain a rating in line with its direct
competitors, it may be unable to procure new business or experience a loss of business or good standing with
public and private sector clients, which, in turn, could negatively affect the Group’s results of operations. See
“Regulation – Black Economic Empowerment” for further detail.
The Group is exposed to fraud risks in connection with its pension funds administration and insurance businesses.
The Group is vulnerable to internal and external fraud from a variety of sources such as employees, suppliers,
intermediaries, customers and other third parties in connection with its pension funds administration and
insurance businesses. This includes both policy (i.e. application related) fraud and claims fraud. Although the
Group employs fraud detection processes to help monitor and combat fraud, the Group is at risk from
customers who misrepresent or fail to provide full disclosure of the risks covered before such cover is
purchased, from policyholders who file fraudulent or exaggerated claims and from a range of other fraud-
related exposures, such as the fraudulent use of Group-related confidential information. These risks are
higher in periods of financial stress and include payment security risks.
In addition, the Group is exposed to risks arising when employees and staff members fail to follow or circumvent
procedures designed to prevent fraudulent activities. The occurrence or persistence of fraud in any aspect of the
Group’s business could damage its reputation and brands as well as its financial standing, and could have a
material adverse effect on its business, prospects, results of operations and financial position.
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Risks Related to the Republic of South Africa
Political, social and economic conditions in South Africa or regionally could reduce the size of the South African financial services market and cause the Group’s operating revenue, cash flows and profitability to decline.
The South African operations are the core of the Group’s business, accounting for 64.2% of its net revenue for
financial year 2014, and as a result, the Group is affected by political, social and economic conditions in South
Africa.
Large parts of the South African population do not have access to adequate education, healthcare, housing
and other services, including water and electricity. Furthermore, due to historical levels of relative under-
investment in infrastructure, in particular, electricity, South Africa has experienced a national electricity
emergency with regular power outages and the government had previously implemented electricity rationing
and planned blackouts. Although the Group has backup generators for certain of its facilities and is installing
such generators in most of its facilities in South Africa, the power outages and electricity rationing could have
an adverse impact on communications with clients and, consequentially, the Group’s results of operations.
In addition, South Africa has high levels of unemployment, poverty and crime. These problems, in part, have
hindered investments in South Africa, prompted emigration of skilled workers and impacted economic growth
negatively. Although it is difficult to predict the effect of these problems on South African businesses or the
South African government’s efforts to solve them, these problems could cause the size of any of the sectors in
which the Group operates to decline and may have a material adverse effect on its financial condition and
results of operations.
There has also been regional political, social and economic instability in the countries surrounding South
Africa. The resulting political, social and economic instability in the region could negatively impact the South
African economy or otherwise have adverse effects in South Africa, which in turn could have an adverse effect
on the Group’s financial condition and results of operations.
Recent trends that have had an adverse effect on global economic and financial market conditions have also had an impact in South Africa, and such trends, or other developments in South Africa, could have an adverse impact on the Group’s business.
In February 2014, the World Bank lowered its annual growth forecast of South Africa to 2.7% from an earlier
forecast of 3.2%. Inflation increased to 5.4% in December 2013, and the SARB responded by raising interest
rates in January 2014 for the first time in five years by 50 basis points to 5.5%. Adverse economic trends have
had a significant impact on foreign exchange rates. The Rand has continued to fluctuate, reaching R10.5 to
the U.S. dollar at the end of December 2013 (as compared to R8.5 at the end of December 2012), representing
a 19.4% devaluation in calendar year 2013. In addition, on June 13, 2014, Standard & Poor’s Credit Market
Services Europe Limited downgraded South Africa’s credit rating to BBB-. Continued growth in inflation and
continued interest rate hikes could have an adverse impact on growth and business confidence. Tighter
monetary policy could also have an adverse impact on mortgage payments and the general sustainability of
household debt levels. The economic slowdown and challenging market conditions also contributed to
increased unemployment levels, decreasing wages and low levels of disposable income. These factors could
have an adverse impact on the industry in general by, for example causing individuals to reduce expenditures
for insurance cover or to defer making investment decisions, which might impact the Group to the same
extent as, or to a greater or lesser extent than, other industry participants. Adverse trends could hinder the
Group’s growth strategies or otherwise have an adverse impact on its business and results of operations.
South African exchange control restrictions could hinder the Group’s ability to make foreign investments and procure foreign-denominated financings.
South Africa’s Exchange Control Regulations have historically restricted business transactions between
residents of the Common Monetary Area, on the one hand, which consists of South Africa, the Republic of
Namibia, and the Kingdoms of Lesotho and Swaziland, and non-residents of the Common Monetary Area, on
the other hand. In particular, South African companies:
• are generally not permitted to export capital from South Africa, hold foreign currency in excess of certain
limits or incur indebtedness to foreign lenders without the approval of the South African exchange control
authorities;
• are, with respect to incurring any indebtedness to foreign lenders, prohibited from paying interest on
foreign loans in excess of the rate approved by the South African exchange control authorities; and
• are generally not permitted to acquire an interest in a foreign venture without the approval of the South
African exchange control authorities and are subject to compliance with the investment criteria of the
South African exchange control authorities.
Current Exchange Control Regulations regarding foreign direct investments by South African resident
companies allow such companies, subject to obtaining the relevant approval from an authorised dealer (which
includes most retail banks in South Africa) to make bona fide new direct investments into non-South African
21
companies, branches and offices outside the Common Monetary Area (even in cases where such bona fide
investments fall outside the current line of business for such company), where the total cost of such investments
does not exceed R500 million in a calendar year, subject to certain parameters being adhered to. Foreign direct
investments which exceed the R500 million threshold may also be approved subject to the applicant company
obtaining approval from the SARB. In addition, the previous prohibition of transferring additional working
capital funding in respect of foreign direct investments has also been withdrawn and is now permissible
subject to certain limitations.
These government measures may increase capital outflows from South Africa, which in turn could affect the
Rand’s position against the U.S. dollar, the euro and other currencies. The South African government may
continue to relax or may abolish exchange controls in the future. However, if the government were to later
tighten exchange controls, these restrictions could further hinder the Group’s ability to make foreign-
denominated investments and procure foreign denominated financings in the future and could adversely
impact the Group’s business, financial condition and results of operations.
Fluctuations in the value of the Rand could have a significant impact on the Group’s business, financial condition and results of operations.
The Group realises the majority of its revenues, and incurs the majority of its costs and expenses, in Rand. In
recent years, the value of the Rand as measured against the euro has fluctuated considerably. In calendar year
2013, the Rand depreciated against the euro by 23.0%, against the U.S. dollar by 19.4% and against the pound
sterling by 21.0%. The Rand is currently trading at five-year lows and in calendar year 2014 , it has depreciated
against the euro by 0.9 %, against the U.S. dollar by 1.7 % and against the pound sterling by 4.0 % as of the Last
Practicable Date. South Africa’s central bank has announced that it expects the Rand to remain volatile and is
unlikely to intervene in the market to try to stabilise the currency, given its limited foreign reserves. When
the Rand is weak, the Group’s reported profits are positively impacted due to translation effects. If the Rand
were to strengthen, this could have a negative effect on the Group’s results of operations.
Foreign exchange rate fluctuations in the future, in particular in relation to the Rand against the euro and
pound sterling, may have a material adverse effect on the Group’s business, financial condition and results of
operations.
Risks Related to the Offer
Mercer will be a significant shareholder in the Company and its interests may conflict with the interests of other shareholders.
On 20 June 2014, the Selling Shareholders entered into the Sale of Shares Agreement with Mercer, pursuant
to which Mercer has agreed to purchase from the Selling Shareholders: (i) 14.9% of the Shares of the Company
on the First Closing Date and (ii) an additional 19.1% of the Shares of the Company on the Second Closing
Date . Mercer’s obligations to purchase the Shares on the First Closing Date and the Second Closing Date are
subject to obtaining requisite regulatory approvals and the fulfilment of certain other conditions. The First
Closing Date is expected to coincide with the Listing Date, but may be delayed if the relevant regulatory
approvals are not obtained by the Listing Date.
If Mercer acquires the Shares on the Second Closing Date as contemplated by the Sale of Shares Agreement,
it will hold 34.0% of the Shares in the Company and will have sufficient voting interest to block any special
resolution of shareholders (which are required, among others, for matters such as amendments to the
memorandum of incorporation, changes to share capital or certain disposals by the Group of its businesses or
assets). In addition, under the Relationship Agreement, Mercer will have the right to nominate two directors
for appointment to the Company’s board of directors after the Second Closing Date. See Annexure 12 for more
details. The interests of Mercer may not be the same as the interests of other shareholders in the Company and
Mercer may have interests that are in addition to or that conflict with the rights of other shareholders in the
Company, partly because Mercer and its affiliates may conduct operations that are competitive with the
Group’s businesses. The concentration of ownership may also affect the market price and liquidity of the
Shares.
There is no guarantee that Mercer will obtain the requisite regulatory approvals and purchase the additional
Shares on the Second Closing Date. If such approvals are not obtained and Mercer does not increase the
percentage of Shares it will hold in the Company’s share capital to 34.0%, it will not have sufficient voting
interest to block special resolutions of shareholders and will only have right to nominate one director.
In addition, the benefits of its strategic investment in the Group may not be realised.
The absence of an existing market for the Offer Shares may limit their liquidity.
There is currently no active market for the Offer Shares. Although the Offer Shares are expected to be listed on
the exchange operated by the JSE, there is no guarantee that an active trading market for the Offer Shares will
develop and continue after the Listing. If no active trading in the Offer Shares develops or continues after the
Offer, this could have a material adverse effect on the liquidity and the market price of the Offer Shares. The
Offer Price of the Offer Shares will be determined by the Joint Bookrunners, the Selling Shareholders and
the Company and may not be indicative of the market price of the Shares after the Offer.
22
The exchange operated by the JSE is smaller and may be less liquid than many major securities markets.
The exchange operated by the JSE has a smaller market capitalisation and may not be as liquid as many major
world equity securities markets. As a result, the prices of South African securities may be more volatile than
in such other securities markets. This may impair the ability of holders of Offer Shares to sell such Offer
Shares or impair the price realised from such sales.
The market price of the Shares may prove to be volatile and is subject to fluctuations, including significant decreases.
The market price of the Shares could be volatile and subject to significant fluctuations due to a variety of
factors, some of which do not relate to the Group’s financial performance, including changes in general
market conditions, the general performance of the exchange operated by the JSE, changes in sentiment in the
market regarding the Shares (or securities similar to them), regulatory changes affecting the Group’s
operations, variations in its operating results, business developments relating to it or its competitors, the
operating and share price performance of other companies in the industries and markets in which it operates,
speculation about its business in the press, media or the investment community, or changes in the political,
social or economic conditions in South Africa or other markets in which it operates. Furthermore, the Group’s
operating results and prospects from time to time may be below the expectations of market analysts and
investors. Any of these events could result in a decline in the market price of the Shares.
Holders of Shares may not be able to exercise their pre-emptive rights on the issue of new shares.
South African companies whose securities are listed on the exchange operated by the JSE are obliged under
their memorandum of incorporation and pursuant to the Listings Requirements to issue unissued shares to
existing shareholders pro rata to their shareholdings, except in certain circumstances. While all Shares will
be of the same class and rank pari passu, non-South African holders of Shares may not be able to exercise their
right to subscribe for Shares offered to them, unless the Company decides to comply with applicable local laws
and regulations and, in the case of U.S. holders, unless a valid exemption from the registration requirements
of the U.S. Securities Act is available. There can be no assurance that the Company will elect to comply with
such applicable local laws and regulations, or in the case of U.S. holders, that an exemption from the
registration requirements of the U.S. Securities Act would be available to enable such U.S. holders to exercise
such pre-emptive rights and, if such exemption were available, that the Company would take the steps
necessary to enable U.S. holders of Shares to rely on it.
Future sales of substantial amounts of Shares, or the perception that such sales could occur, could adversely affect the market value of the Shares.
Immediately following the Offer there will be 1 , 304, 434, 505 Shares in issue. In connection with the Offer, the
Selling Shareholders and the Company’s directors have agreed to certain lock-up arrangements in respect of
their holdings of Shares held prior to the Offer. These limitations will apply from the Listing Date for a period
of 180 days.
AF Pref is not participating in the Offer and holds 28.4% of the Shares. To satisfy JSE requirements, AF Pref
will be unbundling those Shares to the AF Pref holders. The unbundling of the AF Pref Shares will be effected
as soon as practicable following the Listing and is expected to be completed approximately 60 days following
the Listing. Neither AF Pref nor the AF Pref holders are party to any lock-up arrangements.
The Company cannot predict whether substantial numbers of Shares will be sold by the Selling Shareholders
following the expiry of the lock-up period, or by AF Pref or AF Pref holders prior to the expiry of the lock-up
period. Future issues or sales of Shares could be made by the Company, the Selling Shareholders, AF Pref or
AF Pref Holders or through a capital increase undertaken to fund capital expenditures or for another purpose.
A sale of a substantial number of Shares, or the perception that such sales could occur, could materially and
adversely affect the market price of Shares and could also impede the Company’s ability to raise capital
through the issue of additional equity securities in the future.
The Group’s ability to make dividend payments may be restricted.
The Group’s operations are conducted through its subsidiaries. As a result, its ability to make future dividend
payments, if any, is largely dependent on the earnings of its subsidiaries and the ability to distribute those
earnings to the Group in the form of dividends, loans or advances and through repayment of loans or advances.
For example, LCP is consolidated into Alexander Forbes International (“AF International”), which has access
to LCP earnings only through its semi-annual partnership distributions. Payments to the Group by its
subsidiaries will be contingent upon its subsidiaries’ earnings and other business considerations and may be
subject to statutory or contractual restrictions, which may restrict the ability of its subsidiaries to pay
dividends or otherwise transfer assets to the Group. In addition, the Group and its subsidiaries may need to
retain additional capital to meet applicable capital adequacy and solvency requirements, which may limit the
Group’s ability to pay dividends. For example, in preparation for the implementation by the FSB of consolidated
group supervision, the board of directors anticipates a capital shortfall and does not anticipate that an interim
23
dividend for the six-month period to 30 September 2014 will be declared. See “Management’s Discussion and
Analysis of Financial Condition and Results of Operations — Consolidated Supervision” . There may also be
significant tax and other legal restrictions on the ability of foreign subsidiaries to remit money to the Group.
For further details on dividends and the Group’s dividend policy, see “Dividends and Dividend Policy”.
Differences in exchange rates may have a material adverse effect on the value of shareholdings or dividends paid.
The Shares will be denominated in Rand only, and any dividends will be paid in Rand. For further details on
dividends and the Group’s dividend policy, see “Dividends and Dividend Policy”. As a result, shareholders
outside South Africa may experience material adverse effects on the value of their shareholdings and their
dividends, when converted into other currencies if the Rand depreciates against the relevant currency.
The Company may be a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes for any taxable year, which could result in adverse U.S. federal income tax consequences to U.S. investors.
A non-U.S. corporation will be a PFIC for any taxable year if either: (i) at least 75% of its gross income is
“passive income” or (ii) at least 50% of the average quarterly value of its assets consists of assets that produce,
or are held for the production of, passive income. For purposes of the above calculations, a non-U.S. corporation
that directly or indirectly owns at least 25% by value of the shares of another corporation is treated as if it
directly held its proportionate share of the assets of the other corporation and received directly its proportionate
share of the income of the other corporation. Passive income generally includes dividends, interest, rents,
royalties and capital gains. The PFIC rules provide an exception for income earned in the active conduct of an
insurance business by non-U.S. corporations predominantly engaged in an insurance business (the “active
insurance exception”). However, it is unclear how to apply the PFIC rules and the active insurance exception
to non-U.S. insurance companies, such as the Company’s South African insurance subsidiaries, offering
products that, while conforming to the regulatory requirements applicable to insurance companies in South
Africa, do not conform to those applicable to U.S. insurance companies. Accordingly, the Company and certain
of its subsidiaries may be determined to be PFICs for any taxable year.
If the Company were a PFIC for any taxable year during which a U.S. investor owned the Offer Shares, such
U.S. investor m ight be subject to certain adverse U.S. federal income tax consequences, including increased
tax liability on gains from dispositions of the Offer Shares and certain distributions and a requirement to file
annual reports with the Internal Revenue Service.
U.S. investors should consult their own tax advisors regarding the PFIC status of the Company and its
subsidiaries, as well as the U.S. federal income tax consequences that apply to an investment in a PFIC. See
“Taxation —U.S. Federal Income Tax Considerations —Passive Foreign Investment Company Rules”.
Payments on the Offer Shares may be subject to FATCA withholding beginning in 2017 to the extent such payments are considered “foreign passthru payments”.
Provisions of the United States Internal Revenue Code of 1986, as amended (the “Code”) and Treasury
regulations thereunder commonly referred to as “FATCA” may impose 30% withholding on certain payments
that are considered “foreign passthru payments” made by a non-U.S. financial institution (including a relevant
intermediary through which shares are held) that has entered into an agreement with the IRS to perform
certain diligence and reporting obligations with respect to the financial institution’s U.S.-owned accounts
(each such non-U.S. financial institution, a “Participating Foreign Financial Institution”). This withholding
tax may be imposed on “foreign passthru payments” made on Offer Shares by a Participating Foreign Financial
Institution to any non-U.S. financial institution (including an intermediary through which a holder may hold
Offer Shares) that is not a Participating Foreign Financial Institution and is not otherwise exempt from
FATCA and to other holders who do not provide sufficient identifying information. The term “foreign passthru
payment” is not currently defined and it is therefore unclear whether or to what extent payments on, or in
respect of, the Offer Shares would be considered “foreign passthru payments” subject to FATCA withholding.
Withholding on foreign passthru payments will not be required with respect to payments made before
1 January 2017. The United States has entered into inter-governmental agreements (“IGAs”) with certain
jurisdictions, including South Africa, that may modify the FATCA withholding regime described above. It is
not yet clear how IGAs will address “foreign passthru payments” and whether such agreements may relieve
a financial institution that is subject to an IGA of any obligation to withhold on foreign passthru payments.
FATCA is particularly complex and prospective investors should consult their tax advisors regarding the
implications of FATCA, any relevant IGA and any non-U.S. legislation implementing FATCA or an IGA on their
investment in Offer Shares.
24
USE OF PROCEEDS AND REASONS FOR THE OFFER
The main purposes of the Offer and the Listing are to:
• provide the Selling Shareholders with an opportunity to dispose of a portion of their investment in
the Company ;
• enhance the profile and general public awareness of the Company;
• enable the Company to access capital markets, if required ; and
• allow the Group to further pursue its strategic growth plan.
The net proceeds from the subscription for the Subscription Shares are estimated to be R29 4 million, before
deducting commissions and Offer expenses payable by the Group, which are expected to be R3 6 million.
R179 million of the net proceeds from the Subscription Shares will be used to redeem the “B” Preference
Shares held by Golden Falls. The remainder of the net proceeds will be used to increase the Group’s regulatory
capital holdings in line with the anticipated FSB regulatory requirements for consolidated supervision and to
reduce outstanding debt.
25
STRATEGIC INVESTOR
Overview
On 20 June 2014, the Selling Shareholders entered into the Sale of Shares Agreement with Mercer, pursuant to
which Mercer has agreed to purchase from the Selling Shareholders: (i) 14.9% of the Shares of the Company on
the First Closing Date and (ii) an additional 19.1% of the Shares of the Company on the Second Closing Date .
Mercer’s obligations to purchase the Shares on the First Closing Date and the Second Closing Date are subject to
obtaining requisite regulatory approvals and the fulfilment of certain other conditions. The First Closing Date
is expected to coincide with the Listing Date, but may be delayed if the relevant regulatory approvals are not
obtained by the Listing Date.
Mercer is a wholly-owned subsidiary of Mercer Consulting Group Inc. (“Mercer Consulting”) and part of the
Marsh & McLennan Companies, Inc. (“MMC”) which is a global professional services firm providing advice
and solutions in the areas of risk, strategy and human capital. MMC is listed on the New York Stock Exchange
and, as of the Last Practicable Date, had market capitalisation of approximately US$28 billion. MMC is the
parent company of a number of the world’s leading risk experts and specialty consultants, including Marsh
(insurance broker, intermediary and risk advisor), which already has a strong presence in South Africa
through Alexander Forbes’ Risk and Insurance Services business which it acquired in 2012 and 2013, Mercer
(health, retirement, talent and investments services), Oliver Wyman Group (management, economic and brand
consulting services) and Guy Carpenter (risk and reinsurance specialist).
Mercer Consulting is a global consulting leader in health, retirement, talent and investment services. Mercer
Consulting operates in more than 130 countries and as of 31 March 2014 had more than 20 ,000 employees.
Its clients include a majority of the companies in the Fortune 1000 and FTSE 100, as well as medium- and
small-market organisations. Mercer Consulting’s Health, Retirement and Investments businesses are most
closely related to those of the Group. In its Health business, Mercer Consulting assists public and private
sector employers in the design, management and administration of employee healthcare programmes,
compliance with local benefits-related regulations and the establishment of health and welfare benefits
coverage for employees. In Retirement, Mercer Consulting assists clients worldwide in the design, governance
and risk management of defined benefit, defined contribution and hybrid retirement plans. Mercer Consulting’s
talent businesses advise organisations on the engagement, management and rewarding of employees, the
design of executive remuneration programmes, and improvement of human resource effectiveness. Mercer
Inc. Investments business provides investment consulting and other services to the sponsors of pension funds,
foundations, endowments, other investors and wealth management companies in more than 35 countries.
Mercer Consulting provides delegated investment (fiduciary management) solutions to both institutional
investors (such as retirement plan sponsors and trustees) and individual investors (primarily through the
inclusion of funds managed by Mercer Consulting on defined contribution and wealth management platforms).
As a result of its investment in the Group, Mercer Consulting expects to gain exposure to growth prospects in
South Africa and broader sub-Saharan Africa to support its own global clients who expand into Africa. In
addition, it will also be able to support Alexander Forbes’ clients currently operating outside of Africa and
those planning to expand beyond Africa, as well as contribute its strategic expertise and global perspective to
the Group’s operations.
On the same date as the Sale of Shares Agreement, the Company also entered into the Relationship Agreement
with Mercer, which will become effective on the First Closing Date and will govern certain aspects of the
relationship between the parties. See Annexure 12 for further details of the Relationship Agreement.
Purchase Consideration
Mercer has agreed to pay the Selling Shareholders a purchase price per Share that will be calculated as
follows:
• if the Offer Price is within the Offer Price Range and equal to or higher than R7.21, Mercer will pay a
purchase price per Share equal to the Offer Price; and
• if the Offer Price is within the Offer Price Range and lower than R7.21, Mercer will pay a purchase price
per Share equal to the average of R7.21 And the Offer Price.
26
BUSINESS
Overview
Alexander Forbes is a specialised financial services group headquartered in South Africa focusing on employee
benefits solutions for institutional clients and the financial wellbeing of its individual clients, in particular
employees of the Group’s institutional clients. The main services provided by the Group include retirement
funds and asset consulting, actuarial consulting, investment and administration services, employee risk
benefits and healthcare consulting, multi-manager investment and platform solutions, individual financial
advice and personal lines insurance. The Group’s primary clients span both the private and public sector
market segments, including employers, retirement funds, investment and other special purpose funds on the
institutional side, and individual members and beneficiaries of these retirement funds, as well as the wider
individual market, on the retail side. Alexander Forbes’ principal geographic focus is South Africa, where it
has been operating since 1935 and is a market leader in its core businesses, sub-Saharan Africa, the UK and
other selected jurisdictions which have employee benefits legislative frameworks similar to South Africa.
Alexander Forbes, through AFFS, is a leading employee benefits consulting, actuarial, investment and
administration services provider and retirement fund administrator, with assets under administration of
R323 billion as at 31 March 2014. Alexander Forbes also administers one of the largest private umbrella
retirement funds in South Africa by assets, which had R49.5 billion assets under administration as at
31 March 2014. Alexander Forbes, through Investment Solutions, is the largest multi-manager investment
company in sub-Saharan Africa, with assets under administration and management of R285 billion as at
31 March 2014, of which assets under management comprised R256 billion.
As at 31 March 2014, the Group employed approximately 3 ,900 people, including insurance specialists,
investment professionals and over 200 qualified actuaries.
In financial year 2014, the Group generated net revenue of R4.4 billion and trading profit of R1.0 billion as
compared with R3.7 billion and R0.9 billion, respectively, for financial year 2013. In financial year 2014, 64.2%
of the Group’s net revenue and 80.3% of trading profit was derived from the South African operations, 5.7% of
net revenue and 4.6% of trading profit was derived from the sub-Saharan African (excluding South Africa)
operations, and 30.1% of net revenue and 19.6% of trading profit was derived from the non-African (primarily
UK) business. Unless otherwise noted, all financial information in this pre-listing statement is presented on a
continuing operations basis. See “Presentation of Financial and Other Information”.
Alexander Forbes has increased its focus on the Retail growth strategy. References to the “Retail growth
strategy” in this document refer to Alexander Forbes’ focus on the holistic financial planning and wellbeing
of the individual members within the Group’s institutional client base as well as the broader individual market,
and references to the “Retail Cluster” refer to the Group’s dedicated operations relating to the Retail growth
strategy. The total value of Retail assets under advice as at 31 March 2014 was R48.5 billion, of which
R33.4 billion was invested in Investment Solutions’ portfolios.
History
The Group’s operations date back to the consolidation of insurance agencies in South Africa in 1935, when the
original business was founded as Price Forbes, later changing its name to Alexander Forbes. AFFS can trace
its origins to the establishment of Price Forbes Life and Pension Brokers in 1955.
In the early 1970s, following research into clients’ needs, Price Forbes Life and Pension Brokers began
diversifying its range of services to include fund administration, employee benefit consulting and actuarial
services as well as retirement and estate planning. Accordingly, the name was changed to Price Forbes
Employee Benefits Consultants. In the early 1980s, following a number of acquisitions, the name was changed
to Alexander Forbes Financial Services. Since then, AFFS has grown to become a leading employee benefits
consultancy in Africa, developing a number of pioneering solutions along the way.
The Group’s international expansion commenced in 1990 with the establishment of a small insurance broking
operation in London and Jersey, which the Group later expanded through the acquisition of Nelson Hurst plc.
The insurance broking business was also expanded into other African countries in order to continue servicing
South African corporate clients which were expanding into these markets. The International Risk Services
business was disposed of in 2007 and the majority of the African insurance broking businesses , which had
grown to become the leading short-term property and casualty insurance broking businesses in southern
Africa, were sold to Marsh in 2012 and 2013.
Alexander Forbes was one of the founding shareholders of Guardrisk, which became one of the largest
specialist cell-captive insurance groups of its kind, having grown gross written premiums to R9.0 billion by
the time of its disposal in March 2013. Alexander Forbes completed the sale of its entire interest in Guardrisk
in March 2014.
27
Another significant new business created by the Group in response to the needs of institutional and individual
investors is Investment Solutions, which was established by Alexander Forbes in 1997 and has since become
a leading provider of multi-manager investment portfolios to institutional clients in the South African market.
Investment Solutions’ assets under administration have increased to approximately R2 9 billion between its
formation in 1997 and 31 March 2014.
In 2002, the Group further expanded its international financial services business through the acquisition of
a 60% interest in LCP, an actuarial consultancy firm in the UK. This was followed by further acquisitions of
the businesses that formed Investment Solutions in the UK, Alexander Forbes Consultants and Actuaries
(“AFCA UK”) and Media Insurance Services (Direct Marketing), and the expansion of LCP into Belgium,
Ireland, The Netherlands and Switzerland. Between 2012 and 201 4, the Group disposed of a number of these
interests, including the sale of AFCA UK, Investment Solutions UK, Media Insurance Services, LCP Libera
(Switzerland) and Alexander Forbes Trustee Services to focus on its core markets.
In 2007, due to the regulatory changes affecting personal lines insurance brokers and following client
research, the Group reconstituted its personal lines insurance broker into a dedicated insurance company,
AFI, in order to ensure it could continue to leverage off the capabilities it had developed in the personal lines
insurance industry.
By completing the disposals of the non-core operations as discussed above, Alexander Forbes has evolved from
being an insurance broker to capture the retirement benefit, employee benefit, investment and personal
financial wellbeing services business opportunity in sub-Saharan Africa and other jurisdictions in which it
operates by building on synergies between the products and services provided by its business units. The
remaining “core business” of Alexander Forbes has a natural synergistic relationship and is focused on
employee benefits and related services (through AFFS) with an integrated investment gathering business
(Investment Solutions) leveraging the core institutional and retail client base. AFI and AF Life (a subsidiary
of AFFS) provide product offerings complementary to the Group’s core business to further capture the value
chain and client spend, while AfriNet and AF International provide geographic diversification.
On 31 March 2014, the Group completed the Restructure in order to optimise and simplify its capital structure
and to ensure compliance with certain regulatory changes. See “Restructure” for more details.
Alexander Forbes’ Approach
Alexander Forbes’ core business provides retirement funds and asset consulting, actuarial and administration
services, employee risk benefits and healthcare consulting, personal lines insurance and multi-manager
investment solutions. Alexander Forbes has a significant institutional client market share in most of the
countries in which it operates, particularly in Africa. These countries have experienced a major shift from
DB schemes to DC schemes, which has resulted in the transfer of the post-retirement financial risk from
employers to individual members. In response to this shift, Alexander Forbes has developed a number of
solutions to assist individuals in securing their financial wellbeing during employment, at and through
retirement. Alexander Forbes leverages its significant institutional relationships to access individual members
of funds, thereby improving its distribution economics. Alexander Forbes has started working with employers
to ensure that their employees have sufficient employee benefits, savings and other risk cover in place and
helping them to secure their financial wellbeing. Alexander Forbes also provides access to products through
its linked-investment services provider, AFICA, as well as AFI and AF Life.
In addition, employers are becoming increasingly aware of their responsibility towards employees and the
importance of ensuring that adequate benefits are in place. AFCA UK and Alexander Forbes Health
(“AF Health”) work closely with employers to ensure that they implement holistic employee benefits
programmes, while Alexander Forbes’ fund administration services administer the funds for employers.
Alexander Forbes has also developed a number of tools, including the Benefits Barometer and Member Watch™,
to assist employers and individuals in understanding and contextualising their financial profile.
Alexander Forbes primarily implements an advice-led model leveraging off the institutional client base with
worksite and trustee education being an important part of its approach. Alexander Forbes’ aim is to ensure
that individual members are aware of the necessity to save for retirement and to plan for the risks that they
may face in their everyday lives. Throughout an individual’s various life stages from education, working
years, wealth accumulation, retirement and the wealth decumulation phases, Alexander Forbes aims to be
present, providing advice and, where appropriate, solutions and products, to assist individual clients in
securing their financial wellbeing.
Summary of Business Units
The Group’s businesses are split across five business units: AFFS and Investment Solutions, which are its core
businesses, AfriNet and AF International, which provide for geographic diversification, and AFI, which,
together with AF Life (a subsidiary of AFFS), provides complementary product capabilities to the products and
services offered by the core businesses.
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The following diagram shows the Group’s current organisational structure:
1. All of the Group’s significant subsidiaries are wholly owned, except for LCP, certain operations within AfriNet and Caveo although
Alexander Forbes retains a controlling interest in these entities where permitted by law.
2. Includes AF Life.
The following table sets out the relative contribution of each business unit to the Group’s net revenue and
trading profit in financial year 2014:
Year ended 31 March 2014
Net revenue
Percentage of total
Trading profit(1)
Percentage of total
(R million) (%) (R million) (%)
AFFS 1 ,754 39.9 387 35.6
Investment Solutions 717 16.3 360 33. 1
AFI 350 8.0 88 8.1
AfriNet 249 5.7 48 4.4
AF International 1 ,322 30.1 204 18.8
Total Group continuing operations 4 ,392 100.0 1 087 100.0
1. Excluding the effects of the IFRS accounting adjustment for the long-term property lease.
Core Businesses
AFFS
AFFS is a leading employee benefits consulting, actuarial, investment and administration services provider,
health and risk consulting, and individual advisory business in South Africa. With approximately 997 ,000
active member records under administration and approximately R323 billion in assets under administration
as at 31 March 2014, AFFS is one of the largest private retirement fund administrators in South Africa. Its
main sub-divisions and subsidiaries include:
• Operations and Administration, which provides retirement fund administration to over 330 active
standalone institutional retirement funds and AFFS’s umbrella retirement funds housing over
940 participating employers. In addition, it provides administrative services to clients of AFICA covering
a range of retirement and savings products offered on this platform;
• Consultants and Actuaries, which provides employee benefits consulting and actuarial services to
standalone retirement funds, corporate clients and government institutions, as well as actuarial consulting
services to short- and long-term insurers in South Africa and other countries in Africa;
• Umbrella Funds Consulting, which provides retirement fund consulting and preservation services and
products to over 940 participating employers housed in the umbrella retirement funds managed by AFFS;
• Retail, which provides financial planning and wellbeing and wealth management services to individual
clients, predominantly targeting the members and employees of the Group’s institutional clients, and
services approximately 41 ,000 retail clients as at 31 March 2014;
• AF Health, which provides medical scheme and health-related advice and actuarial services to over
510 corporates as at 31 March 2014; and
• AF Life, which provides group and individual risk insurance products and houses the umbrella funds
managed by AFFS.
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Investment Solutions
Investment Solutions is South Africa’s largest multi-manager with assets under administration and
management of R285 billion as at 31 March 2014, of which assets under management comprised R256 billion.
Investment Solutions constructs portfolios by blending suitably selected asset managers, monitors and reports
on manager performance, and develops tailored risk-profiled investable portfolios for institutional clients
(particularly pension funds) and individual investors. Investment Solutions also provides investment
administration services to large institutional clients and intermediaries who develop their own investment
solutions for their own clients using the Investment Solutions platform.
Complementary Businesses
AFI
AFI is a personal lines and commercial direct insurer operating in South Africa and Namibia, focusing on
providing motor, household, homeowners, and business insurance to retail and small to medium-sized business
customers. AFI also writes personal accident, dread disease, hospital cash plan, scratch and dent policies and
brokers funeral insurance, underwritten by a third-party through Alexander Forbes Direct. In addition,
AFI provides insurance administration services to corporates in a cell-captive structure.
Geographic Diversification
AfriNet
AfriNet provides dedicated strategic focus in the African continent outside of South Africa, leveraging the
strong South African financial services platform and replicating the Group’s business model in other countries.
AfriNet’s current key focus countries include Namibia, Botswana and Kenya, where it has market-leading
presences, as well as Nigeria, Zambia and Uganda. AfriNet’s service offerings include employee benefits,
actuarial and investment consulting and retirement administration services for corporate and institutional
clients and the public sector. In addition, AfriNet operates the Investment Solutions and AFI businesses in
Namibia.
AF International
AF International includes the businesses of the UK-based consulting actuarial partnership, LCP, in which the
Group has a 60% ownership interest. LCP provides actuarial and consulting services across pensions and
administration, employee benefits, investment consulting, general insurance and business analytics in the
UK and, through affiliates, in Abu Dhabi, Belgium, Ireland and The Netherlands.
Key Strengths
Alexander Forbes believes that the following competitive strengths contribute to its success and distinguish
it from its competitors:
Market leader in institutional employee benefits and multi-manager investments in its home market in South Africa and in other sub-Saharan African countries.
Alexander Forbes has been a long-standing key player in the sub-Saharan African financial services industry
and has established a group of underlying companies with market-leading positions in their respective sub-
sectors:
• AFFS is one of the leading standalone pension fund administrators in South Africa, with approximately
15% market share by assets under administration as at 31 March 2014;
• AFFS Consultants and Actuaries had approximately 23% of the total number of valuators of retirement
funds in South Africa and was the registered actuary to approximately 43% of the non-umbrella retirement
funds by fund assets as at 31 March 2014;
• AFFS is one of the largest umbrella retirement fund administrators in South Africa with its flagship
retirement umbrella f und, the AFRF, having a 2 4% market share by assets under administration and
approximately 2 22 ,000 active member records under administration as at 31 March 201 3;
• Investment Solutions is the largest multi-manager in sub-Saharan Africa, with R285 billion assets under
administration and management as at 31 March 2014;
• AF Health is a leading healthcare specialist consulting company in South Africa, providing services
to approximately 25% of all principal members of medical schemes, which translates into 9% of the
membership of open schemes and 45% of the membership of restricted schemes as at 31 March 2014; and
• AfriNet has market-leading positions in Botswana, Kenya and Namibia, with market shares of approximately
90%, 24% and 25%, respectively, as at 31 March 2014, according to the Company’s estimates.
30
With a number of industry-leading research publications and analytical tools, including the Benefits
Barometer, Member Watch™ and Large Manager Watch™, Alexander Forbes is also a leader in research
capabilities in the employee benefits sector in South Africa.
Institutional integrity with a high performance culture.
Alexander Forbes has embedded a strong “higher purpose” orientation and guiding framework into its
organisational culture to ensure that the Group has a positive impact on the lives of its clients, employees,
communities and investors.
Clients. Alexander Forbes gives expression to this higher purpose orientation through the SERVE model,
which asks and responds to five questions:
S = Simplicity: “How we deliver”
E = Expert innovative solutions: “What we deliver”
R = Relationships: “What we strive for”
V = Value of trust: “What we stand for”
E = Enrich people’s lives: “Why we exist”
Leadership. The SERVE model is at the core of Alexander Forbes’ leadership development and assessment
framework. The Group has invested significantly in building leadership capacity with the top 180 leaders
trained in terms of this model.
Employees. Alexander Forbes seeks to foster a positive environment and ensure that its employees remain
positively engaged. The Group’s employee recognition and reward programme, SuperServe, is based on the
SERVE model and the Treating Customers Fairly (“TCF”) roadmap issued by the FSB. In addition, improving
the depth of management through active investment, coaching and mentoring of its top leaders is also central
to improving the workplace dynamic. Alexander Forbes uses a balanced scorecard approach to balance the
short- and long-term objectives of employees. The work of Alexander Forbes’ staff and their competence has
been recognised by peer and industry bodies through numerous awards including the Professional Management
Review Award in South Africa (awarded to top retirement fund consultants and administrators) for seven
years in a row, the Sunday Times Top Brands Award for best insurance brand, and the POA 2013 Imbasa
Yegolide Award for the Best Employee Benefits Consulting Firm.
Communities and environment. The contributions made through the Alexander Forbes Community Trust
In 4 Life programme have supported graduates as well as the development of a number of local communities.
Alexander Forbes employees are actively involved in various community outreach programmes. Alexander
Forbes’ commitment to the environment is also illustrated by its new head office in Sandton being certified by
the Green Council of South Africa as a level four green building.
Shareholders and investors. Alexander Forbes believes that, in addition to ensuring the financial and
institutional integrity of the Group, taking genuine care of its clients, deepening engagement with employees
and acting responsibly towards its communities and the environment, it has yielded sustainable positive
returns to the investment and trust that its shareholders have in the Group.
Well-positioned to respond to changing industry and regulatory dynamics.
Alexander Forbes has achieved its leadership position in research and development in the employee benefits
sector due to its ongoing proactive approach in responding to changing industry dynamics. This has been
demonstrated by Alexander Forbes taking advantage of the industry shift from DB to DC pension funds and
providing solutions which are responsive to this shift in South Africa and other countries in which it operates.
In addition, the changing regulatory environment and increased awareness of governance and risk
management of retirement funds, together with changes in reporting standards, have resulted in increased
opportunities for the Group’s actuaries, investment consultants and other professionals.
The Group also seeks to positively and constructively engage with policymakers including the National
Treasury and other key industry regulators in order to assist in shaping important policy and regulatory
shifts, such as the proposed retirement reform in South Africa and the changes to regulatory capital adequacy
requirements.
Successful track record of organically developing new businesses and creating shareholder value.
Alexander Forbes has organically developed a number of businesses from greenfield operations into leading
players in their respective market segments:
• AFFS was developed out of the short-term, property and casualty insurance broking business in the
1950s and has become a leading employee benefits consultancy in South Africa. This business has, in
turn, developed a number of pioneering service offerings to become one of the largest retirement fund
31
administrators in the region, building one of the largest umbrella retirement funds in South Africa and a
significant financial planning business focusing on its individual clients’ financial wellbeing.
• Alexander Forbes was one of the founding shareholders of Guardrisk, which became one of the largest
specialist cell-captive insurance groups of its kind, having grown gross written premiums to R9.0 billion
by the time of its disposal in March 2013 .
• Investment Solutions, established by Alexander Forbes in 1997, has become a leading provider of multi-
manager investment portfolios to institutional clients in the South African market. Investment Solutions’
assets under administration and management increased to R285 billion between its formation in 1997 and
31 March 2014.
• In response to regulatory changes affecting brokers of personal lines insurance and following client
research, the Group reconstituted its personal lines insurance broker as a dedicated insurance company,
AFI, and continues to build on this base as part of its Retail growth strategy.
• Alexander Forbes identified an opportunity in the insurance market in Namibia in 2008 and founded
Alexander Forbes Insurance Namibia, which provides niche personal lines insurance to the retail
market. From an initial investment of R4.0 million, the Group has earned cumulative profits after tax of
R18.5 million to 31 March 2014.
Holistic offering across the value chain.
Alexander Forbes is deliberately positioned across the value chain, with the scope of its employee benefits’
products and services covering advice, administration, insurance and multi-manager investment services.
This advice-led strategy provides clients with packaged solutions that represent Alexander Forbes’ best advice
or, where appropriate, financial products from other providers. This strategy is consistent with a global trend
in the financial services industry towards the convergence of advice and products.
This convergence is most prevalent through the use of Investment Solutions to provide risk-adjusted multi-
manager investment portfolios that incorporate in-house expertise while maintaining independence from the
underlying asset managers. Similarly, clients can access in-house solutions through AFI and AF Life or,
where appropriate, through external insurance products.
Combined, the various businesses that form part of the Group cater to the various financial needs of its clients:
• Institutional clients: offering the full range of employee benefits advice and solutions across pensions
(DB, DC and hybrid), multi-manager investment, risk benefits and healthcare.
• Individual clients: offering holistic financial planning advice and solutions across retirement savings,
wealth management, healthcare, as well as short-term and long-term risks.
This holistic offering enables the Group to hold a privileged relationship with its clients, which has a number
of benefits, including high client retention levels and potential for increased penetration of the current client
base across the various business units, as well as a better negotiating position with product providers.
Deep understanding of the retail (individual) member base to support the Retail growth initiative.
As at 31 March 2014, Alexander Forbes provided administration, consulting or actuarial services to over
500 standalone retirement funds, as well as to more than 1 ,000 umbrella fund clients. This extensive client
base provides Alexander Forbes with 1.4 million underlying employees in sub-Saharan Africa who are end-
user clients of its services, of which 997 ,000 are based in South Africa. Alexander Forbes has the opportunity
to work with employers to ensure that their employees have sufficient employee benefits, savings and risk
cover in place.
Leading and scalable multi-management platform.
Investment Solutions is South Africa’s largest multi-manager, with a 44% market share among the four
largest multi-managers included in the Alexander Forbes Assets Under Management Survey measured by
assets under administration and management as at 30 June 2013. Investment Solutions had R285 billion
assets under administration and management in its multi-manager portfolios as at 31 March 2014, of which
assets under management comprised R256 billion. Investment Solutions has a diversified range of clients that
includes corporates, retirement funds, umbrella retirement funds, public sector, retail customers and
independent financial advisors (“IFAs”).
Investment Solutions has strong capabilities in selecting and blending investment managers and investment
styles to create risk-profiled investable portfolios with unique depth and coverage, and has a strong track
record of developing leading talent. Investment Solutions has an extensive manager research capability
covering a wide range of investment managers and products globally. Investment Solutions has built strong
distribution relationships with fund and individual advisors, including AFFS, which remains an important
distributor of its products and portfolios. Investment Solutions’ scalable platform enables intermediaries and
its own investment team to administer complex portfolios while providing reliable performance and regulatory
reporting.
32
Investment Solutions’ scale provides it with greater access to asset managers, and its flexible and scalable
platform provides it with the ability to manage an increased level of assets under management at lower
marginal incremental costs. Investment Solutions also has operations in Namibia and Jersey, with a research
team based in London. The business has recently expanded to provide platform capability and solutions to
selected intermediaries.
Well-positioned to capture the sub-Saharan African growth opportunity.
Alexander Forbes believes that it is well-placed to benefit from the forecast economic growth in the sub-
Saharan African market. The attractive macro-economic fundamentals and low penetration levels of
compulsory savings products in certain sub-Saharan African countries have provided an opportunity for
Alexander Forbes to expand into countries where the demographics are supportive and legislation provides
for private pension provision.
To date, Alexander Forbes has expanded its employee benefits consulting and administration platform to six
countries in sub-Saharan Africa that have experienced high growth rates in an emerging middle class and
where pension reforms and laws that promote compulsory savings are being implemented and has a leading
presence in Namibia, Botswana and Kenya. Together with correspondents, this represents the largest employee
benefits consulting network in Africa.
Operating in a number of jurisdictions outside of South Africa, the Group has over time built up significant
experience operating in, and an understanding of, the key structural drivers in a number of sub-Saharan
African markets. The Company believes there is an opportunity to expand into other countries as social
reforms occur there and to create further synergies through the improvement of overlap between countries
(for example, through brand, human resources, administration systems and intellectual capital).
Long-standing institutional client relationships with high market shares and high customer retention rates.
The depth of Alexander Forbes’ access to large corporates is demonstrated through its extensive long-standing
corporate relationships:
• Investment Solutions provides portfolio management or administration services to approximately 40% of
the top 100 companies listed on the JSE as at 31 March 2014 and had client retention rates in excess
of 99%;
• AFFS provides retirement fund consulting and administration services to approximately 70% of the top
100 companies listed on the JSE as at 31 March 2014. AFFS had retirement fund institutional client
retention rates of approximately 98% for financial year 2014;
• Alexander Forbes is a leading provider to both governments and corporates in the African countries in
which it operates; and
• LCP continues to maintain client retention rates in excess of 99%.
Predictable revenue base and cash generative model.
Approximately 77% of Alexander Forbes’ revenue base is recurring in nature, with approximately 5%
representing net underwriting profits in financial year 2014. The recurring fee income comprises asset-based
income, fee income from services rendered to clients, monthly administration (either on a fee per member or
a percentage of salary basis), consulting fees and commission income. There is limited volatility in the Group’s
revenues due to the relatively low proportion of one-off consulting fees, ad hoc retirement fund administration
services and underwriting income.
As a significant proportion of the Group’s income is linked to pension contributions, Alexander Forbes benefits
from the macro-economic drivers affecting employment and wage inflation.
Alexander Forbes has limited working capital requirements with high cash flow generation and limited credit
risk exposure in the business as a significant proportion of its income is collected from the retirement funds
and investments it administers. Alexander Forbes’ exposure to debtors remains limited as investments into
retirement funds and investment products are made only once funds are received from clients and payments
to clients are made only once funds are received from redeemed investments.
Alexander Forbes’ capital expenditure requirements, relating mainly to IT investments, are relatively stable
and predictable, and have been in line with depreciation in recent years.
Capital efficient business model.
Despite the increase in regulatory capital requirements as a result of the changing regulatory environment,
Alexander Forbes continues to operate a capital efficient business model whereby business is conducted under
the appropriate licences to ensure capital efficiency and increases in capital have been self-funded from
operational cash flows. The total capital requirements of Alexander Forbes’ underlying regulated entities
represent less than one year’s worth of the Group’s trading profit.
33
Alexander Forbes’ risk retention within its life and short-term insurance portfolios is low. The ability to
assume additional underwriting risk as these portfolios mature provides a platform for additional growth as
well as the opportunity for investors to capture exposure to administration and asset-related fee income
without the legacy underwriting and systemic exposures of a legacy insurance portfolio.
Investment Solutions and AFI are currently participating in the Internal Model Approval Process of SAM.
See “Regulation—Solvency Assessment and Management” . Investment Solutions is structurally positioned
such that the capital requirements of the standard formulae of the interim measures do not necessarily reflect
the limited risk nature of its operations or the linked unit nature of its liabilities. As a result, regulatory
approval of the use of the Internal Models may enable the Group to hold capital on a basis that is reflective of
the risk it is exposed to, which in turn may result in lower capital requirements or support growth with lower
marginal capital requirement.
Continuous investment into systems and core infrastructure.
Alexander Forbes utilises both in-house and third-party developed IT systems and has made continuous
investments in its systems to remain up to date with regulatory changes and clients’ evolving requirements.
Therefore, other than maintenance capital expenditure aimed at enhancing the current interface and planned
enhancements and developments to certain systems required in order to support the Group’s Retail growth
strategy, the Group’s IT systems require limited investment in the medium-term.
Stable and experienced management team.
Alexander Forbes’ key management team has remained stable since the appointment of its Chief Executive in
January 2010. The 13 Executive Committee members collectively have over 250 years of working experience
and have spent a total of 88 years working at Alexander Forbes. The current management team has been able
to embed a high performance, service-oriented culture, lift employee engagement and successfully steer the
Group through the global financial crisis, simultaneously increasing cohesion across the business units and
driving the growth in recent years. In the last four years, the management team has also focused on resolving
outstanding legacy issues, significantly re-enforcing the ‘SERVE’ culture of ethical behaviour which resulted
in further positive recognition of the Group’s brand and positioning. Alexander Forbes has also invested in
leadership to enhance succession planning.
Growth Strategy and Prospects
Alexander Forbes intends to capitalise on its unique market positioning and improve the performance of its
operations by pursuing the Retail, public sector and sub-Saharan Africa growth strategies, as described in
more detail below. These growth strategies are Group-wide initiatives focused on leveraging the core
institutional client base and the Group’s market positioning in its core businesses.
Retail Growth Strategy
As at 31 March 2014, the Alexander Forbes retail businesses included approximately 41 ,000 AFFS individual
financial advisory clients, predominantly serviced through financial planning consultants and private client
wealth managers (collectively, “FPC”) R48.5 billion of Retail assets under advice, mainly on the AFICA
platform; approximately 147 ,000 short-term insurance policyholders within AFI; and approximately
1 ,600 individual life insurance policyholders within AF Life.
Historically these businesses have functioned independently, with very little leveraging across the respective
client bases. In the last few years, as part of the Group’s strategic intent, a conscious decision was taken to
drive the Retail growth strategy with greater focus, including establishing the Retail Cluster under a single
business leader. While retaining the specialised focus in each of the respective business lines, the Retail
Cluster seeks to use the Group’s trusted advisor status with its clients and provide them with a common,
holistic client experience to help secure their financial wellbeing, and at the same time better leveraging the
client base to deepen vertical sales integration.
The Retail Cluster brings together all the businesses within the Group that already serve individual clients.
• FPC: Advice-led asset accumulation and asset retention business.
• AFICA: Linked investment service provider and administration platform.
• AF Life: Since 2012, AF Life has, through collaboration with the broader institutional business and FPC
and by growing its own distribution force, broadened its focus from providing predominantly group
risk products and solutions, to individual life, disability and dread disease benefits to individuals in the
institutional customer base.
• AFI: In 2007, Alexander Forbes extended its retail offering by reconstituting its personal lines insurance
broker into a dedicated insurance company, AFI, to write personal lines short-term insurance products for
individuals. Since then, AFI has grown its motor and household gross written premium from R 554 million
(financial year 2008) to R1,165 million (financial year 2014) and increased this class of personal lines
34
clients from approximately 60 ,000 to approximately 75 ,000. The Active Member Consulting strategy
within the Retail growth strategy aims to develop and increase the opportunity to deliver the short-term
risk products/policies to individual members of the corporate funds.
• Investment Solutions Independent Partners: Multi-manager portfolio solutions and administration for
the IFA market.
• Investment Solutions Retail: Creation, management and distribution of portfolios for individual clients
of FPC and AFICA.
The cornerstone of the Retail growth strategy is to leverage off the Group’s strong relationships with the
institutional clients of the pension funds it administers, and build earlier and deeper relationships with the
individual clients within the respective funds. As at 31 March 2014, the South African business had
approximately 997 ,000 active individual member records under administration while a further approximately
403 ,000 individuals belonging to funds administered by Alexander Forbes in the rest of sub-Saharan Africa.
Alexander Forbes believes that, with its strong brand, deep institutional relationships and individual client
information and consent, it is well-placed to provide tiered financial advice or execution-only services as
appropriate to these individuals.
The primary focus of the Retail Cluster is to deepen the Group’s understanding of the needs and purchasing
behaviour of the individuals within the funds that Alexander Forbes administers and follow this with financial
education and cost-appropriate, needs-based engagement. Cross-selling initiatives are further expected to
expand the Group’s share of wallet with its individual client base. Relative to its competitors, Alexander Forbes
believes it is uniquely positioned to leverage its trusted advisor relationship with its institutional clients, to
access and serve their employees with relatively good distribution economics. This creates significant value to
employers through an enhanced employer value proposition, as well as to the individual through providing
holistic solutions that cater to all their financial needs.
The Retail growth strategy presents a unique opportunity to accelerate the Group’s growth in the retail
market as it further develops competitive capabilities to take advantage of market opportunities and ultimately
reach individuals beyond its own funds.
The following table sets forth the key performance indicators for the periods indicated:
Year ended 31 March
2014 2013 2012
Net revenue attributable to Retail(1) (R million) 995 888 783
Net revenue growth 12.0% 13.4% 12.2%
Retail assets under advice: FPC (R billion) 48.5 40.3 32.7
Retail assets under administration: AFICA(2) (R billion) 42.8 36.7 30.7
Retail assets under management: Investment Solutions(3)
(R billion) 33.5 29. 8 26.0
Retail gross written premium (short term) (R million) 1 , 224 1 ,066 926
Retail gross written premium (long term) (R million) 16.8 15.2 13.6
1. AFI, AF Life, FPC and AFICA.
2. Approximately 88% of these assets are placed on AFICA by FPC (included in line above).
3. Approximately 79% of these assets are placed with Investment Solutions by AFICA (included in line above).
Capturing Public Sector Opportunities
The public sector in South Africa is the largest employer in the formal sector, with approximately 2 million
employees ( source: Statistics South Africa). The sector includes the national, provincial and local arms of the
government, state-owned enterprises, Chapter 9 Institutions under the South African Constitution (such as
the South African Human Rights Commission and the Auditor-General), as well as universities and other
public tertiary education institutions. While a large proportion of employees in the public sector already have
retirement benefits, a significant number, especially senior government officials, are not adequately catered
for. The public sector is a significant market sector for financial services related to retirement benefits and
personal financial management, with the Government Employees Pension Fund in South Africa and other
public sector-related retirement funds estimated to have total assets in excess of R1 trillion.
Alexander Forbes already has significant public sector business and, based on recent public sector market
research, believes that there is further potential to grow its position by mapping its current integrated value
offerings and providing innovative consulting services and solutions in response to identified needs in both
the institutional and retail segments.
The Group believes that its successful track record with private sector clients, holistic actuarial, investment
and risk consulting services and solutions will translate successfully with public sector clients. Through
utilising its expertise in actuarial and employee benefits consulting as well as institutional knowledge,
35
existing system infrastructure and technology platform, Alexander Forbes believes that it has the capability
to further develop its service to the public sector market effectively and continue to expand its consulting
opportunities in this market segment.
In light of the significant potential the public sector presents, Alexander Forbes has redefined its approach to
the public sector and established a dedicated team, the Public Sector Division, in order to focus resources on
growing its public sector client base. This team’s focus is on setting the overarching public sector strategy and
supporting the implementation thereof through effective engagement strategies in order to build lasting
relationships with public sector clients and stakeholders and communicate Alexander Forbes’ holistic value
proposition to both new and existing clients. After identifying opportunities and building the new business
pipeline, this team also assists the various Alexander Forbes businesses in tendering for new business and
retaining existing public sector clients.
In addition to the opportunities in the public sector retirement fund space, the Group believes that Investment
Solutions is well-positioned to benefit from asset management industry developments (such as Regulation 28
of the Pension Funds Act, the United Nations Principles for Responsible Investing initiative and the Code for
Responsible Investing in South Africa) and advise on the construction of responsible investment portfolios for
public sector entities. Investment policy statements and mandates are becoming an increasing focus for some
of the major public sector entities, and Investment Solutions’ capabilities are expected to be a key differentiator
for Alexander Forbes.
The following table sets forth the key performance indicators for the periods indicated:
Year ended 31 March
2014 2013 2012
Net revenue attributable to public sector (R million) 167 136 121
Net revenue growth 22.8% 12.4% 5.9%
Alexander Forbes public sector tenders’ participation 74% 53% <20%
New clients acquired 42 15 –
Growth in Sub-Saharan Africa
Many countries in sub-Saharan Africa are expected to experience medium to high economic growth rates over
the medium term. Financial services markets in a number of these countries are still at an early stage of
development, which represents an opportunity for Alexander Forbes to grow into the relatively underdeveloped
and underpenetrated markets, building on AfriNet’s success in Namibia, Botswana, Kenya and experience in
developing businesses in Nigeria, Uganda and Zambia.
Pension and social security reforms are among the key criteria taken into account in connection with the Group’s
expansion in sub-Saharan Africa. The pensions and social security reforms in East Africa, as well as certain other
changes, such as the amendments to the Pensions Fund Act in Botswana, typically result in an increased market
size, as the member base grows, and offer opportunities for the provision of additional services that are statutorily
permitted. For example, in Kenya, the Social Security Bill adopted in 2013, increased the potential market size
from approximately 400 ,000 members to approximately 1.2 million members, based on the Group’s internal
estimates. Similar social security reforms have occurred in Ghana and are expected to occur in other countries in
the region, including Uganda, Tanzania, Zambia and Ethiopia. The Group aims to take advantage of favourable
legislative changes to expand its operations in the region in the short to medium term.
In addition, the continued expansion of South African companies into other parts of the African continent in
search of incremental growth presents further opportunities for Alexander Forbes to follow its corporate
clients as they expand.
As a market leader in providing retirement administration services and actuarial and asset management
consulting services in South Africa and a trusted financial services provider, Alexander Forbes has long-standing
relationships with many South African multi-national corporates. In expanding into new territories, AfriNet
plans to continue to leverage off its institutional experience and expertise, replicating the successful South
African business model and scalable IT platforms, while adapting to the specific domestic commercial and
regulatory environment in each country. The Group’s consulting-led approach minimises capital outlays and
enables a lower risk profile when entering into new and relatively underdeveloped markets.
Prospects
The Group believes it has attractive long-term prospects, underpinned by an enabling macro-economic
environment that is expected to support growth opportunities across the Group’s businesses.
The disposal of the Guardrisk group of companies substantially completed the strategic repositioning and
refocusing of the Group that was the driving force behind the many divestments and disposals implemented
over the past number of years. In addition, on 31 March 2014, the Group completed the Restructure, which
has resulted in a simplified and more flexible financial position. As a result, the Group believes it is now well-
36
positioned to consolidate its strong market position in its core businesses and to drive its growth strategies
with clear focus.
Business Units
The Group’s businesses are split across five business units: AFFS and Investment Solutions, which are its core
businesses, AfriNet and AF International, which provide for geographic diversification, and AFI, which,
together with AF Life (a subsidiary of AFFS), provides complementary product capabilities to the products and
services offered by the core businesses.
AFFS
AFFS is a leading employee benefits consulting, actuarial, investment and administration services provider,
health and risk consulting and individual financial advisory business in South Africa. With approximately
997 ,000 active member records under administration and approximately R323 billion in assets under
administration as at 31 March 2014, AFFS is one of the largest private umbrella retirement fund administrators
in South Africa, both in terms of members and assets. Its flagship umbrella retirement fund, AFRF, is one of
the largest multi-employer umbrella retirement funds in South Africa, with approximately R49.5 billion in
assets under administration and a 2 4% market share as at 31 March 201 3 ( source: Financial Services Board
website). This business is based in South Africa, but also provides employee benefits consulting and insurance
consulting in other African countries.
AFFS is at the core of the Group’s business model exhibiting stable recurring income, historically providing
client access and distribution capabilities for its other business units, including, in particular, Investment
Solutions. In addition, AFFS has focused on improving employee and customer wellbeing through worksite
education and encouraging behaviours promoting financial wellbeing through integrated advice and product
offering.
AFFS generated net revenue of R1,754 million and trading profit of R387 million in financial year 2014,
representing 40.0% and 35.6%, respectively, of the Group’s total. As at 31 March 2014, AFFS had 997 ,000
active member records under administration, which represents an approximately 10.6% increase as compared
to 31 March 2013.
The following table sets forth the key performance indicators for the AFFS business unit for the periods
indicated:
Year ended 31 March
2014 2013 2012
Net revenue (R million) 1 ,754 1 ,603 1 ,485
Net revenue growth 9.4% 7.9% 5.9%
Trading profit (R million) 387 365 330
Trading profit growth 6.0% 10.6% 9.6%
Number of standalone retirement funds 331 343 338
Standalone retirement funds assets under management
(R billion) 27 4.9 230.0 219.1
Number of umbrella corporate clients(1) 1 ,031 848 792
Total umbrella retirement funds assets under management(2)
(R billion) 57.3 45.6 34.7
Number of active members records under administration 997 , 004 901 ,532 854 ,537
Number of healthcare corporate clients 513 484 482
Number of FPC Retail clients 41 ,021 38 ,407 36 ,059
Retail assets under advisement (R billion) 48.5 40.3 32.7
Insurance gross written premiums (R million) 417 394 407
1. Includes AFRF, Alexander Forbes CorePlan (“CorePlan”) and Alexander Forbes Access Fund (“AF Access”).
2. Includes AFRF, CorePlan, AF Access, Alexander Forbes Preservation Funds and Alexander Forbes Unclaimed Benefit Preservation Fund.
Within AFFS, the operations are categorised into the following sub-divisions:
• Operations and Administration, which includes retirement fund administration (both umbrella retirement
funds and non-umbrella retirement funds). This sub-division is a leading provider of retirement fund
administration, with approximately 997 ,000 active member records under administration in retirement
funds in South Africa as at 31 March 2014. In financial year 2014, Operations and Administration had
27 new standalone institutional client appointments. Its flagship umbrella retirement fund, AFRF, is one
of the largest retirement funds in South Africa, with 657 participating employers and approximately
R49.5 billion assets under administration as at 31 March 2014, and a benchmark against which other
funds in South Africa are assessed. In addition, this sub-division provides administrative services to clients
of AFICA, covering a range of retirement and savings products offered on this platform.
37
• Consultants and Actuaries, which provides consulting and actuarial services to corporate clients, retirement
funds and government institutions. This sub-division is a leading provider of employee benefits consulting
and actuarial services in South Africa and advises clients on the design and management of employee
benefits plans, investment strategies, plan governance, risk management and legislative matters. The
sub-division’s actuarial services include the statutory valuation of employee benefits plans, corporate
accounting valuations and advising on corporate obligations relating to mergers and acquisitions with
regard to employee benefits matters.
• Umbrella Funds Consulting, which provides retirement fund consulting and preservation services and
products to over 940 participating employers of the umbrella retirement funds managed by AFFS.
• Retail, which provides a full spectrum of financial planning and wellbeing as well as wealth management
services to individuals. This sub-division is an advisory business that provides advice on investment, estate
planning and life and disability cover, as well as advice on the purchase of annuities, predominantly focusing
on individuals within its base of participants in retirement schemes and employees of other corporate
clients it advises. As at 31 March 2014, it had R48.5 billion of assets under advisement relating to retail
customers, a 20.3% increase as compared to 31 March 2013. In addition, the sub-division’s approximately
41 ,000 Retail clients as at 31 March 2014 represented a 6.8% increase as compared to 31 March 2013.
• AF Health, which provides medical scheme and health-related advice and actuarial services to over
510 corporate clients and related individuals. This sub-division assists employers and state and parastatal
institutions in the selection, implementation and maintenance of medical schemes for their employees
and members. It also provides specialised consulting and actuarial services to trustees regarding benefit
design, scheme performance, communication strategies, reserving strategies and post-retirement
healthcare liability valuations for accounting reporting purposes and solutions to manage these liabilities.
The AF Health Management Solutions unit within this sub-division offers absenteeism and disability care
management as well as occupational healthcare consulting services. As at 31 March 2014, the AF Health
sub-division had 513 healthcare clients, which represents an approximate 6% increase as compared to
31 March 2013.
• AF Life, which is a long-term insurer registered with the FSB and which provides death, disability and
dread disease cover to both corporate and retail clients, and funeral products to corporate clients. In
addition, it also houses the various institutional umbrella funds.
• Others, including Trust Services (providing fiduciary services to beneficiary funds), Asset Consultants
(providing asset consulting to retirement fund trustees), Legal Services (providing consultant and client
legal support and advice), Public Sector Division (focusing on business opportunities in the Public and
related sectors), Research and Development (supporting business units with industry-specific employee
benefits research, best practice and product development and pricing), Alexander Forbes Compensation
Technologies (“AFCT”) (providing Road Accident Fund medical supplier recoveries process) and Insurance
Consulting (providing actuarial consulting services to short- and long-term insurers in respect of solvency
and regulatory capital).
Operations and Administration
Operations and Administration is a leading provider of retirement fund administration services in South
Africa. Its revenues are mainly driven by fees from the administration of standalone retirement funds, the
administration of the various umbrella retirement funds offered by AFFS and administration fees from the
platform administering retail funds and investments through AFICA.
The Operations and Administration sub-division generated net revenue of R315 million in financial year 2014.
Products and services
The Operations and Administration sub-division mainly provides the administration of umbrella retirement
funds and standalone funds, including:
• Alexander Forbes Administration Services, which provides administration services for standalone
retirement funds;
• AFRF and CorePlan, which are umbrella retirement fund products for corporate clients where advice is
provided by AFFS consultants;
• AF Access, which is an umbrella retirement fund used by corporate clients where advice is provided by an
external consultant;
• Alexander Forbes Preservation Funds, which are used to preserve money when an individual leaves the
employer’s fund;
• Alexander Forbes Unclaimed Benefit Preservation Fund, which accepts unclaimed benefits from retirement
funds for further tracing and payment to beneficiaries;
• Retail umbrella funds, which provide retirement solutions for small employers and individuals; and
38
• AFICA, an investment administration and product packaging business offering access to traditional life
insurance products and collective investment schemes.
Operations and Administration has six segments, each providing different types of services:
– Retirement Fund Administration Services, which is the main operational administration function
performed for retirement funds. Administration Services includes the receipt of contributions,
the payment of benefits to qualifying members and pensioners of retirement funds on a monthly
basis (i.e., annuity-type income payments as well as lump sum benefits) and other related services
required to administer a retirement fund.
– Finance, which is an operational financial management function performed for each retirement
fund. The Finance segment consists of financial management services, which includes regular
statutory reporting to the various legislative entities, financial reporting services (including
statutory auditing of each retirement fund), central functions and liquidity management. The
financial management function includes a central banking platform that interfaces host-to-host
with all the major banks in South Africa and offers a centralised payment gateway to all its
operational activities. This segment also includes a centralised tax division, a dedicated team which
performs asset and liability matching for DC funds and a dedicated team focusing on closing and
liquidating funds.
– Client Service, which assists clients through a call centre, walk-in centres and a Client Services
Managers team, focuses on direct contact with funds and fund members, and acts as client
relationship managers for funds.
– Operational Risk Management, which focuses on the implementation and monitoring of best
practice across the operating units. This segment also includes forensic specialists, who focus
on the prevention and detection of fraudulent activities and a team of accounting specialists. In
addition, the Operational Risk Management unit develops standardised policies and procedures
and is responsible for the training and implementation monitoring of new practices and processes.
– Operational Systems, which provides in-house support to AFFS’ core administration platforms.
This segment conducts centralised batch processing, online user support and system level data
maintenance. Operational Systems provides system support to the Group’s operators in all sub-
Saharan African countries.
– AFICA, a registered linked-investment services provider which is an investment administration
and product packaging business offering access to the platform for investment in a wide range of
traditional life products (such as endowments, retirement annuities, preservation funds and living
annuities) and collective investment schemes (such as unit trust funds).
Distribution
Operations and Administration’s products are distributed through the Institutional Sales and Distribution
unit, senior management within Operations and Administration, and management and consultants
within AFFS.
Strategy
Operations and Administration is focused on maintaining and growing its leading market position in the
fund administration market. This includes both securing new institutional clients and ensuring that AFICA
maintains its competitive position as the preferred platform for FPC business.
Operations and Administration is also focused on operational efficiencies through investing in the improvement
of operations and servicing aimed at achieving more competitive pricing and reducing the costs of investments
through AFICA.
Consultants and Actuaries
Consultants and Actuaries is a leading provider of employee benefits consulting and actuarial services in
South Africa, which advises clients on the design and management of employee benefits plans, investment
strategies, plan governance, risk management and legislative matters.
The Consultants and Actuaries sub-division generated net revenue of R242 million in financial year 2014.
Products and services
Consultants and Actuaries provides a full range of integrated employee benefits advice and solutions to the
boards of trustees of standalone retirement funds and companies, including:
• the holistic design and management of employee benefits plans that align an employer’s objectives with
the needs of its employees;
• devising and implementing investment strategies and risk management practices;
39
• providing broker services to the client’s insurance arrangements for death and disability cover for
employees and their families;
• establishing governance programmes to support plan sponsors and help trustees meet their fiduciary
responsibilities;
• developing and implementing communication and education strategies for plan members;
• legal support focusing on the latest statutory and regulatory requirements;
• statutory valuations and financial reviews of retirement funds; and
• corporate financial reporting on employee benefits plans.
Distribution
Consultants and Actuaries’ products and services are distributed through the Institutional Sales and
Distribution unit, consultants and senior management within AFFS.
Strategy
Consultants and Actuaries aims to be the strategic and trusted partner to each of its clients, providing solution-
centred advice to meet their requirements. A key part of the strategy is also to create an enabling environment
for the Retail business in terms of the consulting approach and information provided to employers and
trustees. The Consultants and Actuaries team uses its client relationships to support other parts of the Group
by introducing these offerings to clients where appropriate. A key objective is to devise strategies aimed at
individual members within the employer benefit programmes to assist them in improving their financial
wellbeing.
Consultants and Actuaries also plans to further support the AfriNet operations and grow the Group’s African
footprint within and beyond its current markets.
Umbrella Funds Consulting
Umbrella Funds Consulting provides products and related consulting services for the participating employers
in the umbrella retirement funds managed by AFFS, in terms of which professional trustees manage the fund
enabling competitive operational costs.
Umbrella Funds generated net revenue of R152.7 million in financial year 2014, of which R103.2 million was
consulting revenue and R49.5 million was administration revenue.
Products and services
Umbrella Funds Consulting offers two corporate umbrella retirement funds:
• AFRF, which provides a flexible arrangement that can be customised to meet client’s needs; and
• the Alexander Forbes Core Plan, a lower-cost option with more restricted choices and consulting services.
Employee benefits advice is provided to clients by AFFS’ consultants and administration services are provided
as part of the product. Insurance is available to provide financial assistance to employees and their families in
the event of the death or disability of the employee. The consultants act as brokers and advisors to the client’s
insurance arrangements.
The assets of the fund are held on AF Life’s balance sheet and are reinsured with Investment Solutions, which
in turn provides multi-manager services.
Distribution
Umbrella retirement fund products and consulting services are distributed through the Institutional Sales
and Distribution unit, consultants and senior management within AFFS.
Strategy
Umbrella Funds Consulting aims to enhance, develop and grow the umbrella funds business, while at the
same time retaining existing clients and ensuring a competitive market positioning. The team uses its client
relationships to support other parts of the Group by introducing these offerings to clients where appropriate.
A key objective is to devise strategies aimed at individual members within the employer benefit programmes
to assist them in improving their financial wellbeing.
Product development and consulting in relation to legislative changes are key for the Umbrella Funds sub-
division. This business is competitively positioned to benefit from the anticipated retirement reform in South
Africa, including among others, the annuitisation of benefits on retirement and compulsory preservation.
40
Retail
Retail provides financial planning and wellbeing and consulting advice to individuals. Alexander Forbes
entry into the retail segment began in the mid-1960s through the marketing of financial services products
and services to individuals in the institutional customer base through the predecessor of FPC. The FPC
business has evolved over time from a traditional product-driven business to an advice-led financial planning
and consulting business predominantly targeted at the higher customer segment within the Group’s
institutional client base. Retail had approximately 41 ,000 clients and R48.5 billion assets under advice as
at 31 March 2014.
Many of the individual clients are referred to Retail when they retire or withdraw from retirement funds
administered by Operations and Administration or funds to which Alexander Forbes provides consulting
services. The holistic approach to financial wellbeing includes advice on preservation funds and pre-retirement
planning (including long-term insurance), retirement planning (including purchase of annuities), discretionary
investments and risk products, wills and estate planning as well as asset allocation.
A key performance indicator for Retail is the capture rate, which measures the percentage of preserved assets
within the retirement funds administered by Alexander Forbes that are captured or consulted to by the FPC.
Retail’s capture rate has increased from 29% at 31 March 2013, to 33% as at 31 March 2014.
Retail generated net revenue of R647 million in financial year 2014.
Products and services
Retail comprises three main lines of business: financial planning and consulting, fiduciary services and
administration services:
• Financial planning and consulting , which focuses on providing financial wellbeing and investment advice
predominantly to members of existing institutional clients and third parties, identifying clients’ investment
needs and objectives and providing advice on the most appropriate investment portfolio, while identifying
and fulfilling clients’ other needs such as life insurance. The financial planning function focuses on
assisting members of the funds administered by Alexander Forbes with their financial planning needs,
including investment, retirement planning and risk and estate planning and reviewing client portfolios on
an ongoing basis to ensure they remain current.
• Fiduciary services , which focuses on advising clients in setting up wills, trusts, power of attorney and
estate planning.
• Administration services , which provides administrative support to financial advisors in the taking on and
servicing of clients.
Distribution
Retail products are primarily distributed through financial planners and consultants as well as private client
wealth managers, who focus on high net-worth clients.
Strategy
The financial planning function is mainly driven by face-to-face meetings with individuals to better understand
their financial planning needs and provide them with appropriate advice. It is also focused on client retention
and ensuring that clients have a relationship with AFFS not only as a product provider but as a holistic
tailored solutions provider. In particular, the current focus is on increasing exit and retirement capture rates,
as well as discretionary asset and risk product accumulation. A key component of the Retail growth strategy
is to ensure that members within administered standalone and umbrella funds see Alexander Forbes as a
provider of services and solutions for all of their financial wellbeing needs.
Financial planning is also focused on leveraging its partnership with Consultants and Actuaries, Umbrella
Funds Consulting, AF Health and the Public Sector Division to ensure a solid and driven exposure of Retail’s
services and solutions to members of their respective client bases.
AF Health
AF Health is a leading healthcare and actuarial consulting solutions provider in South Africa, providing
services to over 510 corporate clients. Its fundamental proposition is to minimise the unplanned and unforeseen
health risks of the employees of its clients through the provision of appropriate healthcare and actuarial
consulting solutions, education and advice. AF Health is also one of the few healthcare brokerages in South
Africa that employ specialist healthcare actuaries, which has enabled it to develop benchmarking and technical
tools delivering services and consulting to the boards of trustees of medical schemes on annual pricing and
benefit design.
The AF Health sub-division generated net revenue of R194 million in financial year 2014.
41
Products and services
The capabilities of AF Health include:
• assisting companies and other organisations in selecting appropriate boards of trustees of medical schemes for their employees and members;
• guiding employees and members to select suitable options offered by those schemes and providing administrative support in their interactions with the schemes;
• specialised consulting and actuarial services to medical scheme trustees regarding benefit design, pricing, reserving strategies, legislative compliance and advice and solutions for managing companies’ post-retirement medical liabilities; and
• incapacity and disability management, absenteeism management, wellness programme management and integrated reporting.
Distribution
AF Health distributes its products and services through the Institutional Sales and Distribution unit, consultants and senior management within AFFS.
Strategy
AF Health is focused on growing new business and improving client retention through the provision of high quality client services and supplementing standard offerings with innovative services such as integrated absenteeism management and disability consulting.
AF Life
AF Life is a long-term insurer registered with the FSB, providing insurance products to both corporate and retail clients. Alexander Forbes’ flagship umbrella fund, the AFRF, which had a market share by assets of approximately 2 4% as at 31 March 201 3, as well as the other institutional umbrella funds managed by AFFS, are structured within AF Life. In addition, AF Life writes group and individual life policies.
AF Life comprises two divisions:
• Risk division , which includes retail (approximately 1 ,600 policies with an annual gross premium income of R17 million at 31 March 2014) and group risk (approximately 930 policies with an annual gross premium income of R400 million at 31 March 2014). This division reinsures approximately 80% of the mortality risk (except for group funeral risk where it retains 100% of the risk) and generates income from underwriting results, administration fees and interest returns on premiums.
• Umbrella funds division , which houses the AFRF and other institutional umbrella funds managed by AFFS. This division generates income through investment, consulting and administration fees. See “ —Operations and Administration — Products and Services” and “ — Umbrella Funds Consulting — Products and Services” for further information on the AFRF and other umbrella funds.
AF Life generated net revenue of R69 million in financial year 2014.
Products and services
AF Life’s risk division products are split between group risk and retail:
• Group risk products include group life and permanent total disability and dread diseases, disability income, funeral cover, ExecuPlus (top-up cover for executives) and life cover for housing loans through retirement funds.
• In retail, the product range includes traditional life cover, disability income protection, comprehensive capital disability (covering occupational disability and impairment) and dread diseases.
Distribution
AF Life distributes its products directly through a dedicated sales team, AFFS institutional and retail consultants, AFFS consultants to standalone and umbrella retirement funds and externally through brokers. AF Life had agreements with approximately 100 external brokers as at 31 March 2014. AF Life has dedicated broker consultant employees servicing external brokers.
Strategy
AF Life’s risk division is focused on growing the Retail business through building a tied agent sales force and through capturing cross-selling opportunities within the Group. AF Life is currently reviewing and expanding its retail product range and is expected to re-launch these products in 2014.
The risk division is also focused on increasing the annual premium written and underwriting results of group risk insurance, while ensuring that the products are competitively priced and that the underwriting result is profitable. As part of this strategy, AF Life implemented a new pricing tool in February 2013 that improves
the understanding of market segmentation risk factors with potentially more competitive pricing.
The risk division is also focused on improving the management and payment of claims in order to further
improve the customer experience at claims stage and to enable AF Life to hold lower reserve levels.
42
AFCT
AFCT is a separate operating business within the Group providing a Road Accident Fund medical supplier
recoveries’ process on behalf of provincial and national departments of health in respect of victims of motor
vehicle accidents in South Africa. This involves assessing, collecting and submitting supplier claims. The
same service is also provided to medical schemes.
AFCT generated net revenue of R54 million in financial year 2014.
Products and services
AFCT’s products and services include:
• Motor vehicle accident claims management services, performed in collaboration with selected national and
provincial health departments.
• Claims management services, including the processing of past medical costs related to motor vehicle
accidents incurred by medical schemes on behalf of its members, performed in collaboration with medical
schemes.
Strategy
AFCT’s strategy is focused on being the leading provider of innovative and cost-effective claims management
solutions for motor vehicle related personal injury claims.
Investment Solutions
Investment Solutions is South Africa’s largest multi-manager with assets under administration and
management of R285 billion as at 31 March 2014, of which assets under management comprised R256 billion.
Investment Solutions constructs portfolios by blending suitably selected asset managers, monitors and reports
on manager performance, and develops risk-profiled investable portfolios for institutional and individual
investors. Investment Solutions also provides investment administration services to large institutional clients
and intermediaries who develop their own investment solutions for their own clients using the Investment
Solutions platform.
Investment Solutions generated net revenue of R717 million and trading profit of R360 million in financial
year 2014, representing 16.3% and 34.6%, respectively, of the Group’s total.
The following table sets out the key performance indicators for Investment Solutions for the periods indicated:
Year ended 31 March
2014 2013 2012
Net revenue (R million) 717 635 553
Net revenue growth 12.9% 14.8% 14.0%
Trading profit (R million) 360 311 279
Trading profit growth 15.7% 11.5% 11.8%
Net client cash flows (R billion) 11.9 10.9 0.3
Blended net margin(1) (bps) 27.5 29.2 30.3
Assets under administration and management (R billion) 285 238 193
Retail assets under management (R billion) 43 38 33
Market share in institutional pensions (%)(2) N/A 20.0% 19.9%
Number of institutional clients(3) 2 ,108 2 ,014 2 ,078
1. Blended net margin is calculated as net revenue divided by average assets under administration and management.
2. Based on private institutional retirement fund assets of R1.2 trillion and institutional assets of R220.9 billion at 30 September 2013
( source: SARB Quarterly Bulletin).
3. Includes an additional approximately 1 ,000 funds (Stanlib Multi-Manager, Hollard, Dynamique and NMG umbrella funds) that Investment
Solutions manages on a single reinsurance contract.
Products and services
The scope of investment products offered through Investment Solutions ranges from a comprehensive suite
of portfolios that will fit the needs of most retirement schemes and investors, to tailored solutions developed
to suit client-specific needs and specifications.
Investment Solution’s product offering includes four broad categories:
• Institutional multi-manager, which focuses on creating a range of specialist and multi-asset portfolios for
the institutional client base (mainly retirement funds) by researching and selecting investment managers
from the South African, other African and global markets. As a multi-manager, Investment Solutions
43
does not undertake the direct selection of financial securities, but rather selects asset managers (who are
wholly independent of Investment Solutions) and then combines such managers to create a tailor-made
portfolio designed for its institutional client base. For large retirement funds, Investment Solutions also
provides end-to-end investment consulting and designs ad hoc investment portfolios. A critical part of
this offering is its scalable multi-manager platform, through which clients can select and manage the
portfolios they want to invest in, and get consolidated and timely reporting. As at 31 March 2014, it is
estimated that, the institutional multi-manager segment accounted for 65% of Investment Solutions’ assets
under administration and management and 72% of its net revenue.
• Retail multi-manager, which extends part of the institutional offering to individual investors and creates
additional investment portfolios (life portfolios and unit trusts), retirement annuities, preservation funds
and linked living annuities suitable for the retail client base. When developing new products, Investment
Solutions works closely with financial advisors (both with AFFS and with IFAs) to create products and
portfolios that will meet its clients’ needs. As at 31 March 2014, the retail multi-manager segment
accounted for 17% of Investment Solutions’ assets under administration and management, and 16% of its
net revenue.
• Platform services, which enable intermediaries and larger institutional clients to create their own
portfolios while ensuring regulatory compliance. Compared to Investment Solutions’ institutional and
retail multi-manager offerings, this is mainly an administration service, which includes specialised
reporting, unitisation and daily pricing, as well as the creation of specialised portfolios for intermediaries.
As at 31 March 2014, the Platform services segment accounted for 17% of Investment Solutions’ assets
under administration and management, and 6% of its net revenue.
• Alternative investment/Caveo, which focuses on the construction, monitoring and maintenance of fund-
of-hedge-fund and African (excluding South Africa) equities portfolios for institutional and retail investors.
Caveo is a joint venture between Investment Solutions and Peregrine SA Holdings Proprietary Limited
offering alternative investments to Investment Solutions’ institutional clients. As at 31 March 2014,
the Alternative investment/Caveo segment accounted for 1.5% of Investment Solutions’ assets under
administration and management, and 6% of its net revenue.
Investment Solutions continues to focus on product innovation and developing new product offerings.
Recently, the launch of the new Platform services business significantly enhanced Investment Solutions’ value
proposition, and flows from this business were an important contributor to total new business inflows of
R4.5 billion for financial year 2014.
Distribution
Investment Solutions’ distribution channels vary depending on the institutional or retail nature of its client
base:
• Institutional: The main distribution channel on the institutional side, accounting for 67% of institutional
assets under management as at 31 March 2014, is AFFS. Investment Solutions is the multi-manager for
the AFFS umbrella retirement funds (27% of institutional assets under management). Due to its ability to
construct solutions that meet the requirements of AFFS’ best advice frameworks, Investment Solutions has
enjoyed significant support from and a strong relationship with Consultants and Actuaries, enabling it to
obtain mandates from its standalone retirement funds client base. Investment Solutions also distributes its
offerings through other consulting firms, which are competitors of Consultants and Actuaries.
• Retail: On the Retail side, the two main distribution channels are FPC (96% of retail assets under
management as at 31 March 2014) and IFAs and other white-labelled channels (4% of retail assets under
management as at 31 March 2014).
Strategy
Investment Solutions’ strategy is to leverage its competitive advantages to maintain its leading market position
in the institutional multi-manager and alternative investment areas, and achieve growth in its retail multi-
manager and platform services businesses, where the Group believes its business proposition provides a
significant platform for additional growth. The key elements of this strategy include:
• Retail multi-manager: the single biggest focus is to shift its business mix through the Retail strategy that
will enable it to capture a greater share of the retail market. This is planned to be achieved by improving
Investment Solutions’ effective capture ratio of investment flows through FPC and by becoming the selected
investment partner of IFAs in South Africa.
• Platform services: this is the fastest growing business by assets within Investment Solutions. Although
this is a lower margin business compared to the rest of Investment Solution’s offering, the scalable nature
of the platform makes it an attractive business to grow. The Group believes that increasing regulatory
complexities and requirements will be the primary growth driver for this business.
44
• Diversification of earnings stream, through achieving a balanced spread of trading profits from retail,
institutional business, Caveo, expansion outside of South Africa and other initiatives.
• Leveraging distribution channels, through increased co-ordination with AFFS to create products suited
to best meet AFFS clients’ needs and increasing the proportion of business sourced from outside the Group.
• Gathering assets on its individual investment service provider, through the establishment of an
Investment Solutions linked-investment services provider and providing Investment Solutions products
to IFAs.
• Leveraging off international capabilities, through constructing portfolios with international elements.
AFI
AFI is a direct insurer providing motor, household, homeowners, personal accident and health, and business
insurance coverage, as well as insurance administration services to retail customers, small to medium-sized
businesses and insurance companies. In addition, AFI provides insurance administration services to corporate
clients underwritten in cell-captives. Alexander Forbes Direct (a regulated financial services provider) is a
short-term insurance broker distributing a number of personal accident and health products on behalf of AFI
and funeral insurance underwritten by a third-party insurance company.
Since it was established in April 2007, AFI has evolved from an insurance broker to an insurer by retaining a
portion of the underwriting risk, with its gross written premiums increasing to R1,224 million in financial
year 2014. In addition, AFI administered gross written premiums of R205 million in partner businesses as at
31 March 2014.
AFI operates predominantly in South Africa and also provides support and advice to Alexander Forbes
Insurance Namibia, and forms a key component of Alexander Forbes’ expansion into the Retail sector.
AFI generated net revenue of R350 million and trading profit of R88 million in financial year 2014,
representing 8.0% and 8.5%, respectively, of the Group’s total. As at 31 March 2014, AFI had approximately
75 ,000 personal lines policies in issue, which represented a 3% increase as compared to 31 March 2013.
In addition, gross written premiums increased by 15% in financial year 2014 to R1,224 million as at
31 March 2014, of which 95% were in motor and household insurance, 2% in business insurance and 3% in
accident and health insurance.
The following table sets out the key performance indicators for AFI for the periods indicated:
Year ended 31 March
2014 2013 2012
Net revenue (R million) 350 307 289
Net revenue growth 14.0% 6. 2% 11.9%
Trading profit (R million) 88 80 81
Trading profit growth 10.0% ( 1.2 )% 16.8%
Gross written premiums (R million) 1 ,224 1 ,066 926
Motor and household (R million) 1 ,165 1 ,028 896
Accident and health (R million) 33 31 31
Business insurance (R million) 26 7 –
Premiums under administration (1) (R million) 205 146 129
Number of policies administered(1) 17 ,456 12 ,763 11 ,400
Number of policies 148 ,373 143 ,116 139 ,277
Motor and household 75 ,197 73 ,074 69 ,000
Accident and health 72 ,104 69 ,502 70 ,277
Business insurance 1 ,072 540 –
Claims ratioMotor and household 81% 78% 73%
Accident and health 30% 33% 29%
Business insurance 75% 92% –
Risk retention ratio by type of businessMotor and household 25% 15% 12.5%
Accident and health 100% 100% 100%
Business insurance 10% 10% –
1. Through Alexander Forbes Administration Services Proprietary Limited (“AFAS”).
45
Products and services
AFI has three businesses:
• Alexander Forbes Insurance , a licenced insurer which underwrites short-term insurance products,
including motor, household, house owners, accident and health and business insurance, with a focus on
small to medium-sized enterprises.
• AF Administration Services , which administers third-party portfolios housed in cell-captive insurers.
• AF Direct , a short-term insurance broker distributing a number of accident, health, funeral and other
specialist insurance products.
Distribution
Insurance products and services are distributed directly by AFI’s consultants in offices across 15 major centres
in South Africa. AFI also places limited business through AFFS, brokers and partners. As at 31 March 2014,
AFI had over 500 employees.
AFI also leverages off its leading position within the institutional market through placing consultants at
large, key corporate clients. These consultants are based at the Group’s corporate clients on a day-to-day basis
and are responsible for contact with the corporates’ employee base. AFI is also well established in the motor
dealership space.
Strategy
AFI’s strategy focuses on two main objectives: growing gross written premiums and increasing the profitability
of its portfolio by focusing on underwriting results. AFI continues to drive the growth in gross written
premiums by optimising the efficiency of its new business generation and increasing its focus on cross-selling
to AFFS.
AFI also plans to increase its focus on growing the business insurance portfolio, which was launched in April
2012, aimed at small to medium-sized businesses with up to R90 million of assets. As at 31 March 2014, AFI
had 1 ,072 business policies in force, with annualised new business of approximately R29 million in gross
written premiums. AFI plans to build on the success of its business insurance product by tailoring this
offering to different sectors, as well as various niche markets, strengthening its sales team and increasing its
presence to service business clients.
In order to increase the profitability of its portfolio, AFI intends to continue to manage its underwriting
objective through:
• improving efficiencies in procurement, negotiating volume discounts and performing claims assessment
in-house;
• further investing in its pricing team for the development of advanced pricing models; and
• innovative product design, such as bundled and step-down products.
In addition, AFI plans to continue increasing its net risk retention by reducing its reliance on reinsurance and
has implemented measures to ensure disciplined underwriting to achieve its target loss ratio.
AfriNet
AfriNet provides dedicated strategic focus in the African continent outside of South Africa, leveraging the
strong South African financial services platform and replicating the Group’s business model in other countries.
AfriNet focuses on the demands of each local market and adapts its product offering to local legislation as
applicable, leveraging the strong South African services platform and replicating the business model in other
countries in sub-Saharan Africa. AfriNet’s current key focus countries include Namibia, Botswana and Kenya,
where it has market-leading presences, as well as Nigeria, Zambia and Uganda. AfriNet’s service offerings
include employee benefits, actuarial and investment consulting and retirement administration services for
corporate and institutional clients and the public sector. In addition, AfriNet operates the Investment Solutions
and AFI businesses in Namibia.
While the focus of the AfriNet expansion has been on consulting and actuarial services and retirement fund
administration, AfriNet has demonstrated its ability to capture bespoke opportunities within the territories it
enters. For example, in Namibia, Alexander Forbes Insurance Namibia has approximately doubled its number
of policy holders in less than three years to approximately 9 ,000 as at 31 March 2014; and in Nigeria, AfriNet
has successfully grown an actuarial insurance consulting business in 18 months to contribute R8 million net
revenue to the Group in financial year 2014.
AfriNet generated net revenue of R249 million and trading profit of R48 million in financial year 2014,
representing 5.7% and 4.4%, respectively, of the Group’s total. Namibia and Botswana were the largest revenue
contributors, accounting for 44.2% and 32.7% of AfriNet’s net revenue in financial year 2014, respectively.
46
The following table sets out the net revenue and trading profit for financial year 2014 and the headcount and
AfriNet’s ownership stake as at 31 March 2014 in each of the jurisdictions presented:
Net revenue Trading profit Headcount Ownership
(R million)
Namibia 109.9 17.6 112 70%(1)
Botswana 81.4 23.5 89 67%
Kenya 48.9 8.6 64 60%
Nigeria 5.8 (0.5) 10 60%(2)
Uganda 2.6 (0.7) 10 51%
1. AfriNet owns 70% of Alexander Forbes Group Namibia Proprietary Limited and 100% of Investment Solutions Namibia Limited.
2. AfriNet owns 60% of the Femi Johnson Company in Nigeria (risk services) and 78% of Alexander Forbes Consulting Actuaries Nigeria
Limited (financial services).
AfriNet’s operations largely depend on the ability to successfully export products and technology of the
Group’s South African operations and tailor them to local legislation and clients’ needs as required. AfriNet’s
recent focus has been on consolidating core offerings in each of its markets, preparing for the roll-out of new
services, with an opportunity to utilise these key geographic locations to expand into other neighbouring
countries with favourable macro-economic environments and supportive legislative environments. As at
31 March 2014, AfriNet had approximately 335 employees across its network.
The following table sets out the key performance indicators for AfriNet for the periods indicated:
Year ended 31 March
2014 2013 2012
Net revenue (R million) 249 202 170
Net revenue growth 23.3% 18. 8% 12.7%
Trading profit (R million) 48 36 27
Trading profit growth 33.3% 3 3. 3% 31. 7%
Number of members under administration 351 ,796 322 ,1 28 257 ,253
Number of policies Alexander Forbes Insurance Namibia 9 ,149 7 ,474 5 ,886
Investment Solutions Namibia assets under management
(R billion) 2.6 2.3 1.8
Products
AfriNet provides dedicated strategic focus in the African continent outside of South Africa, leveraging the
strong South African financial services platform and replicating the Group’s business model in other countries.
Where appropriate, AfriNet has expanded its offering to other product areas, such as a retail pilot project of
financial planning and advice in Botswana, Namibia and Kenya. In addition to this, AfriNet offers multi-
manager investment products through Investment Solutions Namibia and short-term, personal lines insurance
policies through Alexander Forbes Insurance Namibia.
Strategy
AfriNet’s growth strategy focuses on the following key objectives:
• leveraging the strong South African services platform and replicating the model in the other countries in
sub-Saharan Africa with favourable macro-economic environments and supportive legislative environments;
• increasing its market share in Kenya, Uganda and Nigeria and further expanding its product offering into
these jurisdictions;
• introducing new products and services to the existing client base, including risk management and
investment consulting products;
• ensuring all businesses are well-placed to exploit opportunities arising from the proposed regulatory
changes; and
• increasing Retail penetration into the institutional member base across all AfriNet platforms in line with
the Group’s Retail strategy.
AF International
The AF International includes the businesses of the consulting actuarial business, LCP, and Alexander Forbes
Channel Islands, which provides offshore employee benefits and individual financial advice. LCP provides
47
actuarial and consulting services across pensions, employee benefits, investment consulting, general insurance
and business analytics and pension administration services in the UK, Abu Dhabi, Belgium, Ireland and
The Netherlands.
LCP is consolidated into AF International, which has access to LCP earnings only through its semi-annual
dividend distributions.
AF International’s continuing operations generated net revenue of £80.8 million and trading profit of
£12.5 million in financial year 2014, representing 30.1% and 18.8%, respectively, of the Group’s total.
The UK operations represented 93.9% of AF International’s net revenue in financial year 2014.
LCP
LCP is the actuarial, general insurance, and risk and investment consulting division in the UK, with additional
operations in Abu Dhabi, Belgium, Ireland and The Netherlands.
The initial investment in LCP was made in 2002, when Alexander Forbes acquired a 60% interest in LCP in the
UK. The individual members own the balance of LCP. The relationship between the individual members and
Alexander Forbes is governed by a Partnership Deed, which sets out certain restrictions around activities,
determines the control structure and affords certain minority protections to the individual members.
In 2008, LCP acquired an 80% interest in LCP Ireland Limited (“LCP Ireland”), an Irish actuarial consulting
business and established an actuarial consulting subsidiary, LCP Netherlands BV (“LCP Netherlands”), in
which LCP owns a 70% interest. Alexander Forbes consolidates LCP, LCP Ireland and LCP Netherlands in its
results and has profit-sharing arrangements in place with its minority partners.
In 2004, Alexander Forbes acquired an effective 72% interest in LCP Belgium, which provides the “Talk”
pension and insurance software and software services as well as employee benefits and insurance actuarial
consulting services to predominantly larger clients in the insurance and pension industries in Belgium and
the United Arab Emirates through its Abu Dhabi branch. The Group is reviewing its strategy around this
business.
As at 31 March 2014, the AF International business had approximately 55 0 employees, including approximately
500 employees in the UK.
Products and services
Through LCP, Alexander Forbes provides actuarially led employee benefits-related consulting, investment
consulting and life and general insurance actuarial consulting, primarily on a billable hours basis, in the
following areas:
• Advice to trustees of occupational pension arrangements. Valuation of pension funds, advice on scheme
funding and employer negotiations, DB and DC pension scheme consulting, benefit design and costing,
scheme documentation, pension administration and member communication, de-risking solutions, general
advice, pension trustee training, trust governance and employer covenant review services.
• Advice to sponsors of occupational pension arrangements. Accounting for pensions, mergers and
acquisitions work (including due diligence and advice on financing pension scheme deficits), negotiations
with pension trustees, benefit design and costing, advice on the management of pension and other employee
benefits costs and risks, corporate reporting, and advice on de-risking solutions. It also offers advice on
overseas plans, accounting for pensions, due diligence, advice on expatriate services and global benefit
advice on employee benefits design and coordination.
• Pension administration. Recordkeeping, benefit calculations, pension payroll, secretarial services
for trustees, individual member documentation and accounting services to, predominantly, actuarial
consulting clients.
• Investment consulting. Consulting on investment decisions made by scheme trustees and their sponsors,
including those related in particular to DB and occupational DC pension schemes, strategic advice on
investment portfolios, the matching of assets and liabilities, the selection of investment managers,
monitoring managers and portfolio restructuring, including advice on swaps and alternative assets
strategies.
• General insurance actuarial consulting. Advice to insurance companies and Lloyd’s syndicates on
reserving and pricing, optimal reinsurance structures, actuarial services relating to medical malpractice
covers, Solvency II and capital adequacy modelling.
• Business Analytics. Non-employee benefits actuarial advice to corporate clients, including share option
valuations, and real-time financial and statistical stochastic modelling including for large scale, energy
projects and clients.
48
LCP LLP, which represents approximately 93% of LCP’s business, targets large UK corporations and multi-
national companies and has over 900 clients. Recurring consulting revenue represents a significant portion
of the revenues generated by LCP.
LCP LLP benefits from high customer retention and public recognition and has received a number of awards
in recent years:
• DC Consultancy of the Year at the Professional Pensions UK Pension Awards (2014).
• Risk Reduction Advis or of the Year at the Professional Pensions UK Pension Awards (2014).
• Corporate Advis or Awards Best Strategy for Investment Advice on Pensions (2014, 2013, 2012, 2011).
• Pensions Consultancy of the Year at the Irish Pensions Awards (2013).
• FT Pension and Investment Provider Awards – Auto-enrolment consultant of the year (2013).
• FT Pension and Investment Provider Awards – Buyout consultant of the year (2013).
Channel Islands
Alexander Forbes Channel Islands is a Jersey-based regulated independent financial advisory business
reporting to Investment Solutions in South Africa. Alexander Forbes Channel Islands commenced business in
Jersey in 1975 and provides employee benefits and financial advisory services to Channel Islands’ employers
and employees, as well as South African and UK clients. Services include the provision of pensions’ solutions
and corporate risk benefits locally and internationally, as well as independent financial advice to individuals
within Jersey. One of the core offerings is the Alexander Forbes Jersey Pension Investment Trust, which had
£43.5 million of assets under management as at 31 March 2014, and which provides an holistic, flexible
defined contribution pension solution to employers and individuals, including administration, investment,
reporting and advice to members.
The following table sets out the net revenue for the AF International business for the periods indicated:
Year ended 31 March
2014 2013 2012
(£ thousands)
UK and Ireland 78 ,380 70 ,891 67 ,277
The Netherlands 822 768 871
Channel Islands 1 ,636 1 ,541 1 ,411
Total net revenue (continuing operations) 80 ,838 73 ,200 69 ,560
Strategy
AF International’s recent focus has been centred on streamlining the business and disposing of non-core
operations. It is currently reviewing its strategy for the Belgium and Abu Dhabi businesses, which mainly
provide “Talk” software and associated software services. For purposes of the Consolidated Financial
Statements, Lane Clark & Peacock Belgium CVBA (“LCP Belgium”) is classified as held for sale.
The current strategy for the core business of LCP and Alexander Forbes Channel Islands is to continue to
grow by increasing revenue, through new business and maintaining high client retention rates.
Disposals
In financial year 2012, the Group sold the Risk Services businesses in South Africa, Namibia and Botswana to
the Marsh Group. Subsequently, in the same transaction, the Group disposed of the Risk Services businesses
in Uganda, Malawi, Zambia and Nigeria in financial years 2012 and 2013. In addition, the Group sold its
interests in the Risk Services businesses in Tanzania and Mozambique in financial year 2013. The Group has
also entered into agreements to dispose of the Risk Services businesses in Swaziland with Tibiyo Taka Ngwane
(a Swazi Nation Organisation established by Royal Charter in 1968) and Kirsh Holdings (Proprietary) Limited,
and in Zimbabwe with A Simba Private Equity Partners (Private Limited), respectively. The completion of each
of the Swaziland and Zimbabwe disposals is conditional upon the receipt of certain regulatory approvals.
In financial year 2013, the Group disposed of a number of interests in the UK and Europe, including the sale
of the AFCA UK to JLT. In addition, the Group disposed of the Investment Solutions UK business, the
Media Insurance Services (Direct Marketing) businesses in the UK, the LCP Libera (Switzerland) business,
which disposals were completed in financial year 2014. Alexander Forbes Trustee Services in the UK was
disposed of in financial year 2015. These disposals did not affect the holdings in the consulting actuarial
partnership of LCP .
49
On 4 November 2013, the Group announced the disposal of the Guardrisk business unit. The transaction
closed in March 2014.
With respect to its divestments, the Group is subject to non-compete undertakings with varying durations,
which have been provided in favour of the acquirers of the divestments, and which restrict certain activities
of the Group in the business line sold in the relevant identified territories to which the non-compete applies.
Pursuant to these divestments, the Group may also be subject to outstanding potential indemnities and other
claims which may arise in relation to the divestments and for which the Group could be liable until such
time as the applicable period during which a claim may be brought expires. See Annexure 14 for a list of
material divestments.
Properties
The Group’s principal property is the head office in Sandton, which received level four green building
certification. The Group moved into its head office, which has approximately 36 ,000 square metres of office
space, in September 2012 and has leased this property through 2024. The Group also leases land and buildings
in various locations throughout South Africa and internationally. See Annexure 9.
Information Technology
Alexander Forbes uses a combination of tailored and packaged information technology (“IT”) solutions,
including in-house developed systems such as ALEX, Mertrix and SAMMI. The Group’s IT infrastructure is
highly standardised, centralised and supported by Alexander Forbes Group IT. The main data centre is situated
at Alexander Forbes’ head office in Sandton. The Group’s disaster recovery data centre facilities are based in
Centurion. Both facilities include enhanced environmental monitoring, generators, uninterrupted power
supply and fire suppression. Software licensing is centrally owned and managed by Alexander Forbes Group
IT. The costs of all IT services provided by Alexander Forbes Group IT are recovered from the various business
units on an agreed allocation basis that includes dedicated resourcing and licensing, named user licensing,
database usage and headcount.
Employees
Alexander Forbes’ employees are responsible for the stabilisation and growth of its businesses and represent
Alexander Forbes to its clients, communities and other stakeholders. As at 31 March 2014, Alexander Forbes
had 3 ,900 full-time employees, compared to 3 ,881 and 4 ,082 as at 31 March 2013 and 2012, respectively.
There are no recognised trade unions at Alexander Forbes and no collective bargaining on the terms and
conditions of employment between Alexander Forbes and its employees. In addition, Alexander Forbes’
South African businesses are subject to the requirements of the FS Code. See “ —Broad-Based Black Economic
Empowerment” .
Investigations and Legal Proceedings
In the conduct of its ordinary course of business, the Group is exposed to various actual and potential claims,
lawsuits and other proceedings relating to alleged errors and omissions, in respect of which the Group has
taken out professional indemnity insurance. See “ —Errors and Omissions Insurance”. The directors are
satisfied, based on present information and the assessed exposure (for error and omissions claims), that the
Group has adequate insurance protections in place to meet such claims. However, like all businesses of this
type, the risk exists that significant adverse developments in past or existing claims, or a significant increase
in the frequency or severity of future claims, could have a material effect on the Group’s reported results.
Other than in respect of actual and potential claims, lawsuits and other proceedings relating to alleged errors
and omissions and those matters which are described below, the directors are not aware of any legal or
arbitration proceedings, including any proceedings that are pending or threatened, that may have or have
had, in the 12-month period preceding the Last Practicable Date, a material effect on the financial position of
the Group.
SARS Settlement
During financial year 2014, the Group received information requests from the SARS focused on the 2007
acquisition of the Group by the Private Equity Consortium (the “2007 Acquisition”) and a reorganisation of
the Group’s businesses. The information requests related mainly to the interest expenditure incurred in
respect of debt raised for the reorganisation. The interest expenditure incurred by the Group between 2007
and 2014 was claimed as a tax deduction by some of the Group’s subsidiaries.
The Group believes that its reorganisation and the debt funding was a common and legitimate type of
transaction and was implemented in accordance with legal and tax advice. However, at the initiative of the
Group and in order to bring finality to this matter, on 1 July 2014, Alexander Forbes entered into an agreement
providing for a full and final settlement of the matter, including with respect to the deduction of interest
claimed since the 2007 Acquisition up to and including financial year 2014. The conclusion of the settlement
50
resulted in an additional assessment for cash taxes payable by AF Acquisition in an amount of R60 million
and the waiver of assessed losses carried forward, which included assessed losses in respect of which an
amount of R66 million of deferred tax assets that were previously raised and held on the balance sheets of
various subsidiaries of the Group. The Consolidated Financial Statements reflect the impact of the
SARS Settlement.
Investment Solutions
Investment Solutions has entered into a reinsurance arrangement with a reinsurer whereby Investment
Solutions manages assets on behalf of that reinsurer (for purposes of this paragraph, the “client”). The assets
are further reinsured to a second re-insurer (the “third-party reinsurer”) which offers the portfolios to
investors through endowment structures. During a period from 2007 until 2011, assets which should have
been invested into taxed portfolios were invested into untaxed portfolios. In January 2014, Investment
Solutions received a letter of demand from the client’s attorneys and later from the third-party reinsurer’s
attorneys alleging incorrect allocation of assets to the wrong policyholder fund in terms of Section 29A of the
Income Tax Act. In particular, the claim relates to alleged breach of Investment Solutions’ obligations under
the reinsurance agreement. Investment Solutions is in the process of responding to the letters of demand and
denies all liability in respect of the claims. The claim has been reported to Investment Solutions E&O insurers
and indemnity is being provided subject to the relevant policy’s terms and conditions. No summons has been
received as of the date of this pre-listing statement.
AF Health
In November 2013, the South African Council for Medical Schemes (the “CMS”) requested certain information
in connection with AF Health’s communication relating to the move by one of its clients to a new fund and
indicated it was considering whether AF Health’s accreditation should be suspended or withdrawn. In a
subsequent letter, the Compliance and Investigative Unit of the CMS expressed the view that AF Health was in
contravention of the Medical Schemes Act and had failed to comply with the Code of Conduct. On
30 April 2014, AF Health met with the CMS to discuss the matter and provided further information requested
by the CMS. The Group is currently awaiting the CMS’ response. If its accreditation were suspended, AF Health
would not be able to earn any commissions from any South African registered medical scheme. In fi nancial
year 2014, such commissions accounted for R132 million, or 68%, of AF Health’s revenue. The Company is of
the view that AF Health has not infringed any applicable law or regulation and does not believe that this
inquiry is likely to result in the suspension or revocation of its licence.
Price Forbes Arbitration
The Group has agreed to arbitration in respect of a dispute regarding its right to use various trademarks
(including “PRICE FORBES” and “PRICE FORBES GROUP”). The dispute centres around the Group’s use of
certain trademarks acquired by it pursuant to certain historical transactions and the alleged passing-off and
infringement of certain of the Group’s trademarks by a third party. The outcome of the arbitration may
include the losing party bearing the other party’s costs. The parties have agreed that the arbitrators’ decision
is to be fi nal and binding with no appeal. A decision is expected in late 2014.
Broad-Based Black Economic Empowerment (B-BBEE)
B-BBEE is a South African government policy that attempts to rectify the economic divide in South Africa
as a result of historical discrimination. This policy has been embodied through the Codes of Good Practice
(the “Codes”) issued pursuant to the B-BBEE Act. In addition, the South African fi nancial industry entered
into the Financial Sector Charter in October 2003 (the “FS Charter”), which was a fi nancial services industry-
driven B-BBEE initiative. The FS Charter provided guidelines on B-BEE within the industry, which were
voluntary, but companies in the fi nancial services industry have been reporting annually on B-BBEE
progress since 2005. In 2012, the FS Charter was replaced with the FS Code, a new binding legal framework
against which the empowerment progress of the fi nancial sector is measured. The FS Code applies to all
fi nancial services fi rms and has set targets in core categories, which (when weighted) make up the scorecard
against which fi nancial institutions are rated each year. The scorecard in the FS Code measures B-BBEE
compliance in the following categories: shareholding, management, employment equity, skills development,
procurement, enterprise development, social investment, access to fi nancial services and empowerment
fi nancing. The FS Code is enacted pursuant to Section 9(1) of the B-BBEE Act. See “Regulation — Black
Economic Empowerment”.
As a practical matter, B-BBEE compliance is an important factor in winning new corporate and institutional
business, especially from government or related organisations, and in maintaining existing business
(companies prefer to mandate fi rms that are “empowered” as it assists them to comply with their own B-BBEE
industry codes). As a result, private companies also seek B-BBEE-compliant business partners.
The Company’s B-BBEE status was audited by Empowerdex Proprietary Limited, a leading empowerment
rating agency in South Africa, in May 2014 and it received a Level 2 empowerment contributor rating (where
Level 1 is the highest score and Level 8 is the lowest score).
51
The Group is committed to giving effect to the objectives of the B-BBEE Act and the FS Code and also, where
possible, meeting its procurement requirements through the procurement of goods and services from groups
that the B-BBEE Act seeks to benefi t. The shareholding of the Group’s current B-BBEE partners may decrease
following the disposal of their interest by the current B-BBEE owners as a result of the Offer. It is anticipated
that there will be a requirement for additional B-BBEE ownership of between 2% and 3% of the Group in order
to contribute towards maintaining the level of ownership required to obtain a Level 2 empowerment contributor
rating. This is based on a number of assumptions that may change over time, including those relating to
continuing consequences (i.e. the principle which allows a measured entity to continue to score a limited
number of points for ownership on the basis of previous B-BBEE transactions), the expected investor base in
the listed environment and assets that have been realised by the Group. As a result of being required to
undertake a future ownership transaction to increase the B-BBEE shareholding, as is typical of such
transactions, support or facilitation of a transaction of this nature may be provided by the Group in line with
South African market standards. Notwithstanding this, other factors (such as the other elements measured
under the FS Code scorecard) will also play a role in the Group’s overall rating.
Errors and Omissions Insurance
Given the nature of the Group’s activities, the most signifi cant operational risk faced by the Group relates to
claims for losses suffered by clients due to errors and omissions on the part of the Group or its representatives,
typically related to advice and administration activities.
The Group’s errors and omissions risk is insured in the London market, with a limit of R1.9 billion for each
and every claim or loss in the annual aggregate in excess of the aggregate deductible of R90 million (the
“market policy”). The R90 million aggregate excess is self-insured with a third-party cell-captive insurer,
Mannequin Insurance PCC Limited Cell AFB48 (the “Mannequin policy”). The market policy covers all
subsidiary and associate companies, except for LCP, which effects its own cover. Non-wholly-owned subsidiaries
and associate companies have access to a combined limit of R125 million, subject to the aggregate deductible
of R90 million. The Group has arranged a separate errors and omissions run-off cover for the fi nancial
services operations in the UK sold to JLT (to comply with contractual obligations in the sale placement
agreement) with a limit of £55 million for any one claim or loss in the aggregate, with the excess layers on
the Group programme providing further cover up to R1.2 billion. This is in respect of claims notifi ed post-
completion of the sale of the operations for which the Group retains responsibility.
The Group is generally seen by the insurance market as a good risk and this has been refl ected in a number
of aspects, including a wide policy wording, generally reducing rates over the years and very wide and
generous claims handling conditions. The Group is in a relatively unique position and its policy provides two
major advantages over many others. Firstly, claims circumstances are only known to the Company when they
are known to a specifi c named individual. This considerably reduces the risk of a claim being repudiated for
late notifi cation. Secondly, it is empowered by insurers to settle its own claims up to R 10 million and these
claims count towards its aggregate deductible of R90 million without reference to the insurers. These
advantages are of considerable value to the Group and the Group considers it highly unlikely that it would be
able to replicate these arrangements with alternative insurers.
The Group insures on what is generically called a “full civil liability” basis, with a policy wording that has
been adapted and improved over many years. It has many features which are generally not available to the
majority of other insureds. Such features have been developed by remaining with the same lead insurers. This
long-term relationship has built up a level of trust whereby the Group is able to continue to obtain benefi ts that
would otherwise be unavailable.
52
INDUSTRY OVERVIEW
South African Macro-Economic Environment
Economy characterised by stable GDP growth
South Africa has been characterised by stable gross domestic product (“GDP”) growth over the last 10 years.
Based on data from the International Monetary Fund nominal GDP in South Africa increased from
approximately R1,273 billion to R3,139 billion between 2003 and 2012, which represents a CAGR of
approximately 10.5%.
Wage infl ation outpacing CPI, rising employment numbers and declining household debt
The AFFS administration business is to a certain extent driven by its institutional clients’ number of employees
and their respective wages, as some of the fees that it charges are in relation to the institutional clients’ wage
bill. As such, wage infl ation outperforming CPI creates a positive environment for AFFS’ administration
business. The high real wage infl ation, coupled with declining debt to disposable income and declining debt
servicing cost to disposable income, typically results in a higher propensity to save and is consequently
expected to benefi t the South African savings, investments and insurance industries.
Increasing migration to higher Living Standards Measure segments
The South African Audience Research Foundation (“SAARF”) Living Standards Measure (“LSM”) is a widely
used research tool in South Africa. It divides the population into ten LSM groups, with 10 being the highest
and 1 being the lowest. The SAARF LSM groups people according to their living standards using criteria such
as the degree of urbanisation and ownership of cars and major appliances.
According to the SAARF, in 200 4, approximately 4 6% of the South African population (approximately
14.0 million) was in the higher LSM 5-10 segment and in 2012, this increased to approximately 7 5% of the
51.2 million population. As the South African population migrates to the higher LSM segments, there is an
increase in the employable population as well as in the proportion of the population focusing on savings and
insurance.
AFFS Industry Drivers
Overview
Employee benefi ts in South Africa consist of a number of inter-related benefi ts, including retirement benefi ts,
death, disability and health benefi ts. The employee benefi ts system represents one of the most effective formal
channels for creating a savings culture in South Africa. The key developments in this market include the
changes to the way pension benefi ts are structured as well as the growth of total pension plan assets, which
can be expected to result in a greater demand for professional advice, investment services and fund
administration.
Market Trends
Withdrawal and preservation in South Africa
Under South African law, members of a retirement fund have access to their retirement savings before
retirement only in the case where they withdraw from their current employer fund due to resignation,
dismissal or retrenchment. At this point, benefi ts can be withdrawn in cash or kept earmarked for retirement
by transferring to either another retirement fund or to a preservation fund designed as a “parking bay” for
these benefi ts until retirement. However, despite the limited circumstances under which members have access
to their accumulated benefi ts and the opportunity to preserve these benefi ts until retirement, there is still
signifi cant value loss occurring due to the non-preservation of retirement funds. For example, within
Alexander Forbes’ retirement funds, approximately 49% of outfl ows by value are preserved for retirement on
an annual basis, with the balance withdrawn in cash ahead of retirement, by way of encashment at withdrawal
from the fund and the allowable lump sum access withdrawn at retirement.
Younger members are most likely to withdraw their retirement savings and are also least likely to preserve.
Retirement savings in the early years contribute signifi cantly towards retirement income levels due to the
effect of compounding on investment returns. As a result, low preservation rates combined with higher
withdrawal rates at younger ages can have negative consequences for retirement income levels. Although
withdrawal rates are lower for older members, the preservation rate is still relatively low, with over two-thirds
of retirement savings by value being lost due to non-preservation on resignation. The preservation rate by
value of assets is higher than that among individuals with larger asset values as they tend to preserve more.
53
Members of retirement funds can withdraw a portion of their capital at retirement in cash. Based on current
South African tax laws, pension fund members can withdraw up to one-third of their retirement capital in
cash, and provident fund members can take up to 100% of their retirement capital in cash. Proposals from the
South African National Treasury (the “National Treasury”) to align the treatment of pension and provident
funds (limiting the amount that may be taken out of provident funds at retirement), as well as the implementation
of compulsory preservation before retirement, are expected to signifi cantly reduce the amount of cash outfl ows
from retirement funds.
The National Treasury has announced its intentions to make it compulsory for the partial preservation of
retirement assets when individuals change jobs. Commencing 1 March 2015, provident fund members will
(for contributions made after this date) be limited to withdrawing one-third of their retirement savings in cash
on retirement in order to harmonise the tax treatment of pension funds and provident funds. These measures
are expected to lead to growth in the pension assets in South Africa, as well as an increase in the assets
Alexander Forbes captures from the retirement funds it administers.
The National Treasury has stated that the implementation of a default annuity channel for all funds is to
become mandatory, which means that all retirement funds will be required to choose a default retirement
product into which all their members will be enrolled. Members will be allowed to opt-out, subject to taking
advice and choosing a similar product or a conventional life annuity.
Retirement fund coverage in South Africa
It is currently voluntary for employers to put retirement savings schemes in place for employees. In 2005, the
Department of Social Development estimated that 5.4 million of the 11.3 million employed South Africans did
not have any retirement savings arrangements in place. Alexander Forbes believes that this fi gure has not
changed signifi cantly since that time. A large portion of these individuals are in the informal sector and are
low-income earners.
The retirement fund industry is currently characterised by low contributions, increasing annuity prices and
low preservation rates. The level of retirement income secured with retirement fund savings typically lies far
below the level of pre-retirement earnings. In addition, a large portion of the working population does not
have retirement savings in place. Alexander Forbes believes that the strong historical growth in pension
assets should continue over the next several years. In 2012, the penetration of pension assets reached
approximately 65% of GDP in South Africa ( source: Towers Watson Global Pension Assets Study), presenting
potential opportunities for fi nancial service organisations to provide increased services as pension assets
continue to grow.
The National Treasury is currently exploring ways to increase the number of workers in South Africa with
retirement savings plans in place. This may include enrolling all workers into some form of retirement
savings arrangement, with an option to opt-out.
Insurance coverage
True South Actuaries and Consultants and the Bureau of Market Research monitor the insurance gap in
South Africa. The insurance gap is defi ned as the difference between the insurance need and actual cover
whereby the insurance need is the amount of cover required to meet the need that is created by the death and
disability events.
The insurance gap has increased from R18.4 trillion in 2010 to R24.0 trillion in 2013, which includes
R9.3 trillion in respect of death and R14.7 trillion in respect of disability cover. This represents an increase of
between 9% and 10% per annum thereby exceeding infl ation by approximately 3% over the period.
The insurance gap in South Africa is presented in the tables below:
Insurance gap in 2010 Insurance gap in 2013
2010 insurance gap 2013 insurance gapDeath Disability Total Death Disability Total
(R billion) (R billion)
Insurance need 11 ,683 18 ,714 30 ,397 Insurance need 15 ,146 24 ,435 39 ,581
Actual cover (4 ,426) (5 ,563) (9 ,989) Actual cover (5 ,867) 7 ,280 1 ,413
Disability grant
cover – (2 ,014) (2 ,014)
Disability grant
cover – (2 ,414) (2 ,414)
Insurance gap 7 ,257 11 ,137 18 ,394 Insurance gap 9 ,279 14 ,741 24 ,020
Gap as % of
need 62% 60% 61%
Gap as % of
need 61% 60% 61%
Source: True South Actuaries and Consultants and the Bureau of Market Research.
54
Move from DB schemes to DC schemes
In South Africa, the shift to DC schemes began in the early 1980s, making the country an early mover in this
area. A survey by PricewaterhouseCoopers of the South African retirement funds market (as at May 2012)
indicated that 73% of the pension funds in South Africa are DC schemes, with a further 11% being hybrid
funds. Regulatory and accounting changes in recent years have focused corporates on the actual, ultimate
costs of providing employee benefi ts, particularly pension benefi ts. As a result, there has been a growing shift
away from DB schemes towards DC schemes.
The trend towards DC pension schemes has the effect of shifting responsibility for pension contributions and
investment risk from employers to individuals, although employers remain responsible for providing an
enabling environment for employees with an often compulsory membership requirement as a condition of
employment. In DB schemes, employees’ pensions are typically based on an employee’s number of years of
service and their fi nal salary. DB schemes calculate the benefi ts at retirement independently of the contributions
made and the investment returns. Such schemes may be in surplus or in defi cit, requiring contributions from
sponsoring employers, and are subject to mortality risk. As a result, the funding of the fi nal amount payable
on retirement is not certain and the employer assumes the risk of any shortfall.
On the other hand, in DC schemes, employers and employees make contributions to an employee’s pension
fund. The amount funded at retirement is determined by a number of factors, including the assets available at
retirement date, annuity rates, mortality and investment return. The employer’s liability is generally limited
to the contributions made, with the employee assuming the investment and mortality risk.
Increased individual member investment choice
With the move to DC schemes, individual member investment choices have typically become more complex,
leading to increased demand for personal investment advice, particularly among higher-paid executives.
Alexander Forbes believes that it is well positioned to benefi t from this trend towards further personalisation
of investment decisions given its access to a large base of employees. This, in turn, provides an opportunity to
provide fi nancial advice on a more holistic basis, including, for example, providing discretionary investment,
risk products and annuities.
Alexander Forbes has observed a trend towards increased awareness of governance and risk management
issues by both pension fund and employee benefi t trustees. Alexander Forbes believes that this trend will
continue to support and, to some extent, increase the need for retirement fund consulting, professional
services and advice.
Move towards pooled umbrella retirement funds
In South Africa, one of the consequences of the increase in compliance and fi duciary responsibilities, together
with the increased complexity of running pension funds, has been a greater use of pooled umbrella retirement
funds managed by professional trustees where an environment of shared costs exists. This trend is expected
to continue as the industry consolidates further and more regulations are put in place.
Market Size and Growth
Retirement fund consolidation
There has been signifi cant consolidation in the retirement fund industry in South Africa in recent years.
The number of registered retirement funds decreased from approximately 13 ,000 in 2005 to 5 ,855 as at
31 March 2013, of which 2 ,271 funds were active and the remainder were dormant. Over 60% of retirement
fund members are privately administered and funded in South Africa, creating an enabling environment for
Alexander Forbes to grow its presence. This reduction in the number of funds has been driven by consolidation
and an increase in use of umbrella retirement funds, highlighting the importance of an umbrella retirement
fund offering as corporates move from standalone funds to umbrella retirement funds.
As at 31 March 2013, Alexander Forbes was a market leader in the administration of pension funds in South
Africa based on the number of active retirement funds, with a market share of 18% of total active funds by
assets under administration ( source: FSB 2013 Annual Report).
Healthcare
In the healthcare industry, contributions to medical schemes are increasing at a faster rate than salaries due
to rapid increases in the costs of healthcare. Fewer employers now offer post-retirement medical benefi ts and
individuals may fi nd the increasing contribution rates on medical schemes unaffordable. There are also long-
term implications for retirement funding. For example, during the individual’s retirement years, income is
likely to reduce but the required level of medical cover is expected to increase.
In recent years, the number of medical schemes in South Africa has continued to decline, decreasing from
144 in 2000 to 92 in 2012 as a result of the continued amalgamation and liquidation activity (both voluntary
and involuntary). The number of open medical schemes has decreased by 22 compared to a decrease
of 30 restricted medical schemes during the 13-year period. The CMS is in favour of the amalgamation of
55
unsustainable medical schemes. This position by the CMS is very likely to accelerate consolidation in the
industry, which has already been seen in 2013.
The Alexander Forbes Health Diagnosis 2013/2014 highlighted that the top 15 schemes by number of lives
covered experienced signifi cantly different membership growth during 2012 when compared with 2011, with
eight schemes experiencing positive growth and the remaining seven experiencing a reduction in membership
numbers. Discovery and government Employees Medical Scheme, the largest open and restricted schemes,
respectively, both continued to grow their membership during 2012.
AFFS’ Competitive Environment
Standalone retirement funds administration
AFFS is a leading standalone retirement fund administrator by value of assets, with approximately R323 billion,
or 18%, of total assets under administration, as at 31 March 2014. Its largest competitors in South Africa
include Old Mutual Life Assurance and Sanlam Employee Benefi ts, which, as at 27 July 2013, had assets
under administration of R189 billion and R233 billion, respectively ( sources: Alexander Forbes analysis; FSB
fund list, July 2013).
The employee benefi ts administration industry is serviced by a number of key players, including the large life
insurers in South Africa (Old Mutual, Sanlam, Liberty, MMI), Absa, NBC and NMG, as well as self-administered
funds, such as Metal Industries and Eskom.
Umbrella retirement fund administration
According to the FSB and the Company’s internal analyses, AFFS is also a leading umbrella retirement fund
administrator by value of assets, with approximately R52 billion assets under administration, as at
31 March 2014. This includes assets held by the Alexander Forbes Retirement Fund (“AFRF”), Core Plan and
AF Access. Its largest competitors in South Africa include Liberty, Old Mutual Life Assurance and MMI.
Consultants and Actuaries
Alexander Forbes’ main competitors in the consulting and actuarial space include the leading players in the
fi eld, such as AON, Absa, Simeka and Towers Watson.
Healthcare
Healthcare consulting in South Africa is highly fragmented with the major players being NMG, Aon, PSG,
Absa, Eluleka/JLT and Towers Watson, as well as individual brokers, scheme-aligned brokers and union
brokers.
Investment Solutions Industry Drivers
Overview
The savings and investment market in South Africa derives most of its fl ows and stock of assets from individual
members and groups saving through retirement funds, collective investment schemes, insurance companies,
informal savings clubs and banks. The largest segments in this sector are retirement funds, insurance
companies and collective investment schemes.
Investment Solutions has been placed within the top 10 investment management fi rms by assets under
management for the past three years as shown in the Alexander Forbes Large Manager Watch Survey below:
December 2013 December 2012 December 2011
Company
TotalAuM
(R billion) No.
TotalAuM
(R billion) No.
TotalAuM
(R billion) No.
OMIGSA 570 1 491 1 472 1
Coronation 522 2 375 2 274 6
Investec 425 3 319 4 314 4
Allan Gray 419 4 245 5 320 3
SIM 413 5 241 6 347 2
Stanlib 393 6 325 3 293 5
Investment Solutions 243 7 208 7 178 8
Momentum AM 180 8 174 8 184 7
Momentum MoM 161 9 47 14 44 15
Prudential 157 10 88 11 102 9
Source: Alexander Forbes Large Manager Watch Survey.
56
Industry Value Chain
The various components of the industry and the complex value chain of marketing, consultation and
organisational hierarchy link the ultimate individual investors to the assets invested.
The key role players in this value chain are:
Player Role
Broker or investment advisor The role of the advisor is to help the client choose the most suitable
investment solution.
Packager/aggregator The product architect is responsible for packaging fi nancial services into
marketable investment products.
Distributor The distributor is the link between the asset owners as consumers and
the advisors as producers of investment products.
This link can take many forms depending on whether the sale is through
direct or indirect channels or if the distribution is internal or external.
Asset consultants These are fi nancial consultants, pension advisors and planners and trust
managers who operate in the interest of the asset owners and investment
buyers to screen investment products.
Investment buyers These are organised institutions which represent large pools of asset
owners to buy investment products on behalf of this group of consumers.
Asset owners/clients These are the ultimate consumers of the industry and the owners of the
investment product.
Market Trends
Net outfl ows from retirement funds
While the retirement fund sector has shown reasonable growth in assets under management, its growth is
largely attributable to market growth. Benefi t payments have consistently exceeded contributions to retirement
funds, resulting in a consistent net cash outfl ow situation for the industry.
The net cash outfl ow in the South African retirement funds industry between 2006 and 2011 has been as
follows:
YearOpening AuM
(1-Jan) ContributionsBenefi t
paymentsNet cash
fl owsMarket growth
Closing AuM(31-Dec)
(R million)
2006 1 ,283 ,921 81 ,156 (91 ,045) (9 ,889) 327 ,113 1 ,620 ,923
2007 1 ,620 ,923 91 ,157 (108 ,784) (17 ,627) 300 ,019 1 ,938 ,569
2008 1 ,938 ,569 98 ,991 (142 ,344) (43 ,932) (57 ,517) 1 ,924 ,984
2009 1 ,924 ,984 112 ,363 (136 ,250) (23 ,887) (73 ,872) 1 ,874 ,999
2010 1 ,874 ,999 129 ,006 (141 ,404) (12 ,398) 310 ,987 2 ,198 ,384
2011 2 ,198 ,384 142 ,650 (147 ,995) (5 ,345) 226 ,114 2 ,429 ,843
Source: FSB Annual Reports.
Net fl ows into collective investment schemes support shift to retail products
The growth of collective investment schemes as a preferred means of savings has shown better growth than
retirement funds. The collective investment schemes segment has been a benefi ciary of both positive market
growth and net infl ows.
57
The net cash infl ow into collective investment schemes between 2006 and 2011 has been as follows:
YearOpening AuM
(1-Jan) Sales RepurchasesNet cash
fl owsMarket growth
Closing AuM(31-Dec)
(R million)
2006 435 ,355 123 ,134 ( 377 ,073) 16 ,109 73 ,242 546 ,656
2007 560 ,125 135 ,525 ( 491 ,193) 8 ,430 37 ,875 653 ,463
2008 587 ,768 161 ,529 ( 527 ,809) 26 ,143 (52 ,222) 661 ,201
2009 596 ,664 147 ,675 ( 509 ,358) 23 ,551 28 ,610 786 ,117
2010 846 ,352 237 ,659 ( 737 ,787) 35 ,810 44 ,097 938 ,779
2011 917 ,882 235 ,842 ( 869 ,635) 12 ,034 24 ,027 1 ,011 ,053
Source: Association for Savings and Investment South Africa.
Regulation and legislation
The South African investment management industry is facing a number of legislative changes that are
expected to increase overall governance and operating costs. Over the longer term, the increased regulation
and costs may lead to signifi cant changes in the industry, with smaller and sub-scale players exiting the
industry through wind-downs or mergers and acquisitions, as is currently the case.
Shift from DB schemes to DC schemes
As South Africa has moved from DB schemes to predominantly DC schemes, the Group believes that scheme
members have acquired more fl exibility and developed a greater need for “life stage” relevant investments.
Gaps in pension advisory services became apparent, particularly among smaller pension funds that were
limited in their investment choices and also had limited resources to monitor and evaluate managers, and to
make informed decisions about changing managers when warranted.
As this shift from DB to DC schemes continues, there will be a greater demand for investment choice at an
individual member level, particularly for more sophisticated investors, which will benefi t the growth prospects
of Investment Solutions. In addition, the growing complexity in investment markets globally and increasingly
onerous legislation governing fi duciary responsibility is expected to make the “multi-manager” route more
attractive to trustees and individuals who generally lack expertise in the fi eld of investing. Multi-manager
platforms have the potential to address the needs of trustees and individuals who seek advice and
implementation. In addition, multi-manager platforms can reduce risk and provide benchmark-beating
performance through information and research.
Market Size and Growth
Multi-management, as an investment philosophy, has been present in South Africa for over 20 years and is
fi rmly entrenched as one of the ways in which institutional and retail investments are managed in South
Africa. All the major South African fi nancial conglomerates made up of banks and insurers under a single
common ownership have multi-manager operations. Some banks and insurers without a common ownership
have also built multi-manager operations as part of their investment management approach.
Based on the Alexander Forbes Survey of Asset Managers (June 2013), the value of assets managed by the
multi-manager industry increased from R363 billion in 2009 to R683 billion as at 30 June 2013. This translates
to a CAGR of approximately 17% against a CAGR of approximately 11% for the rest of the industry.
In South Africa, according to the South Africa Reserve Bank Quarterly Bulletin, the market for savings and
investments was estimated at R5 trillion as at 30 June 2013.
58
The approximate breakdown of the market is illustrated in the chart below:
Source: South African Reserve Bank Quarterly Bulletin, Q3 2013.
The savings pool in South Africa has grown ahead of GDP in the past decade, but there has been a marked
shift of assets from insurance companies to unit trusts. The pension fund market share remained relatively
stable, although assets of the government-owned Public Investment Corporation (“PIC”) grew faster than
private pension funds due to the increase in the number of government employees and their contributions,
which have been ahead of infl ation.
The revenue model of the market is dependent on assets under management, which is in turn affected by net
infl ows and outfl ows and capital market movements. Due to the size of the asset base, market movements have
been the dominant factor for the change in asset base.
Investment Solutions competitive environment
The competitive environment for Investment Solutions has a number of different players, each with slightly
different roles, as set out in the table below:
Type of competitor Offering Examples
Traditional multi-managers
Single asset managers
Asset consultants
• Offers similar services to Investment
Solutions but may be strong in
certain elements (e.g., creating
portfolios, investment administration
or bespoke consulting)
• Offers a client the choice between a
multi-managed or a single manager
solution
• Performs some of the functions
that Investment Solutions does
(e.g., manager research, portfolio
construction or the monitoring of
managers)
• Symmetry Multi-Managers
• Momentum Managers of
Managers
• Sygnia
• 27Four
• Novare
• Allan Gray
• Coronation
• Investec
• Prudential
• Stanlib
• Old Mutual
• Sanlam
• Towers Watson
• Riscura
• Old Mutual Actuaries and
Consultants
• Ginsberg Asset Consulting
• Novare
59
AFI Industry Drivers
Overview
The insurance sector in South Africa is characterised by extensive inter-relationships and dependencies,
particularly in life insurance companies and banks. In addition to cross-ownership, banks also provide a
distribution channel for insurance products. However, most distribution still remains via agents and brokers,
whether tied to the insurance company or independent and servicing the wider market. Direct insurers, for
example, Outsurance, MiWay and the Telesure group, have increased their market share signifi cantly in the
last number of years. For direct non-life insurance companies, distribution is often also through telesales and
advertising.
The insurance sector is regulated by the insurance division of the FSB.
Market Trends
Insurance cycle
Pricing pressure in insurance is primarily driven by the availability of capital to fund underwriting. The
insurance industry has been in a “soft” cycle since 2004. Prices remain soft for large corporate placements,
but have shown signs of stabilising for commercial business and hardening for personal lines. The insurance
cycle on personal lines has been negatively impacted by the devaluation of the local currency. Severe weather
events, especially hailstorms in the Gauteng Province of South Africa as well as recent fl ooding in the Western
Cape, have also contributed to the hardening of the personal lines insurance cycle.
Based on estimates by Business Monitor International (“BMI”) and the FSB, the South African insurance
market is expected to continue to grow and will be driven by sustained economic growth and increased
penetration into previously untapped segments of the population. In particular, Alexander Forbes expects that
the motor and commercial property lines will be among the stronger growing product categories given the
fact that approximately 60% of the vehicles in South Africa remain uninsured ( source: South African Insurance
Association, April 2014).
Economic growth
Major growth opportunities for insurance hinge on a vibrant economy whereby corporates acquire assets and
spend money on improving their infrastructure. From a personal lines perspective, motor vehicle sales yielded
a positive year-on-year gain for the fourth consecutive year in 2013. Although declining, levels of household
debt continue to place fi nancial strain on certain consumers; this is evident from the high level of client churn
due to consecutive failed debit orders.
Growth in the black middle class
The growth in South Africa in the middle and upper classes (particularly, the emerging black middle class)
has helped to grow substantially the volume of new clients brought onto personal lines short-term insurance
products. According to the UCT Unilever Institute of Strategic Marketing, South Africa’s black middle class
has more than doubled between 2004 and 2012, growing from 1.7 million to 4.2 million. The black middle
class is considered to provide a range of key functions for the economic growth and development of the
country. The existing black middle class clients are adding new assets to their portfolios, resulting in higher-
than-expected organic growth. The potential business growth that the Group anticipates could be adversely
impacted in the short term to the extent that tightening economic conditions cause South Africans and, in
particular, members of the emerging black middle class, to reduce spending on personal lines insurance
products or defer decisions regarding investments.
Slowing trend in penetration
When expressed as a percentage of GDP, South Africa’s non-life insurance penetration of approximately 2.8%
as at January 2014 ( source: World Insurance in 2012, Swiss Re) is relatively high, given the low per capita
incomes of the vast majority of the population. The general trend in penetration has been decreasing due to a
combination of factors, one of which being competitive pressures. Large insurance companies have leveraged
brands, distribution networks, strong balance sheets and capability to develop innovative products that suit
the needs of the targeted customers. The non-life insurers have also had to compete on price.
Movement towards compulsory short-term insurance
Only 35% of vehicles on South African roads are insured, according to the April 2014 report by South African
Insurance Association mentioned above. The industry is currently in discussions with regulators regarding
implementing compulsory third-party property and damage insurance. Should this come into effect, this is
likely to have a material impact on premium fl ows and pricing within the short-term insurance industry.
Competitive landscape
In both the life and non-life insurance segments in South Africa, most of the players are tied, whether by
shareholding or other long-standing commercial relationships, to the major diversifi ed fi nancial services
60
groups. Of the large insurers, Mutual & Federal is wholly-owned by Old Mutual, Sanlam has a 58% shareholding
in Santam and RMI has a 90% shareholding in Outsurance. Hollard is the largest privately-owned insurance
company in South Africa (source: the South African Insurance Industry Survey by KPMG, August 2013). The
market is dominated by these four large insurers, with Santam, Mutual & Federal, Outsurance and Hollard
having an approximately 51% market share based on gross written premiums in 2012. Even though the
market is open to foreign competition, Zurich is the only multi-national corporation to have a signifi cant
market share in the non-life insurance sector, through Zurich South Africa with an approximately 5.3%
market share based on gross written premiums in 2012.
The following table shows the market shares of the top 10 non-life insurers based on gross written premiums
in 2012. The short-term insurance market in South Africa is led by Santam, which had a market share of
23.1% in 2012.
Company Market share
Santam 23.1%
Mutual & Federal 10.5%
Outsurance 9.8%
Hollard 7.8%
Guardrisk 6.5%
Absa 6.2%
Auto & General 6.0%
Zurich 5.3%
Centriq 3.0%
Etana 2.8%
Other 19.1%
Note: AFI is included in “Other”.
Source: The South African Industry Survey 2013, KPMG.
AfriNet Industry Trends
Botswana
As governments in Africa continue the drive to ensure wider access to fi nancial services for their populations,
key stakeholders in Botswana (including the government) have been investigating the potential of
collateralising mortgage fi nance with pension or provident fund contributions.
Kenya
The new National Social Security Fund Act (the “NSSF Act”), which came into effect on 31 May 2014, reformed
the pensions system in Kenya, introducing mandatory contributions at a higher level than under previous
regulation.
The NSSF Act increased the coverage, range and level of benefi ts provided by the National Social Security
Fund (“NSSF”), and introduced measures to strengthen the corporate governance of the NSSF. The Provident
Fund was closed and ring-fenced and the NSSF Act introduced two funds: a Pension Fund (to cover all
employed persons in the formal sector who are above 18 years) and a new Provident Fund (to cover self-
employed persons and workers in the informal sector who wish to make voluntary contributions).
Namibia
Similar to other sub-Saharan African countries, the Namibian government has been focused on improving
access to fi nancial services. The small and medium enterprises sector growth in Namibia has been considered
as underpinning economic growth and Alexander Forbes is looking to position its umbrella fund offerings,
personal lines insurance and, potentially, business insurance offerings to capture this growth.
UK Employee Benefi ts Industry Trends
Employee benefi ts remain a key part of companies’ efforts to attract and retain employees, with pensions
representing the largest part of that expenditure. Similar to the trend in South Africa, the UK pensions
industry has been experiencing a shift from DB to DC pension schemes as employers manage their risk of
exposure to pensions, and in particular, DB pension schemes, where the sponsoring employer ultimately
remains liable for investment and longevity risk. The 2013 Annual Survey of Hours and Earnings by the UK
Offi ce for National Statistics estimates that active membership of DB pension schemes fell from approximately
46% of employees in 1997 to approximately 28% in 2012. According to the National Association of Pension
Funds in 2012, only around one in eight DB schemes were still open to new members in the private sector, as
opposed to two in five in 2005. The occupational DC pension market is estimated to comprise approximately
66% by assets with contract-based schemes accounting for the balance ( source: UK Offi ce for Fair Trading).
61
The following table shows the proportion of active members of private sector occupational pension schemes by
the scheme’s foundation date, status and benefi t structure:
Defi ned Benefi t Defi ned ContributionUnited Kingdom Open DB Closed DB Open DC Closed DC
Before 1980 49% 61% 5% 6%
1980 – 1999 15% 22% 42% 67%
2000 and after 35% 17% 53% 27%
(1) Excludes schemes with fewer than 12 members.
(2) Proportions are calculated excluding non-response.
Source: Occupational Pension Schemes Survey, Offi ce for National Statistics, 2011.
Although a number of DB funds are closed to new entrants and future accrual, the membership base of
DB pension schemes is still signifi cant and DB pensions schemes are expected to continue to be a key part of
the sector, requiring ongoing actuarial, investment and administration services. Since legislative changes in
2006, sponsoring employers have been under increased pressure by the UK Pensions Regulator to fully fund
DB pension liabilities and, in particular, any defi cits. This has led to increased demand for consulting advice
and de-risking solutions, including buy-in and buy-out solutions. This trend may not continue as DB pension
funds decline over the long term as benefi ts are paid out to benefi ciaries or as their pension liabilities are
bought out.
DC pensions have increased as employers seek solutions that reduce their risk of providing pensions. In
addition, the UK government introduced legislation under which employers are required to automatically
enroll eligible workers into a company pension scheme if they are not already in one (“Auto-enrolment”). The
staging dates for companies having to provide for Auto-enrolment commenced in 2012 for the largest
companies and will continue until 2017, by which stage all companies in the UK will have to provide Auto-
enrolment. By 2018, the minimum pension contribution, unless an individual has opted out, will be 8% of an
individual’s salary. This could increase DC assets to as much as £900 billion by 2050, according to the Pensions
Policy Institute in a 2009 report.
Individuals can draw down on their pensions from retirement age, which is currently 55 years. The UK
government has recently announced changes to UK annuity rules which will give retirees complete fl exibility
over how the money in their DC pension balances can be accessed. The Group expects this to result in annuities
becoming a discretionary purchase and is likely to increase deferrals of annuitisation and use of drawdown
over time which would have a positive effect on LCP in the short term.
These changes in the UK pension industry, along with Auto-enrolment and changes to remuneration bases for
advisors via the Retail Distribution Review, continue to support demand for pension and investment advice
from employee benefi ts consultants.
62
REGULATION
Financial Advisory and Intermediary Services Act, 2002
The FAIS is the primary legislation governing the fi nancial services industry in South Africa.
FAIS requires all persons or entities seeking to provide “fi nancial services” (which comprise advice,
intermediary services or both) in respect of a broad spectrum of fi nancial products to clients or prospective
clients in South Africa to be formally registered as fi nancial services providers with the FSB.
Once registered, FAIS and its subordinate legislation (including formal codes of conduct) impose a number of
ongoing compliance requirements (including solvency requirements) and restrictions on fi nancial services
providers. FAIS-registered fi nancial services providers are required to report extensively, on an annual basis,
to the FAIS Division of the FSB, which has broad powers to take action against non-compliant providers.
A number of entities in the Group are registered fi nancial services providers under FAIS, including AFFS,
AF Life, AFIC, Alexander Forbes Financial Planning Consultants Proprietary Limited (“AF Financial
Planning”), AFICA, AF Health, AFAS and Alexander Forbes Direct Proprietary Limited. Each of these entities
is accordingly bound in its business operations by FAIS and its subordinate legislation (including the applicable
codes of conduct).
Solvency Assessment and Management
During 2009, the FSB announced its intention to adopt a new risk-based solvency regime for insurers. Based
largely on the European “Solvency II” directive (with changes, where necessary, to adapt to the South African
environment), the proposed SAM regime is divided into three “pillars”: (i) capital adequacy, (ii) governance and
risk management and (iii) reporting and disclosure. Upon implementation (currently expected to take place
on 1 January 2016), SAM will apply to all insurers registered as such in South Africa, both short and long
term, operating on a commercial basis.
Pillar I of SAM seeks to impose more stringent regulatory requirements in respect of the capital structure
implemented and maintained by insurers, by imposing quantitative requirements compelling insurers to hold
and maintain adequate solvency capital in relation to the risks faced by such insurers on a day-to-day basis.
Pillar I’s requirements represent a major shift from the current solvency requirements imposed on insurers
by the FSB. Pillar I further seeks to provide for effective group supervision (or consolidated supervision),
which is not provided for under the existing South African insurance framework.
The fi rst step toward the implementation of the SAM regime was the Insurance Laws Amendment Bill, 2013
(“ILAB”) which proposed amending each of the STIA and LTIA. ILAB provided extensively for increased
governance and risk principles and also set out interim measures for consolidated supervision. National
Treasury announced on 29 April 2014 that ILAB, as an outstanding bill, would lapse with the expiry of
Parliament’s term leading up to the national elections on 7 May 2014 and accordingly that the Minister of
Finance had requested that ILAB be withdrawn from the national assembly (pending acknowledgement by
Parliament). The announcement stated further that National Treasury and the FSB were considering a
combination of alternative interim measures to give effect to the intention of ILAB, including through the
Financial Sector Regulation Bill, 2013, the use of board notices issued under the LTIA and STIA and proposed
amendments to FAIS.
The interim measures in advance of the implementation of the SAM framework, specifi cally the introduction
of the revised CAR for long-term insurers by the FSB, took effect in February 2010 and in January 2012 for
short-term insurers and impact the following entities within the Group: AFIC, Investment Solutions, AF Life
and Superfl ex.
Following the postponement of the international equivalent Solvency II regime in Europe, the implementation
date of SAM in South Africa has been revised to 1 January 2016. The impact of these interim measures for
both long-term and short-term insurers, combined with liquidity requirements introduced for FAIS-registered
businesses, resulted in signifi cant additional cash resources having to be retained by the Group. The Group is
currently in compliance with all the additional capital requirements. The various insurance entities in the
Group have invested signifi cant time and effort into developing internal risk-based capital models, along with
own risk and self-assessment processes and procedures, in order to be fully compliant with the requirements
of SAM when they become effective. Given the fact that in certain insurance entities, very little or no
underwriting risk is assumed by the Group, the SAM framework is generally expected to have a favourable
impact. However, it is unlikely that the Group will enjoy any relief of regulatory capital requirements from
these efforts until 2016 when SAM becomes applicable.
National Treasury announced on 29 April 2014 that the effective date for the implementation of the formal
framework for group supervision will be announced later in 2014. The capital structure of the Group is being
reviewed to ensure that it will meet the relevant long-term regulatory and operational requirements.
63
Even though consolidated supervision has not yet been formally introduced by the FSB, in designing the
Restructure that was completed on 31 March 2014, the Group anticipated a manageable capital shortfall
compared to the proposed minimum requirements for consolidated supervision. Applying the latest guidance
available from the regulator, this shortfall amounted to R305 million as at the date of the Restructure. This
negative position is expected to be eliminated by a portion of the proceeds from the subscription for the
Subscription Shares and as the Group generates positive operational cash fl ows such that the Group will be in
full regulatory compliance when consolidated group supervision is implemented by the FSB (currently
expected to take place on 1 January 2016).
Twin Peaks
The Financial Sector Regulation Bill, 2013, is the fi rst in a series of bills intended to give effect to the “twin
peaks” model of fi nancial regulation in South Africa. The implementation of the twin peaks reform is intended
to be a two-phase process.
The fi rst phase will result in the establishment of two regulators, being:
• the new Prudential Authority within the South African Reserve Bank, which will be responsible for the
safety and soundness of financial institutions carrying out dual-regulated activities, including insurers
and banks; and
• the Market Conduct Authority, which will be responsible for protecting customers of financial firms and
improving the way FSPs operate.
In the second phase, the existing sectoral legislation will be gradually amended or replaced with laws that
more appropriately align with the twin peak framework. The fi rst phase will see very few changes to existing
legislation regulating the sector.
The Financial Sector Regulation Bill also creates the concepts of “mono-regulated” and “dual-regulated”
institutions. “Mono-regulated” entities undertake activities that only give rise to market conduct regulation
(e.g., entities that provide fi nancial advisory and intermediary services and pension funds) whereas dual-
regulated entities are those that undertake activities that give rise to both prudential and market conduct
regulations (e.g., long- and short-term insurance providers).
The bill also seeks to: enhance coordination and cooperation between regulators, balance operational
independence and accountability of regulators, establish a crisis management and resolution framework,
create a fi nancial services tribunal, and strengthen enforcement mechanisms and ombudsman systems.
Treating Customers Fairly
In March 2011, the FSB issued its TCF roadmap. Since publication of the TCF roadmap, a number of updates
have been provided by the FSB in respect of its move toward the implementation of TCF, elements of which are
inextricably linked to the intended shift in the South African fi nancial services sector to the “twin peaks”
regulatory model, which is characterised by separate prudential and market conduct regulators.
In essence, TCF aims to introduce concrete market conduct standards for greater consumer protection in
the fi nancial services sector, with the framework being based on six explicit customer fairness outcomes,
as follows:
Outcome 1: Customers are confi dent that they are dealing with fi rms where the fair treatment of customers is
central to the fi rm culture.
Outcome 2: Products and services marketed and sold in the retail market are designed to meet the needs of
identifi ed customer groups and are targeted accordingly.
Outcome 3: Customers are given clear information and are kept appropriately informed before, during and
after the time of contracting.
Outcome 4: Where customers receive advice, the advice is suitable and takes account of their circumstances.
Outcome 5: Customers are provided with products that perform as fi rms have led them to expect, and the
associated service is both of an acceptable standard and what they have been led to expect.
Outcome 6: Customers do not face unreasonable post-sale barriers to change a product, switch a provider,
submit a claim or make a complaint.
Compliance with TCF requires fi nancial services fi rms to be able to show that the fair customer treatment
concept is fi rmly embedded into the fi rm’s culture across all levels (and at all stages of the customer relationship),
to identify and manage risks of unfair customer treatment and to demonstrate concrete improvements in
customer service and satisfaction. Firms will further be required to have controls and measures in place in
order to evidence true delivery of the six fairness outcomes.
Retail Distribution Review
The FSB is currently assessing remuneration models of fi nancial service providers as part of its broader cross-
sector Retail Distribution Review. One aspect of the review relates to differentiating between different levels
64
of intermediaries, including the introduction of the term “limited advice” which would be determined by the
status of the intermediary. This means that intermediaries will be required to declare themselves to a
prospective policyholder as either an insurer agent (a tied agent or independent broker) or an independent
fi nancial advisor.
Financial Intelligence Centre Act, 2001
The Financial Intelligence Centre Act, 2001 (Act 38 of 2001) (“FICA”), is South Africa’s main anti-money
laundering legislation.
FICA imposes the majority of its key obligations on “accountable institutions”, which are entities that have
been designated as such under Schedule 1 to FICA. Accountable institutions are required (among other
obligations) to formally register as such with the Financial Intelligence Centre (“FIC”), to identify and verify
the identity of their clients in the prescribed manner, to report certain transactions or business dealings to the
FIC, and to keep records of client relationships and transactions in the prescribed manner and for the
prescribed period. In addition to the obligations imposed by FICA on accountable institutions, FICA further
requires any person conducting or involved with the conduct of a business to report suspicious and unusual
transactions to the FIC.
Strict penalties are prescribed under FICA for non-compliance with the FICA provisions.
A number of entities within the Group are “accountable institutions” and will need to comply with FICA.
Short-Term Insurance Act, 1998
The STIA regulates the short-term insurance industry in South Africa, requiring the formal registration of
short-term insurers with the FSB and constituting the primary statutory framework for such insurers
following registration.
The STIA strictly regulates the activities of and the conduct of business by registered short-term insurers. It
subjects many of their actions and activities to the prior, formal approval of the Registrar of Short-Term
Insurance and imposes extensive requirements and restrictions on short-term insurers, including in respect
of capital adequacy and solvency, asset spread, borrowing and encumbrance, and investment.
As a short-term insurer registered as such with the FSB, AFIC is bound by the provisions of the STIA, as
amended from time to time, as well as by the provisions of regulations issued under the STIA.
Long-Term Insurance Act, 1998
The LTIA regulates the long-term insurance industry in South Africa, requiring the formal registration of
long-term insurers with the FSB and constituting the primary statutory framework for such insurers
following registration.
The LTIA strictly regulates the activities of, and the conduct of business by, registered long-term insurers. It
subjects many of their actions and activities to the prior, formal approval of the Registrar of Long-Term
Insurance and imposes extensive requirements and restrictions on long-term insurers, including in respect of
capital adequacy and solvency, asset spread, borrowing and encumbrance, and investment.
As long-term insurers registered as such with the FSB, AF Life, Investment Solutions and Super Flex are
bound by the provisions of the LTIA, as amended from time to time, as well as by the provisions of regulations
issued under the LTIA.
Health Insurance
AF Life and Investment Solutions are registered as long-term insurers and are qualifi ed to provide long-term
disability cover. AFIC is registered as a short-term insurer and is thus able to provide accident and health
insurance policies. The Insurance Laws Amendment Act, 2008, introduced provisions in the LTIA and the
STIA that sought to facilitate a clear demarcation between what constituted insurance business (i.e., health
policies and accident and health policies) and what constituted the business of a medical scheme, in instances
where there appears to be uncertainty and ambiguity in the legislative framework.
On 29 April 2014, the draft regulations under the LTIA and STIA were published for comment. The draft
regulations relate to what validly constitutes a “health policy” and an “accident and health policy” under the
respective legislative instruments, and contain safeguards in an effort to ensure that the design, sale and
marketing of health insurance products do not undermine the social solidarity principles in medical schemes.
The proposed safeguards are as follows:
• the prohibition on health insurance policies from unfairly discriminating against any person on the
grounds of age, gender and other criteria;
• enhanced product disclosure/marketing requirements;
• alignment of broker commission between health insurance and medical scheme products;
65
• enhanced regulatory reporting and monitoring;
• product standards which limit policy benefits; and
• limitations on bundled type health insurance products which replicate medical schemes.
Final regulations are expected to be published by September 2014.
The draft regulations will further have to be read in line with the Financial Services Laws General Amendment
Act, 2013 (“FSLGA”), which, once effective in this respect, will broaden the defi nition of “business of a medical
scheme” under the Medical Schemes Act, 1998. Under the amended defi nition, health insurance products may
fall within the new broader defi nition of “business of a medical scheme” and the insurance company providing
the product would have to register as a medical scheme under Section 24 of the Medical Schemes Act.
The FSLGA became effective on 28 February 2014, with a few exceptions, but the National Treasury
recommended to the Parliament in 2013 that the date of implementation of the amendment to the defi nition of
“business of a medical scheme” be delayed to late 2014, when the fi nal regulations relating to “health policy”
and “accident and health policy” under the LTIA and the STIA, respectively, are expected to take effect.
Retirement Fund Administration
Under South African law, all retirement funds (other than certain statutory or public service funds) must be
registered under the PFA. Upon registration they obtain juristic personality, that is, they become corporate
entities independent of their founder or participating employers and members. Only registered retirement
funds may conduct retirement fund business in South Africa.
The table below sets forth the details of the registered funds of the Group:
Fund No. Name Type of fund Administrator
37906 Alexander Forbes Benefi ciary Fund Private Fairheads Benefi t Services
Proprietary Limited
37095 Alexander Forbes Core Plan (Pension Section) Underwritten AF Life
37094 Alexander Forbes Core Plan (Provident Section) Underwritten AF Life
29650 Alexander Forbes Past Service Pension Fund Private AFFS
37722 Alexander Forbes Preservation Fund (Pension
Section)
Underwritten AF Life
37718 Alexander Forbes Preservation Fund (Provident
Section)
Underwritten AF Life
28358 Alexander Forbes Provident Fund No. 2 Private AFFS
37525 Alexander Forbes Retirement Fund (Pension
Preservation Section)
Underwritten AF Life
34768 Alexander Forbes Retirement Fund (Pension
Section)
Underwritten AF Life
37523 Alexander Forbes Retirement Fund (Provident
Preservation Section)
Underwritten AF Life
34766 Alexander Forbes Retirement Fund (Provident
Section)
Underwritten AF Life
37917 Alexander Forbes Unclaimed Benefi t Pension
Preservation Fund
Underwritten AF Life
37916 Alexander Forbes Unclaimed Benefi t Provident
Preservation Fund
Underwritten AF Life
38078 Investment Solutions Pension Preservation Fund Underwritten Investment Solutions
38079 Investment Solutions Provident Preservation Fund Underwritten Investment Solutions
38080 Investment Solutions Retirement Annuity Fund Underwritten Investment Solutions
Employers who offer retirement benefi ts to employees are required to subscribe to a registered retirement
fund (a multi-employer retirement fund or an existing group retirement fund) for that purpose or to register
a new retirement fund.
The PFA also prohibits the provision of administration services to retirement funds without a licence issued
by the Registrar of Pension Funds in terms of Section 13 of the PFA. The entities in the Group which render
66
administration services to AFRF and to other retirement funds must hold such a licence. The PFA therefore
not only regulates the registration of retirement funds, it also regulates the conduct of retirement fund
business, the approval or removal of a retirement fund administrator by the pension funds regulator, the
collection of retirement fund contributions, the payment of benefi ts by a retirement fund and the reporting
obligations of a retirement fund.
The Conditions for the Administration of Pension Funds, 2002, regulate more specifi cally administration
services and the agreements under which they are rendered. These Conditions stipulate the content of an
administration agreement, the terms for the termination of an administration agreement, the appointment of
an administrator’s auditors, the procurement of fi delity fund insurance by an administrator, management of
administrators’ trust accounts and the annual reporting obligations of an administrator.
Financial Services Laws General Amendment Act
The FSLGA became effective in South Africa on 28 February 2014, with a few exceptions, one of which
includes Section 31 of the FSLGA, which amends the PFA by empowering the Registrar of Pension Funds to
prescribe criteria for fi nancial soundness. Section 31 of the FSLGA will come into effect on 29 August 2014.
FSLGA contains, among others, the following amendments which are relevant to the Group:
• If a board member becomes aware of any matter which may seriously impair the financial stability of a
fund the Registrar of Pension Funds must be informed in writing.
• New protections are created for whistle-blowing trustees, principal officers, administrators, valuators,
other officers and employees of a fund.
• The Registrar of Pensions Funds will prescribe criteria that retirement funds and their administrators will
need to abide by in their communication with members.
• The FSLGA provides for the personal liability of directors of employer companies in relation to the non-
payment of retirement fund contributions as well as criminal liability, where Section 13A is not complied
with (the monitoring of such compliance is often outsourced to administrators).
• The amendments make it possible for retirement funds to be placed under business rescue.
• The FSLGA confirms that a retirement fund is not allowed, without the approval of the Registrar of Pension
Funds, to hold shares in any entity which results in the fund controlling that entity.
• The FSLGA allows for reasonable expenses to be taken into account in determining the fund credit of the
members, which is useful for preservation and beneficiary retirement funds, where there are no ongoing
contributions from which expenses can be deducted.
Taxation Laws Amendment Act, 2013
The Taxation Laws Amendment Act, 2013 (“TLAA”), promulgated on 12 December 2013, gives effect to many
of the tax proposals announced in the 2013 South African Budget Review. The TLAA as it applies to the below
matters will come into effect from 1 March 2015:
Disability and Income Protection Policies
Currently, two forms of disability insurance plans are offered to individuals: capital protection and income
protection. The tax outcomes of each differ in terms of premiums and pay-outs. In the case of capital protection
plans, cover exists to protect individuals against the loss of the individual’s income earning capacity (e.g.,
through loss of a limb or mental capacity). In such plans, no deduction is available in respect of premiums
paid, but there is no tax payable in respect of insurance policy pay-outs. In the case of income protection plans,
cover exists to protect individuals against the loss of future income (focusing on the negative income impact
of the disability rather than the disability itself). In such plans, premiums are deductible but policy pay-outs
are taxable.
The TLAA will align the tax treatment of life and disability premiums and pay-outs, regardless of whether the
policy is aimed at capital or income protection. Premiums paid by natural persons in respect of life, disability
and severe illness policies will no longer be deductible if the policies are aimed at income protection. However,
all pay-outs on life, disability and severe illness policies will be tax-free irrespective of whether the pay-out
takes the form of a lump sum or an annuity. The same dispensation will apply in the case of disability policies.
Premiums paid by employers in respect of an employer-provided insurance policy for the benefi t of employees
will be deductible by the employer, as long as the premiums are taxed as a fringe benefi t in the hands of
employees. As the employee is taxed on the premium (with no subsequent deduction available), the policy pay-
outs will be free from tax.
There will be no transitional period for current policy-holders and premiums will no longer be eligible for
deduction even if the plans are pre-existing. However, all policy pay-outs will be tax-free even if the policy
previously generated deductible premiums.
67
Retirement Reforms
The TLAA retirement reforms will impact individuals, employers and retirement funds. Under the TLAA,
individual members will receive a uniform deduction for their aggregate contributions regardless of whether
the contribution is to a pension, provident or retirement annuity fund. Deductible contributions will be subject
to an annual percentage limit and a monetary limit.
The amount of contributions deductible by an individual in a year of assessment will not be allowed to exceed
the lesser of R350 ,000 or 27.5% of the greater of the individual’s remuneration or taxable income (excluding
retirement lump sums and severance). Contributions in excess of these limits may be rolled forward to future
years where the amounts will again be deductible together with contributions made in that year, but subject
to the limits applicable in that year. However, if any contributions have not been deducted as at retirement, the
nominal value will be available to be set-off against any lump sum to determine the taxable portion of the lump
sum, or will be available on assessment to reduce the tax payable in respect of compulsory annuities.
Employer contributions to all approved retirement funds will be deductible by the employer against income.
The deduction will effectively be unlimited and will be available regardless of whether the fund allocates the
contribution to a current or a retired employee. However, no fringe benefi t will arise in the case of an employer
contribution for the benefi t of a retired member of the fund.
Employer contributions to all approved retirement funds for the benefi t of an employee-member will be taxed
as a fringe benefi t in the hands of the employee-member, but will be deemed to be contributed by the employee-
member thereby being potentially deductible in the hands of the employee-member, subject to the above limits.
The value of the employer contributions for fringe benefi t tax purposes will depend on whether the contributions
are in respect of a DC component or DB component of a fund. Where contributions are made to a DC component,
the cash value of the contribution that pertains to the employee will be included as a taxable fringe benefi t for
that employee. The fringe benefi t tax on contributions made to a DB component will be determined by applying
a special formula. There is draft legislation contained in the Draft Taxation Laws Amendment Bill, 2014
(together with accompanying draft regulations), released on 10 June 2014, which contains proposals to
amend this formula.
The TLAA provides that the same mandatory annuitisation requirements that are currently applicable to
pension funds and retirement annuity funds be applied to provident funds. More specifi cally, any person
retiring from a provident fund or provident preservation fund will not be able to receive a lump sum upon
retirement of more than one-third of their retirement interests. In other words, a mandatory compulsory
annuity will be required for the remaining two-thirds of their retirement interests (pre-retirement interests
remain free from any mandatory compulsory annuitisation). The vested rights of current provident fund
members will be protected. Balances in provident funds as at 1 March 2015 (and any subsequent growth
thereon) need not be annuitised. Furthermore, if a provident fund member is older than 55 years of age as at
1 March 2015, the mandatory annuitisation requirements will not apply to contributions made (and any
growth thereon).The mandatory annuitisation requirements will therefore only affect new contributions for
persons under the age of 55 as at 1 March 2015. Provident funds must maintain separate accounts in respect
of a member under the age of 55 as at 1 March 2015, in order to separate pre-1 March 2015 contributions and
any growth thereon from post-1 March 2015 contributions and related growth. The de minimis exception in
respect of the two-thirds annuitisation requirement (currently R75 ,000) will increase to R100 ,000 for all
retirement funds.
Due to the alignment of the mandatory annuitisation requirements between all retirement and preservation
funds, the transfer of retirement savings to provident and provident preservation funds from other funds (to
the extent that such transfer is allowed) will be free from tax in all instances.
Data Protection
Data protection in South Africa will be regulated under the POPIA when it comes into effect. POPIA was
passed by Parliament and signed by the President in late 2013. Certain non-operative provisions of POPIA
came into effect on 11 April 2014. The operative provisions of POPIA will come into effect on a date to be set
by the President.
POPIA is a comprehensive privacy and data protection statute, which will impose obligations on any companies
(“data controllers” (with a data controller being defi ned in POPIA as a “responsible party”)) which collect and
hold certain types of personal information relating to individuals (including customers and employees) and in
certain cases legal entities. It will accordingly apply to all South African members of the Group.
Under POPIA, data controllers may only process personal data, including by collecting, storing, organising,
using and disseminating such data, under certain conditions. Data controllers are required to adhere to
various principles, including that personal information may only be collected for a specifi c purpose and used
only for that purpose and related purposes, that personal information must be kept up-to-date, and that
adequate security safeguards must be put in place by the data controller and any data processor (defi ned in
POPIA as an “operator”) who acts on its behalf. POPIA imposes specifi c requirements in relation to the cross-
border transfer of personal information, where personal information collected in South Africa is transferred
out of the country to another data controller.
68
The Information Regulator will be responsible for enforcing compliance with the statute. The Information
Regulator may impose administrative fi nes of up to R10 million where a data controller fails to comply with
an enforcement notice. Non-compliance with an enforcement notice is also a criminal offence.
Black Economic Empowerment
B-BBEE is a policy of the South African government, which is aimed at increasing participation by previously
disadvantaged South Africans in economic activities. The B-BBEE Act is the primary legislation through
which this B-BBEE policy is implemented. In terms of the B-BBEE Act, B-BBEE consists of measures and
initiatives that are aimed at increasing levels of equity ownership by black people in businesses operating in
South Africa, increasing the numbers of black people who participate in management roles in business,
improving the skills of black employees, assisting small and medium businesses that are majority-owned by
black people, procuring goods and services from businesses that are good contributors to B-BBEE and
corporate social investment.
The B-BBEE Act provides that B-BBEE is a factor which must be taken into account by all government
departments at national, provincial and municipal level and government agencies when procuring goods and
services, issuing licences or concessions, selecting partners from the private sector or disposing of state
assets. However, the B-BBEE Act does not impose any hard requirements that businesses must achieve a
certain level of B-BBEE or adopt particular B-BBEE initiatives. Instead, levels of B-BBEE are measured on the
basis of a scorecard and the scores achieved by businesses can then be compared. As such, B-BBEE is a
commercial imperative for most businesses operating in South Africa, particularly those who deal with the
public sector.
The Minister of Trade & Industry has published various Codes, including certain sector-specifi c Codes, under
the B-BBEE Act. These Codes set out the details of how B-BBEE scores are measured on each of the different
elements identifi ed above, namely ownership, management, employment equity, skills development,
preferential procurement, enterprise and supplier development and socio-economic development. Companies
are scored in terms of a scorecard set out in the Codes (the “Scorecard”) on the extent to which they meet the
specifi ed targets. General, non-sector specifi c Codes (the “General Codes”) were fi rst published under the
B-BBEE Act in 2007. A revised version of these General Codes was published in 2013 and will come into effect
in April 2015.
Although there is no legal obligation for a private enterprise to comply with the Codes, it is important for
companies that wish to do business with the public sector or obtain licences or concessions from the government
to ensure that they score as high as possible in terms of the Scorecard. B-BBEE also has a cascading effect,
even where a particular company does not interact with the government or the public sector, as in order to
score highly on the procurement element of the Scorecard, companies need to ensure that as many of their
service providers as possible also score highly on the Scorecard and will therefore give preference to service
providers who have good B-BBEE credentials. Compliance with the Codes is therefore often more of a
commercial imperative than a legal one.
The B-BBEE Act also makes provision for the publication of sectoral charters and Codes to regulate the
implementation of B-BBEE in a particular sector. A sector Code published under Section 9 of the B-BBEE Act
is itself a Code that is binding and that must be applied by all businesses operating in the relevant sector. Such
sector Codes are required to impose targets that are in accordance with the General Codes, although they can
deviate from the targets set out in the General Codes if good reason is shown for doing so.
One such sectoral code, published under Section 9 of the B-BBEE Act, is the FS Code, which applies to the
Group. The FS Code was published in 2012 and replaced the Financial Sector Charter, which was a voluntary
fi nancial services industry-driven B-BBEE initiative in terms of which companies in the fi nancial services
industry have been reporting annually on B-BBEE progress since 2005. The FS Code is a new binding legal
framework against which the empowerment progress of the fi nancial sector is measured. The Group’s B-BBEE
status is currently measured under the FS Code. The FS Code will, at some stage, be aligned with the revised
General Codes although the alignment process is not yet underway.
The FS Code applies to all fi nancial services fi rms and has set targets in core categories, which (when weighted)
make up the scorecard against which fi nancial institutions are rated each year. The scorecard in the FS Code
measures B-BBEE compliance in the following categories: shareholding, management, employment equity,
skills development, procurement, enterprise development, social investment, access to fi nancial services and
empowerment fi nancing. Various targets are set for each element and indicator in the separate scorecards
that have been developed for each B-BBEE element. Points are ascribed to each element. A business then scores
points on a pro-rated basis in relation to its achievement of the relevant target.
The Company’s B-BBEE status was audited by Empowerdex Proprietary Limited, a leading empowerment
rating agency in South Africa, in May 2014 and it received a Level 2 empowerment contributor rating (where
Level 1 is the highest score and Level 8 is the lowest score).
69
In addition to the B-BBEE Act, other legislation which imposes related requirements aimed at increasing
participation by black people and which is applicable to the Group includes:
• The Preferential Procurement Policy Framework Act, 5 of 2000, which sets out the approach that must be
taken by government departments and agencies in taking B-BBEE into account when making procurement
decisions.
• The Employment Equity Act, 55 of 1998, which requires designated employers to submit employee equity
plans to the Department of Labour and to act in accordance with those plans in their hiring activities.
Capital Adequacy Requirements
Pension Funds Act
AFFS, AF Life and AFICA hold section 13B licences under the PFA.
Section 13B of the PFA, Regulation 32 published thereunder and Schedule O require a Section 13B administrator
to be audited in order to monitor the internal controls and records of the administrator. Paragraph 7 of Board
Notice 24 of 2002 sets out the liquidity criteria for Section 13B administrators. It provides that an administrator
shall at any time maintain liquid assets equal to or greater than 8/52 weeks of annual expenditure. Further,
it provides that administrators shall maintain at all times current assets, which are at least suffi cient to meet
current liabilities.
Financial Advisory and Intermediary Services Act
Board Notice 106 published under the FAIS regulates the fi t and proper requirements of FSPs as well as the
fi nancial soundness of FSPs. An FSP’s assets must exceed its liabilities subject to any exemptions granted. In
addition, different categories of FSPs are subject to different capital adequacy requirements.
AFFS, AF Life, AFIC, AFICA, AF Health, AFAS and Alexander Forbes Direct Proprietary Limited are all
registered as “Category I” FSPs and are required to maintain liquid assets equal to or greater than 4/52 weeks
of annual expenditure at all times.
AF Financial Planning is registered as a “Category II” FSP and is required to at all times maintain liquid
assets equal to or greater than 8/52 weeks of annual expenditure.
Short-Term Insurance Act, 1998
AFIC is registered as a short-term insurer in South Africa. Board Notice 169 of 2011 prescribes the minimum
capital adequacy requirements of short-term insurers as the higher of:
• R10 million; or
• an amount representing operating expenses, multiplied by 13 and divided by 52, or if applicable the number
of weeks included in the reporting period; or
• 15 percent of the greater of the amount of the premium income of the insurer after deduction of all
premiums payable by it in terms of any reinsurance policies entered into by it in respect of any policies,
during the period of: (i) 12 months immediately preceding the day on which the previous fi nancial year ended
or (ii) 12 months immediately preceding the day on which the calculation is made.
Long-Term Insurance Act, 1998
AF Life, Investment Solutions and SuperFlex are registered as long-term insurers in South Africa. Board
Notice 14 of 2010 prescribes the minimum capital adequacy requirements of long-term insurers as the
higher of:
• R10 million;
• an amount representing operating expenses, as defined and reported in the annual return last submitted
to the Registrar, multiplied by 13 and divided by 52 or, if different, the number of weeks included in the
reporting period; or
• an amount equal to 0.3% of its gross contingent liabilities under unmatured policies.
Road Accident Benefi t Scheme Legislation 2014
The draft Road Accident Benefi t Scheme Bill (the “Bill”) and related rules and regulations were released
on 9 May 2014.
The purpose of the Bill is to establish a Road Accident Benefi t Scheme (the “Scheme”) which will replace the
current Road Accident Fund. The Bill also provides for the establishment of a Road Accident Benefi t Scheme
Administrator who will be responsible for the administration of the Scheme and a Road Accident Benefi t Scheme
Board which is responsible for the governance of the Road Accident Benefi t Scheme Administrator. The Scheme
will be funded through a Road Accident Benefi t Scheme levy and other moneys appropriated by Parliament.
70
MANAGEMENT AND CORPORATE GOVERNANCE
Directors of the Company
The following discussion provides a description of the Company’s board of directors as it will be on the Listing
Date.
It is anticipated that, with effect from immediately after the Listing, the non-independent, non-executive
directors of the Company will resign. In accordance with the provisions of the Shareholder Agreement and the
Shareholder Side-Letter (see Annexure 12: Material Agreements), each of Mercer and OTPP shall, subject to
applicable laws, be entitled to nominate for appointment to the board such number of nominees as is
contemplated in the Relationship Agreement (in the case of Mercer) and in the Shareholder Side-Letter (in the
case of OTPP). Pursuant to such nominations, the Company intends to use commercial reasonable endeavours,
subject to applicable laws, to facilitate the appointment of such additional number of directors to the board as
is deemed appropriate in order to comply with the Listings Requirements and the King Code.
The Company’s board of directors consists of 1 3 members with four alternate directors. The members of the
Company’s board of directors are as follows:
Name, age and nationality
Occupation/Function
Business address
Date of appointment as director
Mark Derrick Collier (60)
(British)
Lead Independent
Director
Puckden Poundsbridge,
Penshurst, Kent TN11 8AR,
United Kingdom
1 August 2011
Deenadayalen Konar (60)
(South African)
Independent Director 42 Wierda Road West, Wierda
Valley, Sandton 2196, South
Africa
1 February 2008
Hilgard Pieter Meyer (55)
(South African)
Independent Director 32 Fricker Road, Illovo 2196,
South Africa
9 June 2011
Barend Petersen (54)
(South African)
Independent Director Chambers, 33 Church Street,
Cape Town 7001, South
Africa
10 June 2010
Lori Hall-Kimm (37)
(Canadian)
Non-Executive
Director
Leconfi eld House, Curzon
Street, London W1J 5JA,
United Kingdom
3 September 2007
Natalie Catherine Kolbe (38)
(South African)
Non-Executive
Director
Cradock Heights, 21 Cradock
Avenue, Rosebank 2132,
South Africa
3 September 2007
Dave D Govender (46)
(South African)
Non-Executive
Director
18 Acacia Road,
Chislehurston, Sandton
2196, South Africa
28 May 2013
David Ngobeni (37)
(South African)
Non-Executive
director
18 Acacia Road,
Chislehurston, Sandton
2196, South Africa
23 July 2013
André Roux (65)
(South African)
Non-Executive
Director
35 Fricker Road, Illovo,
Sandton 2196, South Africa
3 September 2007
John Adrian van Wyk (49)
(South African)
Non-Executive
Director
2 More London, Riverside,
London SE1 2JT, United
Kingdom
3 September 2007
Matthews Sello Moloko (48)
(South African)
Non-Executive
Chairman
115 West Street, Sandton
2196, Johannesburg, South
Africa
3 December 2007
(executive)
1 July 2014
(non-executive)
Edward Christian Kieswetter
(55) (South African)
Group Chief Executive 115 West Street, Sandton
2196, Johannesburg, South
Africa
4 January 2010
71
Name, age and nationality
Occupation/Function
Business address
Date of appointment as director
Deon Marius Viljoen (49)
(South African)
Group Chief Financial
Offi cer
115 West Street, Sandton
2196, Johannesburg, South
Africa
3 September 2007
Anthonie Christoffel de Beer
(41) (South African)
Alternate Director to
André Roux
35 Fricker Road, Illovo,
Sandton 2196, South Africa
29 February 2008
Jean-Charles Emmanuel
Douin (36) (French)
Alternate Director to
Lori Hall-Kimm
Leconfi eld House, Curzon
Street, London W1J 5JA,
United Kingdom
8 September 2009
Robert Ngetha Waithaka (34)
(Kenyan)
Alternate Director to
John van Wyk
Cradock Heights, 21 Cradock
Avenue, Rosebank 2132,
South Africa
1 September 2012
Jabulani Steven Masondo (38)
(South African)
Alternate Director to
Dave D Govender
18 Acacia Road,
Chislehurston, Sandton
2196, South Africa
28 May 2013
Short biographies of the directors are set out below:
Chairman
Matthews Sello Moloko. Mr Moloko was appointed as Chairman of the board of directors in December 2007
and became a non-executive Chairman in July 2014. He is a founder shareholder and Executive Chairman of
Thesele Group, a diversifi ed investment holding company. He has signifi cant asset management and actuarial
consulting experience gained over more than two decades. He is the former CEO of Old Mutual Asset Managers
and former deputy CEO of Capital Alliance Asset Managers (Brait Asset Managers). Mr Moloko served on the
Old Mutual SA’s Executive Committee and boards of subsidiaries of Old Mutual SA. He is the non-executive
chairman of Sibanye Gold Limited and also serves as non-executive director of Acucap Properties Limited,
Sycom Property Fund Managers and General Reinsurance Africa. He is a trustee of the Nelson Mandela
Foundation and chairs its Investment Committee. Mr Moloko also served on several other boards, including
Gold Fields Limited, the Industrial Development Corporation of South Africa Limited, Makalani Holdings
Limited and Seartec Industries. He was the national president of the Association of Black Securities and
Investment Professionals (“ABSIP”) from 2005 to 2007. In 2003, ABSIP presented him with the Financial
Services Pioneer Award in recognition of his achievements in the fi eld of investment management.
Executive Directors
Edward Christian Kieswetter. Mr Kieswetter was appointed as Group Chief Executive in January 2010.
Mr Kieswetter has a track record of successfully transforming and building high-performance organisations.
As a Senior Executive in Power Generation, Banking, and most recently Deputy Commissioner of the South
African Revenue Service before his current role, Mr Kieswetter has broad experience in both the public and
private sectors in energy and fi nance. He ascribes his success to building great teams with a strong execution
bias. This has won him the “Boss of the Year” title in 2000, along with other prestigious industry awards.
Along with his initial training in Electrical Engineering, he holds three Masters Degrees in Cognitive Science
(UWC), an Executive MBA (Henley UK) and a Master’s Degree in Commerce (cum laude) (Northwest University).
Mr Kieswetter has an appointment as a Harvard University Research Associate and is still actively involved
in education on various local and international boards.
Deon Marius Viljoen. Mr Viljoen joined the Group in March 2003 as fi nance director of Investment Solutions
Holdings Limited (“Investment Solutions Holdings”) and was promoted to Group Chief Financial offi cer in
2007. He currently serves as executive director on the main board and also serves on numerous subsidiary
boards and committees within the Group. Before joining Alexander Forbes, he was a partner and director of
PricewaterhouseCoopers Johannesburg in the service line of assurance and business advisory services, having
joined one of its predecessor fi rms in 1987. During his time in the profession, he specialised in banking and
other fi nancial services clients both in PricewaterhouseCoopers’ Johannesburg and London offi ces and served
on a number of industry bodies, such as the SAICA Banking Industry Group, and also chaired both the
Investment Management and the Collective Investment Schemes Industry Groups for a number of years. Mr
Viljoen obtained his BCom Accountancy (cum laude) in 1985 from the Rand Afrikaans University (now
University of Johannesburg) and completed his BCom Honours before qualifying as a Chartered Accountant
(SA) in 1987.
Non-Executive Directors
Mark Derrick Collier. Mr Collier is a business leader with an extensive international track record in developing
and building winning fi nancial services businesses both as a corporate executive and as an entrepreneur. His
72
career spans nearly 30 years in the retail and institutional sectors of the securities, asset management, wealth
management, retail banking, pensions, and fi nancial services industries holding a range of senior management
positions in leading global companies. He held a number of board appointments at Fidelity International in
Europe, including board director of Fidelity Investments Services Ltd and Managing Director Fidelity Portfolio
Services Ltd. He was a Senior Vice President at Schwab US, Managing Director of Schwab International and
President of Schwab Europe. Today Mr Collier is a Senior Advisor to a leading emerging markets private
equity fi rm and holds advisory positions on the boards of privately held fi nancial services companies in Brazil,
Indonesia and India. In addition, as an entrepreneur, he is engaged with a number of early stage business
startups in emerging market fi nancial services.
Deenadayalen Konar. Dr Konar is a member of the King Committee on Corporate Governance, the Corporate
Governance Forum and the Institute of Directors. He is also a non-executive director of Lonmin and Sappi, and
Chairman of Mustek, Steinhoff International Holdings and Exxaro Resources. He is the past co-chair of the
Independent Oversight Panel of the World Bank, former member of the Safeguards Panel of the International
Monetary Fund (“IMF”) and the former Chairman of the External Audit Committee of the IMF in Washington,
DC. Since 1998, he has been serving as professional and non-executive director of a number of companies.
Dr Konar was also previously a professor and head of the Accountancy department at the University of
Durban-Westville and has lectured at a post-graduate level at various universities in South Africa.
Hilgard Pieter Meyer. Mr Meyer is an actuary with extensive management experience gained over 30 years in
a broad range of sectors in the fi nancial services industry, including long-term and short-term insurance,
pensions, asset management and banking. Mr Meyer is the managing partner of Nodus Investment Managers,
a private equity fund manager. Prior to joining Nodus, he was the CEO of the Momentum Group. Mr Meyer is
also a non-executive director of a number of companies.
Barend Petersen. Mr Petersen is a Chartered Accountant with broad international business experience in
mining, fi nance, auditing, the oil industry, energy, government relations, business turnarounds, corporate
recovery, consulting and corporate governance. Mr Petersen is the executive chairman of De Beers Consolidated
Mines, a director of the De Beers Group of companies, the chairman of the Environment Company, Health and
Safety committee of the De Beers Group, and a director of Ponahalo, the black empowerment partner of
De Beers Consolidated Mines. He is a director of several companies, including Anglo American South Africa
Limited and Curro Holdings Limited. Mr Petersen is the chairman of Sizwe Business Recoveries, which he
founded in 1997.
Lori Hall-Kimm. Ms Hall-Kimm is a director at Teachers’ Private Capital and has over 10 years of combined
experience in investment banking and private equity. She oversees Teachers’ private equity fund and co-
investing activities in EMEA and helped to establish Teachers’ London offi ce in 2007. She has been involved in
several international transactions, including negotiating and executing new fund commitments, and equity
and mezzanine direct investments. Prior to joining Teachers’ in 2005, Ms Hall-Kimm worked in the consumer
and retail investment banking group at Goldman Sachs’ Investment Banking division, TD Securities, and
OMERS. She holds an MBA from Columbia Business School and a BBA with honours from the Schulich School
of Business at York University.
Natalie Catherine Kolbe. Ms Kolbe is a partner at Actis. She began her career working for Investec Bank,
where she was responsible for a team of investment consultants. She then moved to stockbrokers, Thebe
Securities, and joined Actis in 2003, where she is responsible for Actis’ investment in Alexander Forbes.
Ms Kolbe holds a BCom from the University of the Witwatersrand, an MBA (cum laude) from Wits Business
School and has completed the CFA programme.
Dave D Govender. Mr Govender is Strategic Projects Director and member of the M&A team at Shanduka
Group. Before joining Shanduka, he was the Technical Operations Director of Nando’s South Africa. Prior to
that, he worked for Coca-Cola South Africa, where he held numerous roles ranging from audit and supplier
to management; environmental and corporate affairs to eventually heading up commercialisation and special
projects. Mr Govender holds an MBA from the Wits Business School majoring in Innovation and is a Food
Science & Technology graduate from the Durban University of Technology. He is also a member of the Institute
of Directors.
David Ngobeni. Mr Ngobeni is the Chief Investment Offi cer and Chief Financial Offi cer at the Shanduka
Group. Before joining Shanduka Group, Mr Ngobeni worked in the Strategic Equity Division at Standard
Bank where he was involved in originating, structuring and implementing equity and mezzanine funding
transactions. In 2006, he was voted one of the best managers in the Corporate and Investment Banking
Division. He is a Chartered Accountant, a CFA Level III candidate and has completed an MCom Tax course
work. He is also a director of a number of Shanduka Group investee companies.
André Roux. Mr Roux is the Founding Partner of Ethos Private Equity Proprietary Limited, having established
the business in 1984. He is widely regarded as the pioneer of South African private equity and held the post
of chief executive since Ethos’ inception. He has lectured extensively on the private equity industry to business
schools and is a regular speaker at industry conferences. Mr Roux recently stepped down as Chief Executive
and assumed the role of Deputy Chairman, and Chairman of Ethos’ investment committee. Prior to the
73
establishment of Ethos, Mr Roux held the positions of Chief Executive of FirstCorp Capital Investors Limited
and FirstCorp Merchant Bank. He has also served on the boards of several portfolio companies associated with
the various investment funds advised by Ethos. Mr Roux graduated with a Bachelor of Commerce degree from
the University of the Witwatersrand, is a member of the South African Institute of Chartered Accountants and
serves on the board of the Emerging Markets Private Equity Association.
John Adrian van Wyk. Mr van Wyk is a partner and Head of Africa at Actis. He has extensive experience in
the private equity industry and has been involved in identifying, managing and executing some of the largest
and most successful deals in South Africa. Prior to Actis, Mr van Wyk spent nine years with Ethos Private
Equity Proprietary Limited. Mr van Wyk holds a BCom and a BAcc qualifi cation from the University of the
Witwatersrand and is a member of the South African Institute of Chartered Accountants.
Anthonie Christoffel de Beer. Mr de Beer is a Partner at Ethos Private Equity Proprietary Limited. He has
extensive experience across the private equity value chain and has been involved in deal sourcing, execution,
restructuring, monitoring and disposals of Ethos investments. Prior to joining Ethos in 2002, he worked for
PricewaterhouseCoopers for fi ve years. Mr de Beer also serves on the boards of Idwala, Plumblink and Kevro.
He holds a Bachelor of Commerce (Honours in Accounting) degree from the University of Johannesburg and
is a member of the South African Institute of Chartered Accountants.
Jean-Charles Emmanuel Douin. Mr Douin joined the London offi ce of Teachers’ Private Capital in 2008. He
was involved in the buyouts of Acorn Care & Education, Busy Bees, Burton’s Biscuits and Helly Hansen and
the investment in ISS. Mr Douin serves on the boards of Acorn Care & Education, Alexander Forbes, Busy Bees
and Helly Hansen. Previously, Mr Douin worked at CapVest, a pan-European mid-cap private equity fund
active in the food, consumer goods and healthcare sectors, and UBS Investment Bank, where he focused on
M&A deals in the consumer retail sectors. Mr. Douin earned a master’s degree and diploma from Écoles des
Hautes Etudes Commerciales (HEC) in Paris.
Robert Ngetha Waithaka. Mr Waithaka is an investment professional at Actis. Mr Waithaka gained investment
banking and private equity experience at Credit Suisse and Pacifi c Corp. Group Capital Partners in the United
States. He holds a BA from Middlebury College and an MBA from The Wharton School, University of
Pennsylvania.
Jabulani Steven Masondo. Mr Masondo is a Finance Executive at Shanduka Group. He specialised in taxation
in the fi nancial services industry for six years, prior to joining Shanduka in November 2010. He was previously
an Associate Director at PricewaterhouseCoopers, where his main focus was the banking and insurance
sectors. Some of his clients included FirstRand Bank, ABSA Bank, Momentum and Outsurance. Mr Masondo
holds a Masters in Taxation and is a member of the South African Institute of Chartered Accountants.
Senior Management of the Group
The senior management of the Group is as follows:
Name Position Business address Date of appointment
Edward Christian
Kieswetter (55)
(South African)
Group Chief Executive 115 West Street, Sandton
2196, Johannesburg
South Africa
1 January 2010
Lindiwe Angela
Dlamini (44)
(South African)
Managing Director, Retail 115 West Street, Sandton
2196, Johannesburg
South Africa
1 June 2013
Garikai Dombo (47)
(Zimbabwean)
Managing Director, AFI 115 West Street, Sandton
2196, Johannesburg
South Africa
1 April 2011
Peter Alan Edwards
(49) (South African)
Chief Executive Offi cer,
A FFS
115 West Street, Sandton
2196, Johannesburg
South Africa
1 April 2013
Bradley John Eliot (44)
(South African)
Group Executive, IT 115 West Street, Sandton
2196, Johannesburg
South Africa
1 November 2002
Derrick Thembinkosi
Vusumuzi Msibi (45)
(South African)
Managing Director,
Investment Solutions
63 Wierda Road East, Wierda
Valley, Sandown, 2196,
Johannesburg, South Africa
1 January 2009
Vishnumurthie Kista
Naicker (48)
(South African)
Group Chief Risk Offi cer
and Group Executive, Risk
and Compliance
115 West Street, Sandton
2196, Johannesburg
South Africa
1 May 2008
74
Name Position Business address Date of appointment
Luendran Pillay (39)
(South African)
Managing Director, AfriNet 115 West Street, Sandton
2196, Johannesburg
South Africa
1 May 2012
Janice Eva Salvado (41)
(South African)
Group Company Secretary 115 West Street, Sandton
2196, Johannesburg
South Africa
1 July 2003
Grant Edwin Stobart
(50) (British and
South African)
Chief Executive Offi cer,
A F International
3rd Floor, 1 Royal Exchange,
London EC3V 3LN, United
Kingdom
1 June 2004
Lynn Wilhelmina
Stevens (46)
(South African)
Group Executive, Brand,
Marketing and
Communications
115 West Street, Sandton
2196, Johannesburg
South Africa
4 August 2010
Thabo Mashaba (44)
(South African)
Group Chief Human
Resources Offi cer
115 West Street, Sandton
2196, Johannesburg
South Africa
1 April 2012
Deon Marius Viljoen
(49) (South African)
Group Chief Financial
Offi cer
115 West Street, Sandton
2196, Johannesburg
South Africa
1 April 2007
Short biographies of the senior management of the Company are set out below:
Edward Christian Kieswetter. See “ —Directors of the Company —Executive Directors” above.
Lindiwe Angela Dlamini. Ms Dlamini was appointed as Managing Director of the Retail business in June
2013. Previously, she was the Group Executive of Emerging Consumer Markets at Liberty Group. She also
served in various other senior positions at Liberty Group, including Group Executive of Retail South Africa
Operations (2008 – 2011) and Divisional Director, Risk Benefi ts and Premium Administration (2006 – 2008).
Ms. Dlamini holds BA, LLB and LLM (Tax) degrees and is a Certifi ed Financial Planner.
Garikai Dombo. Mr Dombo has been the Managing Director of AFI since April 2011. Prior to his appointment
as Managing Director, he was a senior executive at Alexander Forbes Personal Insurance Services. Mr Dombo
serves on the boards of AFI and Alexander Forbes Insurance Namibia and was a former board member of the
Ombudsman for Short-Term Insurance and of the South African Insurance Association. Mr Dombo holds an
MBA degree from the University of Natal. He is an Associate of the Chartered Institute of Insurance in
Hillcrest, London, a member of the Society of Fellows and a fellow of the Insurance Industry in South Africa.
Peter Alan Edwards. Mr Edwards has been the Chief Executive Offi cer of AFFS Holdings since April 2013. He
previously served as the Managing Director of AF Health. He is currently a board member of AFFS Holdings,
AFFS Proprietary Limited and a number of the Retail subsidiaries. Mr Edwards is also trustee of the Alexander
Forbes Management Trust, the Alexander Forbes Management Co-Investment Trust and a member of the
AF Life Risk Committee.
Bradley John Eliot. Mr Eliot was appointed as Group IT Director in 2002. He holds a BCompt (Hons) and is a
qualifi ed Chartered Accountant. He previously worked at Deloitte and joined Alexander Forbes in the Corporate
Finance division in 1998. He serves on the boards of a number of companies within the Group.
Derrick Thembinkosi Vusumuzi Msibi. Mr Msibi was appointed as Managing Director of Investment Solutions
Holdings in 2008. Mr Msibi also serves on the boards of Investment Solutions, Caveo, Investment Solutions
Jersey, and is a trustee of the Alexander Forbes Management Trust and the Alexander Forbes Staff Share
Trust. He also represents Investment Solutions on industry associations. Prior to joining the Group, he was
an Executive Director of Alternative Investments at Old Mutual Investment Group (South Africa) Proprietary
Limited.
Vishnumurthie Kista Naicker. Mr Naicker was appointed as Group Chief Risk Offi cer in 2008. He was
previously with the KZN provincial government as the Deputy Director General and the Provincial Accountant
General, after which he joined South Africa Airways Proprietary Limited in 1996 as an Executive Vice
President of Audit, Risk and Compliance. Mr Naicker has over 20 years of diversifi ed professional experience
in the fi elds of fi nancial management governance, treasury management, fi scal policy development, risk
management compliance and internal auditing.
Luendran Pillay. Mr Pillay was appointed as Managing Director of AfriNet in 2011 and has been managing
the Group businesses in the various African countries for the last two years. Prior to joining the Group, he
was with Gerald Metals LLC, a commodity trading fi rm, as a Managing Director of Finance and Investments
and was running their global investment and operating portfolio from the New York offi ce. Previously, he was
with RMB, where he gained extensive experience in fi nancial restructuring, project fi nance and private equity.
75
Janice Eva Salvado. Ms Salvado was appointed as the Group Company Secretary in July 2003 and has been
Head of Investor Relations since July 2007, having fi rst joined the Group as Group Assistant Company
Secretary in April 1999. She has previously held positions at Allied Technologies Limited, MIH Holdings
Limited and Aegis Insurance Company Limited. Ms Salvado holds BCom and LLB degrees.
Grant Edwin Stobart. Mr Stobart was appointed as CEO of AF International in April 2006 and the head of
corporate development in December 2010. Mr Stobart is also a board member of AFIL, LCP, LCP Belgium and
a number of the Group’s non-operating holding companies and has previously served on all of the Group’s
regulated entities in the UK and in Europe prior to their disposal. He joined the Group in 2003 as Finance
Director of International Operations. Prior to joining the Group, Mr Stobart held senior managerial positions
in the FirstRand Bank Group.
Lynn Wilhelmina Stevens. Ms Stevens was appointed as Group Executive of Brand, Marketing and
Communications in 2009. She is also a board member of AFI and Salesian Street Youth Institute, a non-
governmental organisation. Ms Stevens holds a BA (English and History) degree and a Post-Graduate Diploma
in Higher Education (English and History) from the University of Cape Town.
Thabo Mashaba. Mr Mashaba was appointed as Group Chief Human Resources Offi cer in 2011. He previously
held senior leadership roles in the banking industry, including at the Absa group of companies, where he was
Head of HR for Absa Retail Bank, Head of Employee Relations for the Absa Group and Regional Manager for
Private Bank at Absa. He is currently a trustee in the various trustee entities within the Group and was also
formerly a board member and remuneration committee chairman for CANSA.
Deon Marius Viljoen. See “ —Directors of the Company —Executive Directors” above.
Directors of Major Subsidiaries
The directors of the Company’s major subsidiaries are as follows:
AFFS Holdings
Name Position Business address Date of appointment
Matthews Sello Moloko
(South African)
Non-Executive Chairman 115 West Street, Sandton
2196, Johannesburg
South Africa
11 February 2008
Edward Christian
Kieswetter
(South African)
Non-Executive Director 115 West Street, Sandton
2196, Johannesburg
South Africa
4 January 2010
Deon Marius Viljoen
(South African)
Non-Executive Director 115 West Street, Sandton
2196, Johannesburg
South Africa
11 November 2004
Peter Alan Edwards
(South African)
Chief Executive Offi cer 115 West Street, Sandton
2196, Johannesburg
South Africa
17 May 2011
Lisa Stott
(South African)
Financial Director 115 West Street, Sandton
2196, Johannesburg
South Africa
31 August 2008
Mark Derrick Collier
(British)
Independent Non-Executive
Director
Puckden Poundsbridge,
Penshurst, Kent TN11 8AR,
United Kingdom
23 November 2011
Bradley John Eliot
(South African)
Alternate Non-Executive
Director
115 West Street, Sandton
2196, Johannesburg
South Africa
11 February 2008
Vishnumurthie Kista
Naicker
(South African)
Non-Executive Director 115 West Street, Sandton
2196, Johannesburg
South Africa
4 August 2008
Deenadayalen Konar
(South African)
Independent Non-Executive
Director
42 Wierda Road West, Wierda
Valley, Sandton 2196
South Africa
25 July 2008
76
Investment Solutions
Name Position Business address Date of appointment
Edward Christian
Kieswetter
(South African)
Non-Executive Chairman 115 West Street, Sandton
2196, Johannesburg,
South Africa
4 January 2010
Deon Marius Viljoen
(South African)
Alternate Director 115 West Street, Sandton
2196, Johannesburg,
South Africa
4 January 2010
Mark Derrick Collier
(British)
Independent Non-Executive
Director
Puckden Poundsbridge,
Penshurst, Kent TN11 8AR,
United Kingdom
23 November 2011
Deenadayalen Konar
(South African)
Independent Non-Executive
Director
42 Wierda Road West,
Wierda Valley, Sandton
2196, South Africa
25 July 2008
Marilyn Ramplin
(South African)
Independent Non-Executive
Director
99 Boundary Lane,
Parkmore, 2196,
Johannesburg, South Africa
19 August 2011
Ntobeko Goodman
Nyawo (South African)
Financial Director 63 Wierda Road East, Wierda
Valley, Sandown, 2196,
Johannesburg, South Africa
2 June 2011
Mavuso Msimang
(South African)
Independent Director 131 Elevation Avenue,
Randjesfontein, Midrand,
1685, South Africa
1 April 2011
Barend Petersen
(South African)
Independent Non-Executive
Director
Chambers, 33 Church Street,
Cape Town 7001,
South Africa
1 October 2010
Derrick Thembinkosi
Vusumuzi Msibi
(South African)
Managing Director 63 Wierda Road East, Wierda
Valley, Sandown, 2196,
Johannesburg, South Africa
2 January 2009
AF International
Name Position Business address Date of appointment
Edward Christian
Kieswetter
(South African)
Non-Executive Chairman 115 West Street, Sandton
2196, Johannesburg
South Africa
12 January 2010
Grant Edwin Stobart
(British and
South African)
Chief Executive Offi cer 3rd Floor, 1 Royal Exchange,
London EC3V 3LN
United Kingdom
20 May 2004
Phillip Mark Elliot
(British)
Executive Director 3rd Floor, 1 Royal Exchange,
London EC3V 3LN
United Kingdom
6 April 2014
Short biographies of the directors of the Company’s major subsidiaries are set out below:
Edward Christian Kieswetter. See “ —Directors of the Company —Executive Directors” above.
Matthews Sello Moloko. See “ —Directors of the Company —Chairman” above.
Lisa Stott. Ms Stott has been the Finance Director of AFFS Holdings since August 2008. She fi rst joined the
Group in 2002 as the Financial Accountant, reporting to the Group CFO. Prior to joining the Group, Ms Stott
was an audit manager at PricewaterhouseCoopers. She is currently a board member of AFFS Holdings and a
number of the Group’s subsidiary companies. Ms Stott is also a member of the AFFS Holdings Risk Committee
and AF Life Risk Committee and a member of the Group’s staff provident fund.
Mark Derrick Collier. See “ —Directors of the Company —Non-Executive Directors” above.
Bradley John Eliot. See “ —Senior Management of the Group” above.
Vishnumurthie Kista Naicker. See “– Senior Management of the Group” above.
Deenadayalen Konar. See “ —Directors of the Company —Non-Executive Directors” above.
Derrick Thembinkosi Vusumuzi Msibi. See “ —Senior Management of the Group” above.
77
Marilyn Ramplin. Ms Ramplin is the Founder and CEO of the Hedge Fund Academy. Prior to this she was an
executive director with JP Morgan London. Ms Ramplin holds several independent non-executive board
positions and has developed a risk governance framework for fi nancial institutions. She is an internationally
recognised specialist on a number of boards.
Ntobeko Goodman Nyawo. Mr Nyawo began his career at De Beers Consolidated Mines. He then joined
Alexander Forbes as a Senior Consultant before being appointed the Financial Director of Alexander Forbes
AfriNet Investments and Chief Operations Offi cer of Alexander Forbes AfriNet Investments. He is currently
the Financial Director of Investment Solutions. Mr Nyawo holds B Comm and B Comm (Hons) (Accounting)
degrees and is a qualifi ed Chartered Accountant.
Mavuso Msimang. Mr. Msimang has vast executive management experience, with primary areas of expertise
in environmental impact management, deployment of IT and technology as well as transforming organisations.
He holds a BSc and an MBA.
Barend Petersen. See “ —Directors of the Company —Non-Executive Directors” above.
Grant Edwin Stobart. See “ —Senior Management of the Group” above.
Phillip Mark Elliott. Mr Elliott is the Head of Group Finance and Taxation of AF International . He has extensive
multi-national experience at management and director levels. Mr Elliott joined the Group in 2007, prior to
which he held a senior management position within the Viacom Group (a U.S.-based multi-national media
group) as Director of International Tax and Compliance for one its international subsidiaries. Mr Elliott is a
Fellow of the Association of Chartered Certifi ed Accountants.
Further particulars of the directors of the Company and its major subsidiaries and senior management of the
Group, including details of other directorships or partnerships held in the preceding fi ve years, are set out in
Annexure 6 to this pre-listing statement.
Directors’ Confi rmations
None of the directors or senior management of the Company or the directors of its major subsidiaries referred
to in this pre-listing statement:
• has been declared bankrupt, insolvent or sequestrated or has entered into an individual voluntary
compromise arrangement;
• has ever been involved, in any business rescue plans and/or resolution proposed by any entity to commence
business rescue proceedings, application having been made for any entity to begin business rescue
proceedings, notices having been delivered in terms of Section 129(7) of the Companies Act, receiverships,
compulsory liquidations, creditors’ voluntary liquidations, administrations, company voluntary
arrangements or any composition or arrangement with its creditors generally or any class of its creditors
of any company where such person is or was a director, with an executive function within such company
at the time of, or within the last 12 months;
• has been involved in any compulsory liquidation, administration or voluntary arrangements of any
partnership where such person is or was a partner at the time of or within the 12 months preceding such
events;
• has had receivership of any of the assets of such person or of a partnership of which he or she was a
partner subject to receivership when he or she was a partner or was a partner at the time of, or within
12 months prior to such an event;
• has been the subject of public criticism by any statutory or regulatory authorities, including recognised
professional bodies, or been disqualified by a court from acting as a director of a company or from acting
in the management or conduct of the affairs of any company;
• has been convicted of any offence resulting from dishonesty committed by such person;
• has ever been found guilty of any offence involving dishonesty committed by such person;
• has been removed from an office of trust on the grounds of misconduct and involving dishonesty; or
• is or has been subject to any court order declaring him or her delinquent or placing him or her under
probation under Section 162 of the Companies Act and/or Section 47 of the Close Corporations Act, 1984
(Act No. 69 of 1984) or disqualifying him or her to act as a director under Section 69 of the Companies
Act, 2008.
Company Secretary
The company secretary is Janice Eva Salvado (BCo m, LLB). Ms. Salvado has approximately 17 years of
experience in the company secretarial fi eld. At a meeting of the board held on 5 June 2014, the board assessed
Ms Salvado’s competence, qualifi cations, experience, suitability and performance during fi nancial year 2014
and found her to be competent and suitably qualifi ed to act as company secretary.
78
Ms Salvado is not a director of the Company and the board, having specifi cally considered the matter, is
satisfi ed that an arm’s length relationship is maintained between the board and the company secretary, in
accordance with the recommended practice of the King III Report. The company secretary will be subjected to
an annual evaluation by the board, which can also remove her from offi ce.
All directors have access to the advice and services of the company secretary to enable them to perform their
duties and responsibilities and for the board to function effectively. The company secretary fulfi ls the duties
as set out in Section 88 of the Companies Act and is also responsible for compliance with the Listings
Requirements.
Appointment, Qualifi cation and Borrowing Powers of Directors
Set out in Annexure 11 to this pre-listing statement are extracts of the relevant provisions of the memorandum
of incorporation of the Company, regarding:
• the qualification, appointment, terms of office and remuneration of directors;
• the borrowing powers of the Company exercisable by the directors and how such borrowing powers can
be varied;
• powers enabling directors to vote on a proposal, arrangement or contract in which they are materially
interested and to vote remuneration to themselves or any member of the board of directors; and
• retirement of directors by rotation and the retirement or non-retirement of directors under an age limit.
The directors’ borrowing powers have not been exceeded during the past three years and there have not been
any exchange control or other restrictions on the borrowing powers of the Company or any of its subsidiaries.
The memorand a of incorporation of each of the subsidiary companies do not interfere with the Company’s
compliance with the Listings Requirements.
Remuneration of Directors
The total aggregate remuneration, benefi ts and fees paid and payable to the executive directors and non-
executive directors of the Company for fi nancial year 2014 is set out below. See also Note 43 to the Consolidated
Financial Statements.
Executive Directors
Name Salary BonusBenefi ts and
allowances
Retirementand medical
contributions Total(R thousands)
EC Kieswetter 4 ,626 5 ,200 99 484 10 ,409
MS Moloko(1) 2 ,240 2 ,250 47 317 4 ,854
DM Viljoen 3 ,126 3 ,600 69 504 7 ,299
Total 9 ,992 11 ,050 215 1 ,305 22 ,562
(1) Appointed as non-executive chairman with effect from 1 July 2014.
79
Non-Executive Directors
Name Salary Bonus Fees Total
(R thousands)
MD Collier – – 1 ,067 1 ,067
AC De Beer – – – –
JE Douin – – – –
DD Govender – – – –
L Hall-Kimm – – – –
NC Kolbe – – 324 324
D Konar – – 1 ,552 1 ,552
JS Masondo – – 324 324
HP Meyer – – 516 516
B Petersen – – 852 852
D Ngobeni – – 324 324
A Roux – – 324 324
RN Waithaka – – – –
JA van Wyk – – 324 324
Total – – 5 ,607 5 ,607
None of the directors received any management consulting, technical or other fees payable or such services
rendered during fi nancial year 2014. None of the directors received any commission or has been party to any
gain or profi t-sharing arrangements during fi nancial year 2014. None of the directors received any other
material benefi ts, directly or indirectly, from the Company or the Group during fi nancial year 2014. Other
than as set out below in “ — Directors’ Incentives and Interests in Transactions”, none of the directors were
granted any share options or any other right which had the same or a similar effect in respect of providing a
right to such director to subscribe for the Shares during fi nancial year 2014. Further details of the directors’
service agreements are set out in Annexure 6 to this pre-listing statement. No fees were paid or accrued as
payable to a third-party in lieu of directors’ fees. Other than as set out below in “ — Directors’ Incentives and
Interests in Transactions” , the remuneration receivable by the directors of the Company will not be varied in
consequence of the transaction.
Name
2011 Executive Long-Term Incentive
Plan(1)
2014Exit
TransactionIncentive
(R millions)
Executive DirectorsEC Kieswetter 8.1 18.3
MS Moloko 4.1 –
DM Viljoen 5.7 9.1
1. As amended and revised in June 2014. See “ —Directors’ Incentives and Incentives in Transaction —2011 Executive Long-Term Incentive
Plan as Amended and Revised in June 2014”.
Directors’ Interests
The direct and indirect interests in the Shares as at the Last Practicable Date of the directors and their
associates, including any director who has resigned during the last 18 months, are set out below .
The directors do not have any direct holdings in the Shares.
The directors’ indirect holdings in the Shares are through the Alexander Forbes Management Trust and the
Alexander Forbes Management Co-Investment Trust. Prior to the completion of the Restructure, these trusts
held in aggregate shares amounting to 8.7% of the Shares. As part of the Restructure, a special purpose
vehicle, Management SPV, was formed for the benefi t of management and holds Shares in the Company.
Following the Restructure, the Alexander Forbes Management Trust, the Alexander Forbes Management
Co-Investment Trust and Management SPV hold in aggregate shares amounting to 5.7% of the Shares.
Participants in the trusts do not directly own Shares in the Company. However, the trusts hold shares in the
Company for the benefi t of such participants. Each participant made a contribution of capital to the trusts.
The original value at which the points were allocated from the trusts was R1.00 each. The number of points
held by the directors is shown in the table below.
80
Name
Directbenefi cial
(Shares)
Indirect benefi cial
(Points)(1)
Executive DirectorsEC Kieswetter – 6 ,717 ,145
DM Viljoen (2) – 3 ,198 ,870
Total – 9 ,916 ,015
Non-Executive DirectorsMD Collier – –
AC De Beer – –
JE Douin – –
DD Govender – –
L Hall-Kimm – –
NC Kolbe – –
D Konar – –
JS Masondo – –
HP Meyer – –
MS Moloko – 1 ,801 ,034
B Petersen – –
MC Ramaphosa – –
D Ngobeni – –
A Roux – –
RN Waithaka – –
JA van Wyk – –
Total – 11 ,717 ,049
1. Held through the Alexander Forbes Management Trust and the Alexander Forbes Co-Investment Management Trust.
2. In addition, DM Viljoen held 714,089 Shares in AF Pref as of the Last Practicable Date.
There have been no changes in those interests occurring between the end of the preceding fi nancial year and
the date of this pre-listing statement.
No loans have been made or security furnished by the Company or by any of its subsidiaries to or for the
benefi t of any director or manager or any associate of any director or manager of the Company.
No director or promoter had any material benefi cial interest, direct or indirect, in the promotion of the
Company or in any proposed material acquisition out of the proceeds of the Offer or during the three years
preceding the date of this pre-listing statement.
No payments were made to, or have been agreed to be paid to, any director of the Company or any company in
which he/she is benefi cially interested, directly or indirectly, or of which he/she is a director (the “associate
company”) or to any partnership, syndicate or other association of which he/she is a member (the “associate
entity”) either to induce him or her to become, or to qualify him/her as a director of the Company or otherwise
for the services rendered by him or her or by the associate company or the associate entity in connection with
the promotion or formation of the Company.
Directors’ Incentives and Interests in Transactions
Other than as set out below, no directors, including any directors who have resigned during the last 18 months,
have any material direct or indirect benefi cial interests in any of the transactions of the Company either
during the current or immediately preceding fi nancial year or during an earlier fi nancial year, which remain
outstanding or unperformed. There have been no changes to these interests between the end of the preceding
fi nancial year and the date of the pre-listing statement.
2011 Executive Long-Term Incentive Plan as Amended and Revised in June 2014
The Alexander Forbes 2011 Executive Long-Term Incentive Plan was adopted by a resolution of the
Remuneration Committee of the Company on 4 August 2011 and was amended and revised on 3 June 2014.
The plan is constructed and designed as a restricted bonus incentive scheme which is cash-settled. The plan
does not involve the purchase, transfer or issue of shares or share options nor is it linked in any way to
shares. The board of directors is responsible for the operation and administration of the plan and has discretion
to decide whether and on what basis the plan should be implemented including the making of awards to senior
or key employees of any member of the Group. The participation by executive directors in the plan is required
81
to be approved and confi rmed by the Remuneration Committee. 46 Senior managers and directors of the
Company have been designated as eligible employees under the plan. Awards made to eligible employees
(including executive directors) in terms of the plan will vest in two tranches: (i) 50% upon Listing and (ii) 50%
18 months later. An award is conditional upon acceptable performance by participants over the period and
upon participants being employed by a member of the Group at the date of payment.
2014 Exit Transaction Incentive
The 2014 Exit Transaction Incentive (the “2014 ETI”) was adopted by the board of the Company to be
implemented in the event that the Selling Shareholder s’ investment in the Group is successfully realised
either by way of a trade sale or listing in 2014. The terms of the 2014 ETI differ depending on whether a trade
sale or listing is pursued. Only the terms relevant to a listing of the Company are described below .
Participants in the 2014 ETI include the executive directors of the Company and certain other senior managers
of the Group. The 2014 ETI is constructed and designed as a restricted incentive plan which is equity-settled
by the Company. The Shares awarded to eligible participants will be subject to certain disposal restrictions
(see below). An incentive contemplated in the 2014 ETI will be settled on the Listing Date where the
Remuneration Committee has approved the incentive award. Further, an incentive will only be awarded in
terms of the 2014 ETI where the Group Chief Executive (other than in the case of any incentive award to be
made to the Group Chief Executive) and Remuneration Committee, in their sole assessment and discretion,
have approved the participant’s eligibility by determining that the participant has performed his or her duties
and functions in relation to the relevant transaction satisfactorily.
The incentive pool established for purposes of the 2014 ETI is a minimum of R20 million and is guaranteed at
that amount upon a successful realisation of the Selling Shareholders’ investment in the Group at a valuation
multiple of at least 8.0x EBITDA for fi nancial year 2014. The incentive pool will increase in accordance with
a pre-determined schedule in line with an increase in the valuation multiple achieved upon an exit. Based on
the mid-point of the Offer Price Range, it is expected that the incentive pool will total approximately
R 59 million. The incentive awarded to each eligible participant will be settled in Shares on the Listing Date.
Any tax obligations arising from the incentive awards will be subject to the Company’s usual obligations
under the Income Tax Act. A participant in the 2014 ETI will not be entitled to dispose of the Shares awarded
to him or her for (a) 180 days (in relation to 40% of the total number of Shares issued to the participant
pursuant to the 2014 ETI) and (b) 365 days (in relation to the balance of the Shares issued to the participant
pursuant to the 2014 ETI), in each case, calculated from the Listing Date.
As set out above, the 2014 ETI will be equity-settled through the issue of Shares. The number of Shares to be
issued in settlement of awards issued pursuant to the 2014 ETI will be determined by reference to (i) the total
incentive pool; (ii) the extent of each individual participant’s participation in the incentive pool; and (iii) the
Offer Price.
Management Payment Agreement (“Make-Good” Payment)
Since the 2007 Acquisition and up until the Restructure, the Alexander Forbes Management Trust was a
holder of Shares in the Company but did not hold any “A” preference shares in the Company, which effectively
provided inherent leverage to the Alexander Forbes Management Trust. Pursuant to the Restructure, the
Company redeemed all issued “A” preference shares and, in consideration, issued new Shares to the holders
of the “A” preference shares, resulting in signifi cant dilution of the Alexander Forbes Management Trust’s
ordinary shareholding in the Company and the effective loss of the inherent gearing in the Alexander Forbes
Management Trust’s investment in the Company. In order to compensate the Trust and, indirectly, the
benefi ciaries for this loss, the Company entered into an agreement dated 20 March 2014 with the Alexander
Forbes Management Trust in terms of which the Company agreed to pay the Alexander Forbes Management
Trust a compensation amount (the “Compensation Amount”) upon the happening of certain defi ned events
(including but not limited to the Listing). The Compensation Amount will be calculated with reference to the
Offer Price achieved in the Offering. The Compensation Amount is expected to be between R 34 million and
R 79 million based on the Offer Price Range.
Share Schemes
Long-Term Incentive Share Plan
The Company has approved the adoption of the Alexander Forbes Long-Term Incentive Share Plan (the “LTIP”)
to take effect following the Listing. The LTIP will be administered by the Remuneration Committee of the
Company and will be available to executive directors, senior managers and other key employees of the
Company, although the Remuneration Committee may, in its discretion, include any permanent salaried
employee in the LTIP in exceptional circumstances. The aim of the LTIP is to provide a direct alignment
between participants and shareholders. Participants receive Company shares under the LTIP and awards of
shares are subject to achieving performance conditions stipulated by the Remuneration Committee. The
vesting of the LTIP awards will occur on a sliding scale and will depend on, among other things, the fulfi lment
of performance conditions.
82
In line with the requirements of the King III Report and best practice requirements, the Company will make
regular annual awards of shares based on an individual’s performance (“performance shares”). Award levels
for performance shares will be set by reference to the individual’s salary, grade, performance, as well as the
Company’s retention requirements and market benchmarks. The award levels will be determined by the
Remuneration Committee and will be benchmarked against market remuneration, while considering the
overall affordability thereof to the Company. An initial award of 1 ,315 ,214 conditional shares under the
scheme will be made to EC Kieswetter and 881 052 conditional shares to DM Viljoen. These awards are
conditional upon fulfi lment of performance conditions measured over the next three fi nancial years.
In addition, restricted shares may be awarded on an ad hoc basis to address employee retention risks and to
address broad-based employee share ownership requirements identifi ed by the Remuneration Committee
(“restricted shares”). Awards of restricted shares will only be made on a selective basis and only in exceptional
circumstances, subject to sustained individual performance by the specifi c employee. Restricted shares may
also be awarded as sign-on bonuses to attract new employees as identifi ed by the Remuneration Committee.
The rules of the LTIP allow for settlement through the purchase of Shares on the open market, the use of
treasury shares or the issue of new Shares. The maximum number of shares permitted to be allocated under
the plan at any time is 64 ,000 ,000 shares and the maximum number of shares that can be allocated to any
individual is 13 ,000 ,000 shares. See Annexure 16 for more details.
Board Practices and Corporate Governance
The Company is committed to the principles of effective corporate governance and application of the highest
ethical standards in the conduct of its business and affairs. The directors endorse the King Code and recognise
the need to conduct the affairs of the Company with integrity and in accordance with generally accepted
corporate practices. The board of directors continues to improve on the recommended practices in its
governance systems, processes and procedures. The directors recognise that they are ultimately responsible
for the fi nancial performance of the Company. A full analysis of the corporate governance in the Group and
the steps taken by the Company to comply with the King Code is set out in Annexure 15.
83
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following selected consolidated fi nancial information is derived from the Consolidated Financial
Statements , which were prepared in accordance with IFRS and the Listings Requirements. The fi nancial
information for the years ended 31 March 2013 and 2012 has been restated for the effects of the disposal of
Guardrisk and other businesses, which are refl ected as discontinued operations, and the adoption of IAS 19
Employee Benefi ts (Revised) and IFRS 10 Consolidated Financial Statements . See “Presentation of Financial
and Other Information” for more details. In addition, the Consolidated Financial Statements refl ect the effects
of certain adjustments resulting from the SARS Settlement, which was a post-balance sheet event. See Notes
8, 37.3, 44 and 50 to the Consolidated Financial Statements and “Business —Investigations and Legal
Proceedings —SARS Settlement” .
The consolidated fi nancial information of the Group as at and for the fi nancial years ended 31 March 2014,
2013 and 2012 presented in this pre-listing statement has been audited by PricewaterhouseCoopers, auditors
and independent reporting accountants, as stated in their report included in Annexure 3 to this pre-listing
statement.
The selected consolidated fi nancial information presented below should be read in conjunction with the section
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated
Financial Statements included in Annexure 2 to this pre-listing statement.
The directors accept responsibility for the report of historical fi nancial information contained in this
pre- listing statement.
Consolidated Income Statement Data
Year ended 31 March
2014 2013 2012
(R million)
Continuing operationsFee and commission income 4 ,776 4 ,038 3 ,603
Direct expenses attributable to fee and commission income (801) (651) (591)
Net income from insurance operations 417 350 310
Net revenue 4 ,392 3 ,737 3 ,322Operating expenses (3 ,352) (2 ,812) (2 ,460)
Trading profi t 1 ,040 925 862Non-trading and capital items (108) (113) (108)
Operating profi t 932 812 754Investment income 233 129 161
Finance costs (843) (848) (816)
Share of net profi t of associates (net of income tax) 2 1 1
Profi t before taxation 324 94 100Income tax expense (487) (192) (316)
Loss for the year from continuing operations (163) (98) (216)Discontinued operationsProfi t/(loss) on discontinued operations (net of income tax) 542 (10) 157
Profi t/(loss) for the year 379 (108) (59)
Profi t/(loss) attributable to:
Equity holders 269 (191) (136)
Non-controlling interest 110 83 77
379 (108) (59)
84
Consolidated Balance Sheet Data
As at 31 March
2014 2013 2012
(R million)
ASSETSFinancial assets held under multi-manager investment
contracts 253 ,747 222 ,790 209 ,994
Financial assets of cell-captive insurance facilities 315 11 ,374 9 ,484
Property and equipment 335 239 165
Purchased and developed computer software 80 129 166
Goodwill 3 ,985 4 ,490 4 ,652
Intangible assets 886 1 ,211 1 ,437
Investments in associates 6 4 3
Deferred tax assets 117 164 110
Financial assets 409 2 ,064 1 ,209
Insurance receivables 814 1 ,073 896
Trade and other receivables 873 935 913
Cash and cash equivalents 3 ,907 3 ,626 3 ,062
Assets of disposal group classifi ed as held for sale 91 29 ,938 288
Total assets 265 ,565 278 ,037 232 ,379
EQUITY AND LIABILITIESShare capital and premium 5 ,819 3 ,261 3 ,261
Treasury shares (405) (21) (29)
Accumulated loss (889) (1 ,162) (967)
Other reserves 102 (8) (173)
Equity holders’ funds 4 ,627 2 ,070 2 ,092
Non-controlling interest 210 194 185
Total equity 4 ,837 2 ,264 2 ,277
Financial liabilities held under multi-manager investment
contracts 253 ,747 222 ,790 209 ,994
Liabilities of cell-captive insurance facilities 315 11 ,374 9 ,484
Borrowings 1 ,652 5 ,409 5 ,448
Employee benefi ts 168 181 170
Deferred tax benefi ts 432 450 491
Provisions 284 284 265
Finance lease liability 90 93 –
Operating lease liability 119 40 29
Deferred income 25 72 69
Insurance payables 2 ,270 3 ,985 2 ,693
Trade and other payables 1 ,591 1 ,353 1 ,328
Liabilities of disposal group classifi ed as held for sale 35 29 ,742 131
Total liabilities 260 ,728 275 ,773 230 ,102
Total equity and liabilities 265 ,565 278 ,037 232 ,379
85
Consolidated Cash Flow Data
Year ended 31 March
2014 2013 2012
(R million)
Cash fl ows from operating activitiesCash generated from operations 1 ,331 1 ,101 830
Interest received 228 137 169
Finance costs paid (2 ,125) (593) (567)
Movement in working capital and insurance balances 501 300 728
Cash settlement of cash management claims (7) – (3)
Cash settlement of retirement benefi t obligations (7) (7) (6)
Cash fl ows from policyholder investment contracts (5 ,054) (2 ,482) (3 ,223)
Taxation paid (387) (426) (242)
Cash fl ows from operating activities – discontinued
operations 163 227 246
Net cash outfl ow from operating activities (5 ,357) (1 ,743) (2 ,068)
Cash fl ows from investing activitiesNet proceeds from sale of subsidiaries, associates and
businesses 1 ,236 279 (153)
Repayment of assumed debt by acquirer – – 511
Investment in fi nancial assets (594) (617) (759)
Proceeds on disposal of fi nancial assets 580 597 10
Movement in premium fi nance receivables – – (37)
Capital expenditure incurred on property, equipment and
computer software (208) (106) (119)
Capital expenditure incurred on goodwill – – (12)
Proceeds from sale of property, equipment and computer
software 6 3 1
Cash fl ows from investing activities – discontinued
operations 22 (5) (2)
Net cash infl ow/(outfl ow) from investing activities 1 ,042 151 (560)
Cash fl ows from fi nancing activitiesIssue of shares 1 ,903 – –
Increase in shareholder loan 4
Borrowings raised by SPVs in order to purchase shares 386 – –
Borrowings raised 1 ,250 – –
Repayment of borrowings (4 ,095) (252) (642)
Payments made to non-controlling interests (126) (74) (76)
Cash fl ows from fi nancing activities – discontinued
operations – – 29
Net cash outfl ow from fi nancing activities (678) (326) (689)
Decrease in cash and cash equivalents (4 ,993) (1 ,918) (3 ,317)
Cash and cash equivalents at beginning of year 16 ,975 18 ,833 22 ,06 8
Foreign subsidiaries exchange differences 147 60 82
Cash and cash equivalents at end of year 12 ,129 16 ,975 18 ,83 3
86
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS
The following discussion of the Group’s financial condition and results of operations should be read in
conjunction with the Consolidated Financial Statements included in Annexure 2 to this pre-listing statement,
as well as the information presented under “Presentation of Financial and Other Information” and “Selected
Financial and Other Information”.
In connection with the preparation of the Consolidated Financial Statements, the Group has made certain
adjustments to its previously reported historical financial information. The Group has restated certain comparable
figures for financial year 2013 and financial year 2012 in accordance with IFRS to reflect the impact of the
disposal of Guardrisk and other businesses and their reclassification as discontinued operations, and the
adoption of IAS 19 Employee Benefits (Revised) and IFRS 10 Consolidated Financial Statements. See Note 50
to the Consolidated Financial Statements.
In addition, the Consolidated Financial Statements reflect the effects of certain adjustments resulting from the
SARS Settlement, which was a post-balance sheet event that occurred between the date of authorisation of the
Group’s annual financial statements on 9 June 2014 and the date of authorisation of the Consolidated Financial
Statements. See Notes 8, 37.3, 44 and 50 to the Consolidated Financial Statements and “Business —Investigations
and Legal Proceedings —SARS Settlement”. All financial information for financial year 2013 and financial
year 2012 in this pre-listing statement is presented on a consistent basis with the financial information for
financial year 2014.
Unless otherwise noted, all financial information in this pre-listing statement is presented on a continuing
operations basis. See “Presentation of Financial and Other Information”.
The following discussion contains forward-looking statements that involve risks and uncertainties. Actual
results may differ materially from those discussed in the forward-looking statements as a result of various
factors, including those set forth in “Special Note Regarding Forward-Looking Statements” and “Risk Factors”.
Summary
In financial year 2014, the Group generated net revenue of R4.4 billion and trading profit of R1.0 billion as
compared with R3.7 billion and R0.9 billion, respectively, for financial year 2013. In financial year 2014,
64.2% of the Group’s net revenue and 80.3% of trading profit was derived from the South African operations,
5.7% of net revenue and 4.6% of trading profit was derived from the sub-Saharan African (excluding South
Africa) operations, and 30.1% of net revenue and 19.6% of trading profit was derived from the non-African
(primarily UK) business. Unless otherwise noted, all financial information in this pre-listing statement is
presented on a continuing operations basis. See “Presentation of Financial and Other Information”.
The Group has a number of operating segments for financial reporting purposes, which are categorised by
their geographic regions: Africa (which includes AFFS, Investment Solutions, AFI and AfriNet) and
International (which includes AF International, mainly comprising LCP). The accounting policies of the
segments are the same as those for the Group on a consolidated basis. See “ —Factors Affecting Comparability
of Results —Divestments and Changes in Segment Reporting” for a description of changes in the Group’s
segment reporting due to the disposal of certain businesses in recent years.
Key Income Statement Line Items
Net Revenue
Net revenue consists of income earned net of direct expenses, such as underlying asset manager fees paid by
Investment Solutions and reinsurance premiums paid by the short- and long-term insurers in the Group.
Given the diverse nature of the Group’s activities, the Company believes net revenue is a more appropriate
measure for the purpose of financial analysis of the Group’s results than gross revenue from operations.
The Group generates net revenue primarily from two sources:
• commissions (when the Group acts in the capacity of an agent rather than as the principal in a transaction)
and fees in respect of actuarial and consultancy services, asset management, administration services,
individual financial planning and advisory services and brokerage. Direct expenses attributable to fee and
commission income include fees paid to underlying asset managers, directly related commissions paid to
consultants and sub-brokers and administration fees paid to outsource partners where such administration
relates directly to income generating activities; and
• net underwriting profit from the risk-taking activities of long-term and short-term insurance operations.
87
Operating Expenses
As a financial services group, the Group’s principal operating expense is staff costs, primarily salaries,
bonuses, wages and other benefits. The Group also incurs operating lease charges, mainly related to premises
occupied by its operations in all geographies in which it operates, and computer and IT costs. To improve
efficiency and operating integrity, the Group has invested significant amounts in its core operating IT systems,
resulting in IT being a material, albeit consistent, part of its operational expenditure. In addition, the Group
pays annual premiums towards a comprehensive insurance programme which covers professional indemnity
insurance against E&O claims and general asset and other insurance.
Non-Trading and Capital Items
The trading profit is made up of trading activities of the Group. The trading activities are those revenues and
expenses generated by the business operations of the Group that are regularly reported to the board of
directors when making resource allocation decisions and assessing operational performance. Items of an
exceptional nature that are not considered to be fundamental to the resource allocation and performance of
business operations are thus disclosed separately as non-trading and capital items.
Non-trading activities relate to items such as the Group professional indemnity insurance cell, adjustments
arising due to business combinations, non-recurring items linked to corporate finance activities, items related
to historical client settlement, impairment losses and recoveries and capital gains or losses on sale of non-
current assets. Items of non-trading nature do not typically form part of management’s consideration of the
operational performance or allocation of resources of the Group.
Other Line Items
Investment income (except as noted below) comprises interest income on invested funds, largely for regulatory
purposes, dividend income and fair value gains on financial assets designated at fair value through profit or
loss. Interest income is recognised on a time -proportionate basis in profit or loss, using the effective interest
method. Dividend income is generally recognised when the right to receive payment is established, which is
the ex-dividend date for equity securities. Also included in investment income is income recognised in respect
of individual policyholder funds of long-term insurance operations to the extent of tax liabilities related to
linked investment policyholders where such funds are disinvested from policyholder assets in order to fund
related tax liabilities.
Finance costs comprise interest expense on borrowings and unwinding of discount on provisions and
contingent consideration and fair value losses on financial assets at fair value through profit or loss. All
borrowing costs are recognised in profit or loss using the effective interest method.
Income tax expense comprises current and deferred taxes, capital gains tax, as well as secondary tax on
companies applicable in South Africa. Due to the nature of indirect taxes, including non-recoverable value-
added tax, stamp duty and skills development levies, these are included in operating expenses in profit or loss.
Current tax and deferred tax is recognised in profit or loss, except to the extent that it relates to a business
combination, or items recognised directly in equity or in other comprehensive income. Also included in
taxation is tax in respect of taxed individual policyholder’s funds of long-term insurance operations.
Profit/(loss) on discontinued operations (net of income tax) comprises the results of operations that have been
disposed of or are held for sale. Classification as a discontinued operation occurs upon disposal or when the
operation meets the criteria to be classified as held for sale under IFRS, if earlier. When an operation is
classified as a discontinued operation, the comparative income statement and statement of cash flows are
represented as if the operation had been discontinued from the start of the comparative year.
Non-controlling interests in the net assets of subsidiaries are separately identified and presented from the
Group’s equity therein. Non-controlling interests can initially be measured either at fair value or at the
non-controlling interest’s proportionate share of the subsidiary’s identifiable net assets at the acquisition date.
The method of measurement is determined on an acquisition-by-acquisition basis.
Non-controlling interest in the profit or loss for the year represents the interests of minority shareholders of
consolidated subsidiaries in the reported profits or losses of each such entity for the year.
Key Balance Sheet Line Items
Financial Assets/Liabilities Held Under Multi-Manager Investment Contracts
The financial assets held by the Group’s multi-manager investment subsidiaries under insurance contracts
are, in the form of linked investment contracts, directly matched by linked obligations to policyholders in
these subsidiaries, and the financial assets held in unit trusts managed by these subsidiaries are also directly
matched to link obligations to unitholders. These investments are consolidated in the Group financial
statements. The balances of these assets are impacted principally by premium inflows, withdrawals, investment
returns, fees, deconsolidation of mutual funds (reductions in portfolios below majority holdings) and foreign
exchange fluctuations. The Group has no direct interest in the risk and reward or profit and loss arising from
such assets other than fees it earns from the management of such assets.
88
Goodwill
Goodwill arises from the acquisition of subsidiaries, associates and joint ventures. The carrying value of
goodwill is assessed for potential impairment annually. In addition, the carrying values of goodwill associated
to operations which are discontinued are reclassified to the “assets of disposal groups classified as held for
sale” and if required these goodwill balances are impaired. Valuation of goodwill balances resulted in
impairment charges of R114 million in financial year 2014, these impairments were for discontinued
operations. The Group recorded no goodwill impairment losses in the prior financial year. The largest
component of goodwill arose in the 2007 Acquisition, when an acquiring holding company was created.
Other Intangible Assets
Other intangible assets arise largely from the acquisition of subsidiaries, associates and joint ventures, and
comprise values attributed to contractual customer relationships and market-related intangible assets. All
intangible assets are non-current in nature. The carrying value of other intangible assets was R886 million at
31 March 2014, compared to R1 ,211 million at 31 March 2013. As with goodwill balances the carrying values
of other intangible assets associated to operations which are discontinued are reclassified to the “assets of
disposal groups classified as held for sale”. The reduction of the balance from 2013 to 2014 was primarily due
to this reclassification and subsequent disposal of discontinued operations, as well as ongoing accounting
amortisation. Similar to goodwill above, most of the intangible assets arose at the time of the 2007 Acquisition.
Employee Benefits
Employee benefits reflected on the balance sheet comprise a defined benefit pension fund, which is in a surplus,
a post-retirement medical benefit obligation and a provision for leave pay. Both the defined benefit pension
fund and the post-retirement medical benefit subsidy are closed to new entrants and are applicable to certain
South African employees only. The post-retirement medical benefits that the Group provides are conditional
on employees remaining in service up to retirement age. The majority of employees participate in defined
contribution pension funds.
While the Alexander Forbes Staff Pension Fund, a defined benefit pension fund for certain of the Group’s
employees, has for a number of years been closed to new entrants and its trustees are employees of the Group,
the trustees of this fund are entitled to determine the amounts payable by the participating companies within
the Group as employer contributions to the fund. The Group may not control the amount of the contributions
payable by employers to this fund, as this decision is made at the discretion of the trustees. If the fund is in
deficit in the future, the participating companies within the Group would assume the risk of any shortfall.
Insurance Receivables/Payables
Insurance receivables and payables include amounts due from and owing to third-party insurance and
reinsurance companies, including amounts for premiums and commissions, as well as short-term insurance
technical liabilities (in payables) and related assets recoverable from reinsurers (in receivables) for unearned
premiums, outstanding claims and incurred but not reported claims. Long-term insurance liabilities payable
to policyholders and the related assets recoverable from reinsurers are included in insurance-related payables
and receivables, respectively.
Cash and Cash Equivalents
Cash and cash equivalents include: cash on hand, deposits held on call with banks, other short-term highly
liquid investments with original maturities of three months or less, and bank overdrafts offset against cash
balances in terms of the Group’s cash management arrangements with its transactional bankers. Cash and
cash equivalents also include cash held in a nominee capacity such as premium received to be paid to third-
party insurers in the Group’s short-term insurance broking business. A significant portion of the cash and
cash equivalents balance is restricted or relates to linked investment policyholder cash.
Insurance Operations
The Group writes various lines of insurance, including short-term and long-term insurance. It has limited
underwriting exposure primarily due to the type and level of reinsurance protection taken out. Management
determines the optimal level of risk exposure based on overall risk appetite and claims experience. The ultimate
decision as to the level of exposure the Group retains is subject to approval by the board of directors.
The Group’s short-term insurance business provides personal lines insurance to the general public in their
individual capacities. Personal lines cover offered includes property, casualty, personal accident and motor.
These contracts are generally monthly renewable contracts, with a few annual policies, and tend to be “short-
tail”, meaning that the loss is expected to be settled with one year of the date of loss. “Long-tail” exposure,
which arises in personal accident, third-party motor and public liability cover, represents less than 0.1% of an
average year’s claims. The Group reinsures between 75% and 90% on a proportional basis and also has non-
proportional reinsurance providing protection on a per risk and catastrophe basis. Assets and liabilities from
short-term insurance operations are included in the Group’s consolidated balance sheet in the appropriate line
item within its assets and liabilities.
89
The Group’s long-term insurance contracts consist of annually renewable group life mortality and morbidity
contracts and individual life contracts. The group life business consists of insurance for retirement funds and
other group schemes and covers the contingencies of death and disability, while the individual life business
covers death, disability and impairment contingencies. There are no surrender values or investment
components inherent in any of these policies. The Group reinsures approximately 80% of the group risk cover
and individual life cover books, while a small group funeral book is not reinsured. It has catastrophe
reinsurance to cover accumulation or concentration risk on both group life and individual life businesses.
Assets and liabilities from long-term insurance operations are included in the Group’s consolidated balance
sheet in the appropriate line item within its assets and liabilities.
Factors Affecting Results of Operations
Inflows and Outflows of Client Assets
The level of revenue in Investment Solutions and, to an extent, in AFFS, is impacted by net client cash flows
into or out of multi-manager portfolios, pension funds under advisement or administration and living annuity
products. In addition to inflows from new clients and outflows from lost clients, there is also the effect of
ongoing cash flows mainly from the normal course of business of pension fund clients making ongoing
monthly contributions and to pay benefits to members of these funds. Over time, the Group has experienced
an increase in the level of cash outflows in the form of ongoing benefit payments to members of retirement
funds as these members move out of and/or transfer from their retirement fund, which may be due to a variety
of factors including a change in employment. This increase is the result of a number of factors:
• The ongoing restructuring of corporates in South Africa resulting in the reduction of the number of
people employed and the offer of early retirement. There is a greater number of individuals leaving formal
employment than the number of individuals joining retirement schemes contracted to us.
• The ongoing shift from formal employment to more temporary arrangements where employers are not
obligated to offer retirement options to temporary workers.
• The performance of the capital markets in recent years has resulted in an increase in the value of pension
fund members’ credits leading to the withdrawal amounts being higher than they were previously.
In contrast, the cash inflows from the normal course of business in the form of ongoing contributions from
clients is generally driven by the level of payroll inflation, which has been significantly lower than the
investment returns, and by higher employment rates, which result in new members joining retirement funds.
Conditions in Equity and Debt Markets
The overall movement in capital markets is the single biggest variable in the funds under management and
the Group’s revenues and profitability are strongly correlated with capital market movements. The fees earned
for multi-manager and other investment advisory services, as well as the overall level of client satisfaction,
which consequently affects client retention, depend in large part on how well the multi-managers’ investment
portfolios and other advised investments perform. This performance, in turn, can be affected by the performance
of the markets (particularly the equity markets, where the Group’s total asset base has the greatest exposure)
in which such managers choose to place client funds. In periods in which capital markets are unsettled or
volatile, the multi-managers’ investment portfolios may perform less satisfactorily in the short term, and the
Group’s revenues may exhibit similar signs of volatility during such periods.
Conditions in Insurance Markets
The short-term insurance business is impacted by the cycles in the insurance markets. “Soft” markets arise
where there is excess underwriting capacity and strong price competition, and result in lower premium levels.
In a soft market, the Group’s short-term insurance business is affected by the resultant lower reinsurance
commission (which is based on a percentage of premiums), lower premium flows and, hence, interest earnings,
high client churn and worsening loss ratios and contribution from underwriting. When insurance markets
“harden”, the opposite typically occurs. Furthermore, in the short-term insurance market, loss ratios are
often impacted by weather-related incidents, such as hailstorms and floods.
Currency Rate Fluctuations
The Group operates business units and transacts business in several jurisdictions and, as such, is subject to
risks of exchange rate fluctuations. Its single largest exposure is to the pound sterling. The treatment of
gains or losses arising from exchange rate movements is detailed below. See also “Exchange Rates and
Exchange Control”.
Functional and presentation currency
The financial statements of each of the Group’s subsidiaries are compiled using the currency of the primary
economic environment in which they operate (the “functional currency”). The Consolidated Financial
Statements are presented in Rand, which is its presentation currency.
90
Foreign exchange gains and losses arising on transactions
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing
on the date of the transactions. Foreign exchange gains and losses resulting from the settlement of such
transactions are recognised in the income statement.
Foreign exchange gains and losses arising on consolidation
The results and financial position of all the Group’s subsidiaries that have a functional currency other than
the Rand are translated into Rand as follows: all assets and liabilities for each balance sheet item are translated
at the closing rate at the relevant balance sheet date; all income and expenses for each income statement item
are translated at the average exchange rates for the relevant financial period (unless this average is not a
reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which
case income and expenses are translated using the applicable exchange rates at the dates of the transactions);
and all resulting exchange differences are recognised in the foreign currency translation reserve in equity.
Foreign exchange gains and losses on borrowings and other currency instruments designated as hedges of
such investments are similarly transferred to, and recognised in, the foreign currency translation reserve in
other comprehensive income and accumulated in the foreign currency translation reserve. On disposal of a
foreign entity, all of the exchange differences accumulated in equity of such entity are reclassified to profit or
loss. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as the
foreign entity’s assets and liabilities and are translated at the closing rate.
Factors Affecting Comparability of Results
Divestments and Changes in Segment Reporting
The Group has engaged in a series of divestments in recent years as it optimised its portfolio of companies and
services in line with its strategic focus. In line with the requirements of IFRS, assets and liabilities held at the
end of the period in respect of discontinued operations, where the disposal process is ongoing, have been
reclassified as assets and liabilities of asset groups held for sale. The segmental report has been presented to
take account of the effects of discontinued operations including the reallocation of shared services expenses
that were previously allocated to currently discontinued operations, but which remain in the continuing cost
base of the Group. These expenses amounted to R31 million in financial year 2014, R59 million in financial
year 2013 and R56 million in financial year 2012.
On 4 November 2013, the Group announced the disposal of the Guardrisk business unit, which represented
8% and 12%, respectively, of its financial year 2013 net revenue and trading profit, for R1.6 billion, which
amounted to R1.5 billion of net proceeds, taking into account related expenses and capital gains tax. The
disposal was completed in March 2014 and the Guardrisk business unit has been reclassified as a discontinued
operation for financial year 2014.
During financial year 2013, the Group disposed of AFCA UK for R238 million. In addition, the board decided
to dispose of the Investment Solutions UK business, the Media Insurance Services (Direct Marketing) businesses
in the United Kingdom, the LCP Libera business in Switzerland and other smaller operations in southern
Africa. These disposals did not affect the holdings in the consulting actuarial partnership of LCP or Investment
Solutions SA. For financial year 2013, these businesses were treated as discontinued operations and the
Investment Solutions business unit within the International segment was eliminated from the Group’s
segmental reporting.
In financial year 2012, the Group announced the disposal of its Risk Services businesses, which engaged in
short-term insurance broking activities in Africa. Following the completion of the core transaction in financial
year 2012, the sales of remaining insurance broking operations in parts of Africa were completed during
financial year 2013. The proceeds from these transactions, net of assumed debt of R51 1 million, amounted to
R7 1 million, with a further amount of R17 million received in financial year 2013. For financial year 2012,
all of these businesses were treated as discontinued operations and the Risk and Insurance Services segment
was unbundled in order to eliminate the South Africa Risk Services business unit and to present Guardrisk
and AFI as separate segments. At the same time, the Risk Service operations within the AfriNet reporting
segment were also treated as discontinued operations and the operational management and control of the
AFCT business were transferred to the AFFS business unit.
Results of Operations
The following discussion is based on the Consolidated Financial Statements. You should read it together with
these financial statements, and it is qualified in its entirety by reference to them.
91
Year Ended 31 March 2014 Compared to Year Ended 31 March 2013
Set forth below are the Group’s results of operations for financial years 2014 and 2013:
Year ended 31 March
2014 2013
(R million)
Continuing operations Fee and commission income 4 ,776 4 ,038
Direct expenses attributable to fee and commission income (801) (651)
Net income from insurance operations 417 350
Net revenue 4 ,392 3 ,737Operating expenses (3 ,352) (2 ,812)
Trading profit 1 ,040 925Non-trading and capital items (108) (113)
Operating profit 932 812Investment income 233 129
Finance costs (843) (848)
Share of net profit of associates (net of income tax) 2 1
Profit before taxation 324 94Income tax expense (487) (192)
Loss for the year from continuing operations (163) (98)Discontinued operationsProfit/(loss) on discontinued operations (net of income tax) 542 (10)
Profit/(loss) for the year 379 (108)
Profit/(loss) attributable to:
Equity holders 269 (191)
Non-controlling interest 110 83
Profit/(loss) for the year 379 (108)
Net revenueThe Group continued to show good growth in net revenue across all of the continuing operations in financial
year 2014. Net revenue increased by R655 million, or 17.5%, from R3 ,737 million in financial year 2013 to
R4 ,392 million in financial year 2014, primarily due to strong new business flows in the South African and
International Financial Services businesses and Investment Solutions benefiting from good new business
flows and strong equity market performance. The weakening Rand had an additional positive effect on
revenue contribution from the International operations for financial year 2014. The strategy to grow the
geographical segment throughout the Group’s African operations continued to show good progress, with
Retails combined net revenue increasing by 12%.
Of the total net revenue growth described above, net fee and commission income increased by R738 million,
or 18.3%, from R4 ,038 million in financial year 2013 to R4 ,776 million in financial year 2014, while net
income from insurance operations increased by R67 million, or 19.1%, from R350 million in financial year
2013 to R417 million in financial year 201 4.
Net revenue by business unit for financial years 201 4 and 201 3 is set forth below:
Year Ended 31 March Change
2014 2013 %
(R million, unless otherwise noted)
Africa continuing operationsAFFS 1 ,754 1 ,603 9
Investment Solutions 717 635 13
AFI 350 307 14
AfriNet 249 202 23
Total Africa continuing operations 3 ,070 2 ,747 12
92
Year Ended 31 March Change
2014 2013 %
(R million, unless otherwise noted)
International (£m)Financial Services 81 73 11
Total International (£m) 81 73 11
Total International 1 ,322 990 34
Total continuing operations 4 ,329 3 ,737 18
In the Africa segment, net revenue increased by R323 million, or 11.8%, from R2 ,747 million in financial year
2013 to R3 ,070 million in financial year 2014. The results by business unit are described below:
• AFFS – Net revenue increased by R151 million, or 9.4%, from R1 ,603 million in financial year 2013 to
R1 ,754 million in financial year 2014. Strong new business growth was achieved in all major divisions,
with annualised institutional new business volumes growing by 34% year-on-year and Retail new business
assets under advisement growing by 26% year-on-year. Client retention remained high.
Growth in members under administration in the retirement fund administration business continued, with
the number of active member records under administration exceeding 997 ,000 at 31 March 2014, which
represents a growth of 11% year-on-year. The Group’s client base to which AFFS provides advice and
administration services increased by 7%. Importantly, AFFS saw an increase in the proportion of assets, in
respect of members exiting funds administered by it, being advised by the Financial Planning Consultants
division. A continued focus on Retail resulted in the Retail assets under advisement growing by 21% year-
on-year to R48.5 billion at 31 March 2014.
Total umbrella fund assets under management were R57.3 billion at 31 March 2014, a growth of 24% year-
on-year.
AFFS continued to focus on the public sector division and showed good progress in building its brand
within the sector and strengthening strategic networks and relationships. This has resulted in strong new
business growth in this sector. AF Healthcare also achieved strong new business flows. The retirement
fund consulting and actuarial division improved its contribution and increased its trading margin.
Despite a decline in trading profit, AFCT has achieved some significant new business wins in financial year
2014. Most of the revenue generation from this new business will not, however, be recognised until fiscal
year 2015.
• Investment Solutions – Net revenue increased by R82 million, or 12.9%, from R635 million in financial
year 2013 to R717 million in financial year 2014. Closing assets under management and administration
increased by 20% to R285 billion as at 31 March 2014, of which R256 billion were assets under investment
management. Average assets under management increased by 18% compared to the previous financial
year. Income from operations, net of underlying asset manager fees, increased by 13% year-on-year to
R717 million. Trading profit grew by 16% to R360 million, driven by growth in equity markets and improved
asset accumulation. The clients under administration utilising the business’s investment management
platform continued to deliver strong growth, although this business line operates at lower margins.
New business flows increased during financial year 2014, although the ongoing benefit payments to fund
members remained relatively high compared to ongoing contributions into funds, reflecting the underlying
cash negative trend in the South African retirement fund space. Investment Solutions recorded R14 billion
gross new flows, driven mainly by the R7 billion of new flows into the platform business (administration).
Investment Solutions continues to focus on improving its wider asset accumulation strategies in line with
its long-term growth plan.
Most of Investment Solutions investment portfolios performed well against peers and were ahead of their
respective benchmarks over the medium- to long-term measurement periods. During financial year 2014,
approximately 88% of funds were ahead of benchmark on a rolling 12-month period.
• AFI – Net revenue (net income from insurance operations and administration) increased by R43 million,
or 14.0%, from R307 million in financial year 2013 to R350 million in financial year 2014. Gross written
premiums increased by 15% to R1 ,224 million, in a highly competitive market. New business gains from
Alexander Forbes Business Insurance (launched in April 2012) continued, with annualised gross new
business written increasing by 58% to R29 million for the year.
Short-term insurers in South Africa continue to face a tough underwriting business cycle with significant
increases in loss ratios. AFI experienced a number of weather-related claim events, including severe hail
storms in Gauteng and flooding in various parts of the country. These events, coupled with the decrease in
93
the Rand-dollar exchange rate, contributed to AFI not achieving its long-term targeted loss ratio in
financial years 2013 and 2014.
Despite the negative impact on underwriting results, net operating income, net of reinsurance, increased
by 14% to R350 million. Expenses increased 15%, driven in part by AFI’s ongoing commitment to increase
its sales capacity as well as its continued investment in Alexander Forbes Business Insurance.
Profit from operations for fiscal year 2014, including the negative impact of underwriting and sustained
investment in AFI’s sales capacity, increased by 10% to R88 million.
• AfriNet – Net revenue increased by R47 million, or 23.3%, from R202 million in financial year 2013
to R249 million in financial year 2014. The increase was primarily due to the initiatives focused on
strengthening AfriNet’s existing operations through better market positioning, deeper, multi-product
penetration, selective introduction of new products and stronger governance and control measures.
The operating environment in the AfriNet operations remains challenging and highly competitive in
certain areas. Positive legislation changes occurred in the year in Kenya with the National Social Security
reform being enacted in December 2013 and similar pending legislation to be enacted in Uganda in 2015.
These changes are expected to have a positive impact on retirement savings levels in those countries and
AfriNet believes it is well placed to pursue these opportunities.
AfriNet’s operations in Namibia and Botswana continued to deliver solid results, with the Group’s short-
term insurer in Namibia, Alexander Forbes Insurance, continuing to show significant growth in premium
income and new business and gaining market share. The operations in Kenya experienced another good
year, demonstrating AfriNet’s strong position in that market. AfriNet’s Nigerian and Zambian financial
services operations, although in the start-up phase, are showing good new market growth prospects.
In the International segment, net revenue increased by £8 million, or 11%, from £73 million in financial year
2013 to £81 million in financial year 2014. Revenue growth across the UK and European operations continued
to be affected by the economic environment and pressure on charge-out rates as clients manage their
expenditure. Despite this, the businesses continued to win new business and capitalise on the demand for
trustee, consulting and investment advice as well as de-risking solutions.
The significant growth in Rand earnings resulted from a 21% deterioration in the average sterling exchange
rate. LCP continues to provide the Group with a component of Rand hedge.
During financial year 2014, the Group largely concluded the disposals of non-core and sub-scale investments
in the United Kingdom and Europe. This included the disposals of the Investment Solutions UK business, the
Media Insurance Services (Direct Marketing) businesses in the UK and the LCP Libera (Switzerland) business.
These businesses were already treated as discontinued operations in financial year 2013. In addition,
AF Trustee Services was disposed of in March 2014. Continuing operations in the International segment now
mainly comprise LCP.
Operating Expenses
Operating expenses (excluding non-trading items) of continuing operations increased by R540 million, or
19.2%, from R2 ,812 million in financial year 2013 to R3 ,352 million in financial year 2014, which includes the
impact of the weaker Rand when converting the expenses incurred in pound sterling to the reporting currency.
The Group continues to balance disciplined cost management in the established business areas with investment
in the strategic growth areas, particularly in support of its expansion in the individual Retail segment.
The following table sets forth the components of the Group’s operating expenses in financial years 201 4
and 201 3:
Year ended 31 March
2014 2013
(R million)
Amortisation (7) (6)
Computer and IT costs (127) (88)
Depreciation (73) (74)
External auditors’ remuneration (31) (26)
Insurance costs (94) (86)
Operating lease charges (223) (183)
Staff costs (2 ,316) (1 ,942)
Other operating expenses (481) (407)
Total operating expenses (3 ,352) (2 ,812)
94
Apart from the impact on expenses resulting from the weaker exchange rate used to translate the international
operating expenses to Rand, the increase in operating expenses in financial year 2014 was primarily due to
further investment in the strategic growth areas of the Group, including the appointment of further new
business consultants in AFI and financial planners and advisors supporting the retail strategy. In addition,
the Group has experienced significant increase in regulatory compliance and related cost in preparation for,
among others, the introduction of the SAM regime and various new developments in regulation and legislation.
See “Regulation”. The recent disposals of businesses resulted in some shared services cost, previously absorbed
by those businesses, having to be absorbed by the remaining continuing operations of the Group. In addition,
financial year 2014 also reflects a significant negative impact resulting from the prescribed method used to
account for operating leases, resulting from the move of the Group’s head office to the new premises in
Sandton. In terms of IFRS accounting standards, the annual contractual rent escalations, despite being
market-related, are required to be accounted for on a straight-line basis over the term of the lease. This
increases the lease cost in the first half of the 12-year rental period and reduces the lease cost in the latter half
of the rental period. The impact of this accounting is therefore significantly pronounced in the year of
transition from the previous premises to the new premises, notwithstanding the fact that the actual rental
cost is slightly less than before. The net impact on year-on-year cost amounted to R47 million. Once the
transition is complete, the accounting cost of rental will remain the same for the remainder of the 12-year
lease until the next renewal. This effect has been isolated in the Group’s segmental reporting for clarity.
Trading Profit
Trading profit from continuing operations increased by R115 million, or 12.4 %, from R925 million in financial
year 2013 to R1 ,040 million in financial year 2014. Adjusting for the impact of the accounting treatment for
the long-term operating leases, the adjusted growth rate in trading profit would have been 16.5%.
Trading profit by business unit for financial years 201 4 and 201 3 is set forth below:
Year ended 31 March Change
2014 2013 %
(R million, unless otherwise noted)
Africa continuing operationsAFFS 387 365 6
Investment Solutions 360 311 16
AFI 88 80 10
AfriNet 48 36 33
Total Africa continuing operations 883 792 11
International (£m)Financial Services 12 10 20
Total International (£m) 12 10 20
Total International 204 141 46
Total continuing operations – excluding property lease 1,087 933 17
Accounting for property lease (47) (8) 500
Total continuing operations – including property lease 1,040 925 12
Investment Income
Investment income related to individual linked investment policyholder funds amounted to R162 million in
financial year 2014, compared to R100 million in financial year 2013. The remaining investment income
increased by R42 million, or 145%, from R29 million in financial year 2013 to R71 million in financial year
2014, and related mainly to the interest earned on cash and cash equivalents held to fulfil regulatory capital
requirements and the related asset spreading requirements. The increase was mainly due to increases in
regulatory capital requirements and liquidity requirements of regulated entities across the Group.
Finance Costs
Finance costs decreased by R5 million, or 0.6%, from R848 million in financial year 2013 to R843 million in
financial year 2014. The finance cost reflects the cost related to the previous capital structure of the Group
which contained significant amounts of interest bearing debt. These debt instruments were repaid as part of
the Restructure that was implemented on the last day of financial year 2014. As a result of the Restructure,
finance costs moving forward will therefore reflect the Group’s lower leverage level.
95
Income Tax Expense
Income tax expense increased by R295 million, or 153%, from R192 million in financial year 2013 to
R 487 million in financial year 2014. The income tax expense includes a component of tax related to individual
linked investment policyholders that are taxable and is the tax is funded by the fund level investment income
amounting to R162 million as described above under “ —Investment Income” . This component therefore results
in an effective tax rate of 100% against such recognised investment income. The tax expense for financial year
2014 also reflects the adjustments required for the SARS Settlement amounting to R126 million. See “Business
—Investigations and Legal Proceedings —SARS Settlement” . The remainder of the tax expense represents
mainly normal taxation paid by various entities in the Group. The effective tax rate appears high as there is
no group relief concept in South African tax law resulting in the tax deduction for interest of certain
subsidiaries being limited to their taxable income levels while other entities are in a tax paying position.
Profit/(Loss) from Continuing Operations
Loss from continuing operations (net of income tax) increased by R65 million, from a loss of R98 million in
financial year 2013 to a loss of R 163 million in financial year 2014.
The absolute value of and movement in profit after tax should be viewed in the context of the funding structure
of the Group that was in place until the completion of the Restructure which became effective only on the last
day of financial year 2014. In addition, the ongoing accounting amortisation of the intangible assets which
arose from the acquisition by the current shareholders in 2007, amounting to R144 million for financial year
2014, should also be taken into account. This amount is included in non-trading and capital items but as it is
a non-cash flow accounting amortisation effect of the 2007 Acquisition, does not impact on the economic
profits of the Group.
Profit/(Loss) on Discontinued Operations
Profit on discontinued operations (net of income tax) was R542 million in financial year 2014, compared to a
loss (net of income tax) of R10 million in financial year 2013, primarily due to the profit on disposal of the
Guardrisk group of companies. All profits and losses of discontinued operations are reflected in this line item
up to the point of the relevant disposal becoming effective and it is therefore not comparable between the
periods.
Profit Attributable to Non-Controlling Interests
Profit attributable to non-controlling interests increased by R27 million, or 32.5%, from R83 million in
financial year 2013 to R110 million in financial year 2014. The profit attributable to non-controlling interests
resulted mainly from a 40% non-controlling interest in LCP and, to a lesser extent, in certain operations
within AfriNet where minority shareholders are typically present.
Profit/(Loss) Attributable to Alexander Forbes Equity Holdings Proprietary Limited
As a result of the foregoing, the profit attributable to Alexander Forbes Equity Holdings Proprietary Limited
(currently known as Alexander Forbes Group Holdings Limited) increased by R460 million, from a loss of
R191 million in financial year 2013 to a profit of R269 million in financial year 2014. As mentioned above,
these losses should be viewed in light of the historical capital structure and the amortisation of intangible
assets arising on the 2007 Acquisition.
Year Ended 31 March 2013 Compared to Year Ended 31 March 2012
Set forth below are the Group’s results of operations for financial years 2013 and 2012.
Year ended 31 March
2013 2012
(R million)
Continuing operationsFee and commission income 4,038 3,603 Less: Direct expenses attributable to fee and commission income (651) (591)
Net income from insurance operations 350 310
Net revenue 3 ,737 3 ,322Operating expenses (2 ,812) (2 ,460)
Trading profit 925 862Non-trading and capital items (113) (108)
96
Year ended 31 March
2013 2012
(R million)
Operating profit 812 754Investment income 129 161
Finance costs (848) (816)
Share of net profit of associates (net of income tax) 1 1
Profit before taxation 94 100Income tax expense (192) (316)
Profit/(loss) for the year from continuing operations (98) (216)Discontinued operations(Loss)/profit on discontinued operations (net of income tax) (10) 157
Loss for the year (108) (59)
Loss attributable to:
Equity holders (191) (136)
Non-controlling interest 83 77
Profit/( loss) for the year (108) (59)
Net Revenue
Net revenue increased by R415 million, or 12.5%, from R3 ,322 million in financial year 2012 to R3 ,737 million
in financial year 2013. This reflects growth across all of the Group’s businesses, with three of the businesses
(Investment Solutions, AfriNet and International Financial Services) achieving double-digit growth. The
strategic growth areas of Retail, public sector division and Africa also delivered good revenue growth.
The Group’s retail initiatives contributed to revenue growth with a growth rate of 13.4%. Equity markets in
South Africa performed strongly during financial year 2013 benefiting both the AFFS and the Investment
Solutions businesses. The weakening Rand had a positive effect on revenue contribution from the International
operations for financial year 2013.
Fee and commission income increased by R435 million, or 12.1%, from R3 ,603 million in financial year 2012
to R4 ,038 million in financial year 2013, primarily due to increases of 11.7% and 11.6%, respectively, in fee
income from consulting and administration services and fee income from investment activities, which were
only partially offset by a 10.2% increase in direct expenses attributable to fee and commission income. Net
income from insurance operations increased by R40 million, or 12.9%, from R310 million in financial year
2012 to R350 million in financial year 2013 primarily due to a 20.9% increase in net earned premiums, which
was only partially offset by a 40.5% increase in net claims and transfers to policyholders’ funds.
Net revenue by business unit for financial years 2013 and 2012 is set forth below:
Year ended 31 March Change
201 3 2012 %
(R million, unless otherwise noted)
Africa continuing operationsAFFS 1 ,603 1 ,485 8
Investment Solutions 635 553 15
AFI 307 289 6
AfriNet 202 170 18
Total Africa continuing operations 2 ,747 2 ,497 10
International (£m)Financial Services 73 70 5
Total International (£m) 73 70 5
Total International 990 825 20
Total continuing operations 3 ,737 3 ,322 12Discontinued operations 994 941 6
97
In the Africa segment, net revenue increased by R250 million, or 10.0%, from R2 ,497 million in financial year
2012 to R2 ,747 million in financial year 2013. The results by business unit are described below:
• AFFS – Net revenue increased by R118 million, or 7.9%, from R1,485 million in financial year 2012 to
R1 603 million in financial year 2013. Strong new business growth was achieved in all the major divisions
and client retention remained strong despite a competitive operating environment.
Active member records in the retirement fund administration business increased by 5% compared to the
previous year to over 902 ,000 members and the retail (individual) client base increased by 6% to over
38 ,000 clients, with assets under management on the retail platform increasing by 21%. In addition, AFFS’
continued focus on its public sector division improved its brand within the sector and strengthened
strategic networks and relationships, which resulted in new business growth.
The healthcare consulting division also achieved positive new business flows and the retirement fund
consulting and actuarial division improved its contribution, increasing its trading margin. AFCT
experienced a positive year with the new business and management team achieving significant traction in
growing the business.
• Investment Solutions – Net revenue increased by R82 million, or 14.8%, from R553 million in financial
year 2012 to R635 million in financial year 2013 driven by growth in equity markets and improved asset
accumulation. The clients under administration using the business’s investment management platform
also grew.
Closing assets under administration and management increased by 22% to R238 billion as at 31 March 2013
of which R216 billion are assets under management. Average assets under management increased by 15%
compared to the previous financial year. Gross new flows of R17 billion were recorded, mainly driven by
the R11 billion of new flows from the platform business. New business flows were on an upward trend
during the year, although the ongoing benefit payments to fund members remained relatively high
compared to ongoing contributions into funds, reflecting the underlying cash negative trend in the South
African retirement fund space.
• AFI – Net revenue increased by R18 million, or 6.2%, from R289 million in financial year 2012 to
R307 million in financial year 2013. AFI continued the trend of strong gross written premium growth
in a market segment where overall growth remains somewhat depressed during the year. Gross written
premium reached R1.2 billion, 15% higher than the previous year. In financial year 2013, the South
African insurance industry experienced unusually high weather-related claims which, combined with the
fires in St Francis Bay, impacted heavily on underwriting results. However, AFI reinsures a significant
portion of its risk and this reduced the impact of the increase in claims on AFI’s results. Premium written
in Alexander Forbes Business Insurance, launched in April 2012, increased throughout the year with
annualised gross new business written reaching R18 million in the first year of its launch.
• AfriNet – Net revenue increased by R32 million, or 19%, from R170 million in financial year 2012 to
R202 million in financial year 2013. The increase was due to the focus on strengthening AfriNet’s existing
operations through better market positioning, deeper/multi-product penetration, selective introduction of
new products and stronger governance and control measures.
The operating environment in the AfriNet operations remains challenging and highly competitive in
certain areas. The larger operations of Namibia and Botswana delivered solid results and the Kenya
Financial Services operations continued to grow. The Nigerian and Zambian financial services operations,
although in start-up phase, also performed well.
In the International segment, net revenue increased by £3 million, or 4.3%, from £70 million in financial year
2012 to £73 million in financial year 2013. Revenue growth across the United Kingdom and European
operations continued to be affected by the economic environment and pressure on charge-out rates as clients
manage their expenditures. Despite this, the businesses won significant new business and capitalised on the
demand for trustee, consulting and investment advice as well as de-risking solutions.
Operating Expenses
Operating expenses (excluding non-trading items) of continuing operations increased R353 million, or 14.4%,
from R2 ,460 million in financial year 2012 to R2 ,812 million in financial year 2013 due primarily to a
R245 million increase in staff costs. The following table sets forth the components of the Group’s operating
expenses in financial years 2012 and 2013:
98
Year ended 31 March
2013 2012
(R million)
Amortisation (6) (8)
Computer and IT costs (88) (80)
Depreciation (74) (68)
External auditors’ remuneration (26) (24)
Insurance costs (86) (64)
Operating lease charges (183) (156)
Staff costs (1 ,942) (1 ,697)
Other operating expenses (407) (36 3)
Total operating expenses (2 ,812) (2 ,460)
In financial year 2013, the Group continued to balance disciplined cost management in the established
business areas with investment in the strategic growth areas, particularly to support its expansion in the
retail client market through brand building and marketing. In addition, the disposals of the Risk Services
businesses resulted in some shared services cost, previously absorbed by those businesses, having to be
absorbed by the remainder of the Group.
In addition, the requirement to account for long-term operating leases on a straight-line basis, as required by
IFRS, increased lease expenses by R45 million compared to financial year 2012 due to the long-term lease
entered into in connection with the relocation of the Group’s head office during the year.
Trading Profit
Trading profit from continuing operations increased by R63 million, or 7%, from R862 million in financial
year 2012 to R925 million in financial year 2013. Trading profit by business unit for financial years 201 3 and
201 2 is set forth below:
Year ended 31 March Change
2013 201 2 %
(R million, unless otherwise noted)
Africa continuing operationsAFFS 365 330 11%
Investment Solutions 311 279 1 1%
AFI 80 81 ( 1%)
AfriNet 36 27 3 3%
Total Africa continuing operations 792 717 10%
International (£m)Financial Services 10 9 11%
Total International (£m) 10 9 11%
Total International 141 108 31%
Total continuing operations – Excluding property lease 933 825 13%Accounting for property lease (8) 37 (122%)
Total continuing operations – including property lease 925 862 7 %
Non-Trading Items
The primary non-trading item in both financial year 2012 and financial year 2013 was a R144 million charge
related to the amortisation of intangible assets resulting from the acquisition by current shareholders in
2007. Operating profit increased R58 million, or 7.7%, from R754 million in financial year 2012 to R812 million
in financial year 2013.
Investment Income
Investment income decreased R32 million, or 19.9%, from R161 million in financial year 2012 to R129 million
in financial year 2013. Included in investment income is the income related to individual linked investment
policyholder funds which are liable for taxation and this income therefore reflects the portion attributable to
99
the funding of the related tax liability of these policyholders. This amounted to R100 million in 2013 and
R123 million in 2012. The remaining investment income of R29 million in financial year 2013 and R38 million
in financial year 2012 relates mainly to the interest earned on cash and cash equivalents held to back
regulatory capital requirements and the related asset spreading requirements.
Finance Costs
Finance costs increased R32 million, or 3.9%, from R816 million in financial year 2012 to R848 million in
financial year 2013 primarily due to the roll up of interest on various instruments. The finance cost reflects
the cost related to the previous capital structure of the Group which contained significant amounts of interest
bearing debt. These debt instruments were repaid as part of the Restructure.
Income Tax Expense
Income tax expense decreased by R124 million, or 39%, from R316 million in financial year 2012 to R192 million
in financial year 2013. The income tax expense includes a component of tax related to individual linked
investment policyholders that are taxable and the tax is funded by the fund level investment income amounting
to R100 million as described above. This component therefore results in an effective tax rate of 100% against
such recognised investment income. The remainder of the tax expense of R92 million represents mainly
normal taxation paid by various entities in the Group. The effective tax rate appears high as there is no group
relief concept in South African tax law resulting in the tax deduction for interest of certain subsidiaries being
limited to their taxable income levels while other entities are in a tax paying position.
Profit/(Loss) from Continuing Operations
Loss from continuing operations (net of income tax) decreased by R118 million from a loss of R216 million in
financial year 2012 to a loss of R98 million in financial year 2013. The absolute value of and growth in profit/
(loss) after tax should of course be viewed in the context of the historical funding structure of the Group as
well as the fact that it included the ongoing accounting amortisation of the intangible assets which arose from
the acquisition by the current shareholders in 2007, amounting to R144 million for financial year 2013.
(Loss)/Profit on Discontinued Operations
(Loss)/ profit on discontinued operations (net of income tax) decreased by R167 million from a profit of
R157 million in financial year 2012 to a loss of R10 million in financial year 2013 primarily due to a
R137 million decrease in operating profits related to the disposed businesses, the related tax thereon and to a
loss on the disposal of the Risk Services businesses in financial year 2013.
Profit Attributable to Non-Controlling Interests
Profit attributable to non-controlling interests increased by R6 million, or 7.8%, from R77 million in financial
year 2012 to R83 million in financial year 2013. The profits attributable to non-controlling interest results
mainly from non-controlling interests in LCP (in the United Kingdom) and certain operations within AfriNet.
Loss Attributable to Alexander Forbes Equity Holdings Proprietary Limited
As a result of the foregoing, the loss attributable to Alexander Forbes Equity Holdings Proprietary Limited
(currently known as Alexander Forbes Group Holdings Limited) increased by R55 million, from a loss of
R136 million in financial year 2012 to a loss of R191 million in financial year 2013. As mentioned above, these
losses should be viewed in light of the historical capital structure and the amortisation of intangible assets
arising on the 2007 Acquisition.
Liquidity and Capital Resources
General
The Group’s financial condition and liquidity is and will continue to be influenced by a variety of factors,
including:
• its ability to generate cash flows from its operations;
• the level of outstanding indebtedness and the interest it is obligated to pay on this indebtedness;
• divestments of businesses;
• capital expenditure requirements; and
• regulatory changes affecting capital adequacy requirements.
The following table sets forth the Group’s cash flows for the periods indicated:
100
Year ended 31 March
2014 2013 2012
(R million )
Cash flow from operations (excluding policyholder
cash flows) ( 303) 739 1 ,155
Policyholder cash flows (5 ,054) (2 ,482) (3 ,223)
Net cash (outflow ) from operating activities (5 ,3 57) (1 ,743) (2 ,068)
Net cash (outflow)/inflow from investing activities 1 ,042 151 (560)
Net cash (outflow) from financing activities (678) (326) (689)
Net movement in cash and cash equivalents (4 ,9 93) (1 ,918) (3 ,317)
A significant portion of cash flows have “annuity-type” characteristics, with high client retention rates on
annually renewable business. In addition, in many areas of the Group’s business, the collection of income is
largely within the Group’s control. For example, in Investment Solutions, management fees are accrued on a
daily basis during the month and are collected at the end of each calendar month. Similarly, in the retirement
fund administration business, fees are paid from the various funds under administration, while in the insurance
business, receipt of a substantial part of income is typically linked to the flow of clients’ insurance premiums.
The Group is not a capital intensive business and therefore its capital expenditure requirements are not
significant and have generally tracked the depreciation of property and equipment and computer software.
The capital expenditure of R208 million for the 2014 financial year included the refurbishment of the LCP
offices in London. Historically, liquidity requirements have arisen primarily from the need to fund regulatory
capital increases. These increases have been significant over the past three years as more fully explained in
“ Regulation — Capital Adequacy Requirements”.
Net Cash Inflow/(Outflow) from Operating Activities
Policyholder cash flows
The IFRS presentation of operational cash flows requires the inclusion of cash flows received and paid in
respect of linked policyholder investment contracts. This creates a distortion on the operational cash flows
which amounted to R5 ,054 million, R2 ,482 million and R3 ,223 million in the 2014, 2013 and 2012 financial
years, respectively. These policyholder cash flows result in a directly related increase or decrease in the cash
held under multi-manager investment contracts. Cash flow impacts resulting from policyholder activities
should typically be disregarded when assessing the cash flows of the underlying operations of the Group. The
Group has little influence over, and no direct benefit from, policyholder cash flow movements. The nature of
assets under management will consequently impact fee levels.
Cash flows from operations excluding policyholder cash flows
Excluding these policyholder cash outflows, the Group recorded net operational cash inflows of R739 million
and R1 ,155 million for the 2013 and 2012 financial years and a net operational cash outflow of R 303 million
for the 2014 financial year. The increase in cash outflow from operating activities in financial year 2014 was
due to the payment of accumulated interest on debt instruments of R2 ,125 million when these instruments
were repaid in the Restructure.
Net cash outflow from operating activities was R5 ,3 57 million for financial year 2014 compared to
R1 ,743 million for financial year 2013 and R2 ,068 million for financial year 2012.
Net Cash (Outflow)/Inflow from Investing Activities
Net cash inflow from investing activities was R1 ,042 million for financial year 2014 compared to net cash
inflow of R151 million for financial year 2013 and net cash outflow of R560 million for financial year 2012.
The increase in cash inflow in financial year 2014 was due to the proceeds on sale of Guardrisk and other
subsidiaries. The movement in cash flows from investing activities in financial year 2013 and 2012 was due
to movements of financial assets, which are largely related to policyholder and life fund investments.
Net Cash Outflow from Financing Activities
Net cash outflow from financing activities in financial year 2014 was R678 million as compared to R326 million
for financial year 2013 and R689 million for financial year 2012. The financing activities in these years
primarily related to the repayment of debt instruments. The cash outflow in financial year 2014 was due to
the repayment of borrowings net of proceeds received on an issue of shares and related to the Restructure. In
addition, the higher outflow during financial year 2012 reflects additional repayment of debt funded from the
sale of the Risk Services businesses in South Africa. See “ —Indebtedness” for more information.
101
Current Trading
The results reported from operating divisions for the first two months of financial year ending 31 March 2015
(“FY15 YTD”) were broadly in line with management’s expectations. While the first two months of each financial
year typically record lower than average net revenue, budgets take into account these seasonal trends.
Net revenue from continuing operations for FY15 YTD improved compared to the first two months of financial
year 2014 and was is in line with management’s expectations. While expenses for FY15 YTD increased by a
slightly higher rate than the growth in net revenue, this increase was slightly lower than management’s
expectations and was largely attributable to management’s ongoing investment in resources and systems as
part of the execution of the Group’s growth strategies. Trading profit from continuing operations for FY15 YTD
remained broadly flat compared to the corresponding period of financial year 2014 and was marginally ahead
of management’s expectations.
Based on the FY15 YTD results as well as the Group’s key revenue drivers, including institutional client
retention and growth, the number of members under advisement and administration, insurance loss ratios
and developments in E&O claims, there were no indications as of the date of this pre-listing statement that
adjustments should be made to the budgeted trading results for financial year 2015.
Capital Adequacy
Under the current FSB rules, a minimum level of solvency is required to be held within each insurance
subsidiary to meet the regulatory capital adequacy requirements. For the long-term insurance subsidiaries,
the CAR is calculated to determine whether the excess of assets over liabilities is sufficient to provide for the
possibility of actual future experience departing from the assumptions made in calculating the policyholder
liabilities and against fluctuations in the value of assets. CAR statutory returns are submitted to the Registrar
of Long-Term Insurance on a quarterly basis and valuations are performed by the statutory actuary on an
annual basis. As at 31 March 2014, the CAR held by the long-term insurance companies amounted to
R172 million (2013: R139 million) for AF Life, R456 million (2013: R321 million) for Investment Solutions
and R128 million (2013: R91 million) for AFI, representing shareholder funds coverage ratios of 1.69 (2013:
1.78), 2.2 (2013: 2.9) and 1.3 (2013: 1.3).
The short-term insurance subsidiary companies were in the past required to maintain a solvency margin
of 15% of net written premiums. With effect from 1 January 2012, there is no longer a requirement to
maintain a solvency margin and instead the short-term insurance subsidiaries are required to maintain a
solvency capital reserve. The solvency capital reserve coverage, for statutory purposes, was 1.59 times at
31 March 2014 (2013: 1.59).
The new SAM regime, which will be implemented on 1 January 2016, will impose more stringent regulatory
requirements on both long-term and short-term insurers, requiring them to maintain adequate solvency
capital based on risks faced on a day-to-day basis. This is likely to have a positive impact on Investment
Solutions given that it assumes no underlying risk. For more information, see “Regulation — Solvency
Assessment and Management” and “Regulation —Capital Adequacy Requirements”.
Consolidated Supervision
Under the broader SAM framework, the Group will be subject to group-wide regulation and supervision. See
“Regulation – Solvency Assessment and Management” . The Group will be subject to regulation by the FSB at
the ultimate holding company level. Based on the initial assessment, the deficit was estimated at R305 million
as at 31 March 2014. This assessment was further adjusted for the effects of the SARS Settlemen t. See
“Business — Investigations and Legal Proceedings — SARS Settlement” . The FSB has the right, after consultation
with the insurer, to impose a capital add-on where the risks, including those posed by the non-regulated
entities, are not adequately taken into account in the group capital adequacy or deduct the value of holdings
in non-regulated entities from the capital resources of the insurance legal entities in the Group. The Group is
still in the process of obtaining clarity from the FSB with regard to such adjustments and as a result has not
factored this into the estimated deficit.
As at 31 March 2014
(R million)
Total available Group capital 1 ,221
Total latest proposed required Group capital (when consolidated supervision
becomes effective) 1 ,526
Surplus/Deficit Capital (305)
Adjusted for tax settlement (126)
Adjusted deficit (431)
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Indebtedness
All of the existing primary borrowings were repaid or refinanced as part of the Restructure. See “Restructure”.
On 26 March 2014, Alexander Forbes Acquisitions Proprietary Limited (“AF Acquisition”), as borrower, and
FirstRand Bank Limited (acting through its Rand Merchant Bank division), as lender, entered into a term loan
facility agreement in the amount of R1 ,250 ,000 ,000 (the “Term Loan Facility”). In addition, on 20 March
2014, AF Acquisition, as borrower, and FirstRand Bank Limited (acting through its Rand Merchant Bank
division) as lender, entered into a revolving credit facility (“RCF”) in the amount of R191 ,101 ,000 and a
settlement facility in the amount of R480 ,000 ,000 (the “Settlement Facility”). See Annexure 10 for more
details.
Capital Expenditure
Despite the regulatory capital requirements, the Group is not a capital-intensive business. Its most significant
operational capital expenditure is for technology, specifically computer software and hardware, to maintain
and improve its broking, consulting, administration and multi-manager systems. Historically, the Group’s
annual capital expenditure has approximated its depreciation and amortisation charge for the financial year.
Capital expenditure on property, equipment and computer software in financial year 2014 was unusually
high at R208 million (2013: R106 million). The increase in capital expenditure in financial year 2014 was
largely related to the building refurbishment of the new LCP London offices.
The Company does not expect the Group’s capital expenditure requirements to change significantly in the
near term and expect them to continue to be funded through cash generated from operations.
Contractual Obligations and Commitments
The following table sets forth the Group’s contractual obligations as at 31 March 2014:
Payment Due by Period
Total <1 year 1 – 5 years 5+ years
(R million)
Capital lease obligations(1) 108 7 34 67
Operating lease obligations 2 ,480 164 815 1 ,501
Contractual purchase obligations – – – –
Long-term borrowings(1) 2 ,025 123 1 ,886 16
Derivative instruments – – – –
Total 4 ,613 294 2 ,735 1 ,584
1. Includes interest payments.
Off-Balance Sheet Arrangements
Investment Solutions administers and manages various unit trust portfolios. These unit trusts are assessed
individually for consolidation in terms of IFRS and, as a result, certain trusts are consolidated while others
may not be consolidated. All such unit trusts are however similar in nature and the Group effectively acts as
the managing agent. Consequently, these unit trusts should not be regarded as off-balance sheet liabilities.
Quantitative and Qualitative Disclosures About Market Risk
The Group’s activities expose it to various financial risks arising from its financial assets and liabilities.
Financial risks comprise:
• Credit risk, which includes:
– Counterparty risk —Counterparty risk is the risk that a counterparty to a financial instrument
receivable or re-insurance contract will fail to discharge an obligation, thereby causing the Group to
incur a financial loss.
– Cash deposit risk —Cash deposit risk is the risk associated with the holding of Group funds with an
intermediary, such as a banking institution.
• Market risk, which includes:
– Interest rate risk —Interest rate risk is the risk that the fair value or future cash flows of a financial
instrument will fluctuate due to changes in market interest rates.
– Currency risk — Currency risk is the risk that the fair value or future cash flows of a financial instrument
will fluctuate in Rand due to changes in foreign exchange rates.
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– Other price risk – Other price risk is the risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in market prices (other than those arising from interest
rate risk and currency risk).
The financial risks relating to the Group’s activities can be split into various operations of the Group that
reflect the risk profiles of these operations. The operations are: (i) multi-manager investment operations,
conducted through Investment Solutions and (ii) general operations, including: (a) the insurance broking and
consulting operations, (b) employee benefit consulting, administration and management operations and
(iii) insurance operations, conducted by the Group’s short-term personal lines insurer, AFI, and the Group’s
long-term group life insurer, AF Life.
Credit Risk
The Group’s primary credit risk is the counterparty credit risk that predominantly arises from the reinsurance
of its insurance contracts. Reinsurers are utilised in the Group’s underwriting activities conducted in the
insurance-licensed subsidiary companies. Under the terms of the reinsurance agreements, reinsurers agree to
reimburse the ceded amount in the event that a claim is paid. However, the Group remains liable to its
policyholders regardless of whether the reinsurer meets the obligations it has assumed. Consequently, the
Group is exposed to credit risk. The Group does not consider there to be a significant concentration of credit
risk to reinsurers or other receivables from insurance contracts which has not been adequately provided for.
The Group has specific reinsurer mandates established by the various risk committees which stipulate the
minimum security rating required of a reinsurer for business to be placed with them. The Group monitors the
financial condition of reinsurers and reviews its reinsurance arrangement periodically. Various market
security and underwriting committees are in place to evaluate and approve recommendations and the
committees’ decisions are supported by both local and international professional rating agencies. The Group
also has reinsurance vetting procedures in place. These procedures include limiting individual cessions and
accumulations per reinsurer in accordance with their rating. The financial condition of the reinsurers and
intermediaries in relation to their credit standing is evaluated each time they are rated by an external rating
agency. The Group limits the level of credit risk it accepts by placing limits on its exposures to a single
counterparty. The exposure limits of each reinsurer vary depending on their credit rating.
Receivables from insurance contracts, whether from intermediaries or policyholders, are monitored as part of
the credit process. The Group is protected in South Africa by guarantees issued by the Intermediary Guarantee
Facility for the non-payment of premiums, collected by intermediaries as provided in the STIA. Non-payment
of premiums from policyholders over the specified time period results in the cancellation of the insurance
cover, reducing the credit risk to the Group.
The Group is also exposed to cash deposit risks and underwriting risks. The Group deposits some of its cash,
including cash held in a fiduciary capacity, with certain financial institutions in the UK. While it is constantly
monitoring and managing exposures associated with those deposits, to the extent these financial institutions
are adversely affected by economic conditions, some or all of those cash deposits could be at risk. The Group
also faces underwriting risk in the event that it inaccurately assesses the risks entailed in writing an insurance
policy or as a result of factors wholly out of its control. As a result, the insurance policy may cost the
insurance business much more than it has earned in premiums.
Liquidity Risk
Liquidity risk management implies maintaining sufficient cash and ensuring the availability of funding
through an adequate amount of cash resources and credit facilities. The Group has a demand credit facility of
R190 million, which can be used for general corporate working capital purposes. The Group has prescribed
authority mandates and borrowing limits. Compliance with debt covenants is monitored by the Group and
divisional boards.
The Group sets limits on the minimum proportion of maturing funds available to meet claims arising from
long-term insurance contracts and unexpected levels of demands. Similarly, the majority of the assets held to
match short-term insurance contracts are in money market instruments, which are highly liquid. Net cash
flows are monitored closely to ensure claim payments under long-term and short-term insurance contracts
can be made when requested. Long-term and short-term insurance subsidiaries are registered financial
institutions and are required to hold minimum capital and reduce policyholder exposure to the Group’s
liquidity risk. The regulatory authority in South Africa, the FSB, regularly reviews compliance with these
minimum capital requirements. See “Regulation —Capital Adequacy Requirements”. Management monitors
compliance with these minimum capital requirements. Assets linked to investments are realisable at short
notice.
Liabilities under linked investment contracts pose no liquidity risk as the insurer, if required, is allowed to
settle its liability by delivering the underlying assets.
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Market Risk
The Group faces material market risk in both its multi-manager investment operations and its general operations.
Multi-manager investment operations
There is no direct significant market risk, either by interest rate, currency or other price risk, to the Group
on financial assets held in respect of multi-manager investment contracts as the effect of any changes in these
market risks is directly attributable to policyholder assets and policyholder assets are directly matched by
policyholder liabilities. However, fee income earned by the Group on assets from multi-manager investment
operations is based on assets which are exposed to fluctuations in interest rates, foreign currencies and equity
prices. The Group does not hedge against the interest rate and currency exposures and the board has accepted
that changes in interest and exchange rates can result in volatility in the Group’s earnings. As mentioned
above, these operations also pose no liquidity risk.
General operations – Interest rate risk
The Group’s income and operating cash flows are substantially independent of changes in market interest
rates, except for interest costs on provisions for client settlements, which are sensitive to short-term interest
rates. This impact is offset by the effect of short-term interest rate movements on interest earned on cash
balances. The interest rate on borrowings is linked to market reference rates and as such the Group is not
exposed to interest rate risk on these funds.
General operations – Currency risk
The Group operates internationally and is exposed to foreign exchange risk arising from various currency
exposures. As reflected in segmental profit analysis contained in these financial statements, the Group derives
a portion of its trading profit in foreign currencies. In financial year 2014, 20% (2013: 15%) of the Group’s
trading profit was derived from its international operations, primarily in the United Kingdom, and 5% (2013:
4%) from operations in Africa outside of South Africa; and in the same year, 30% (2013: 26%) of the Group’s
net revenue was derived from its international operations, primarily in the United Kingdom, and 6% (2013:
5%) from operations in Africa outside of South Africa
Fee income derived by the Group on assets from multi-manager investment operations will also be impacted
by any changes in value of such assets arising from fluctuations in foreign currency exchange rates. In
addition, a portion of fee income earned in the retail business in AFFS operations in South Africa is impacted
by changes in foreign currencies as this income is linked to assets managed by this business.
The Group’s borrowings are mostly Rand-denominated and thus not exposed to currency risk.
General operations – Other price risk
In addition, a portion of fee income earned in the retail business in the AFFS operations in South Africa is
impacted by changes in equity markets, as this income is linked to assets managed by this business.
Insurance Risk
Management of Insurance Risk
Alexander Forbes employs general insurance risk management controls including:
• Risk Committee. The Risk Committee assists and supports the board with regard to its risk management
responsibilities, together with the other board sub-committees including the Audit, Investment and
Remuneration Committees. The Risk Committee deals with specialised risks related to insurance business
being conducted by the Group. Individuals with specialised industry and product knowledge are invited to
the Risk Committee and are also being co-opted on an ongoing basis.
• Audit committees. There are non-statutory audit committees for each business segment within the Group.
These audit committees report to the Group Audit Committee and to the operational boards of directors.
The relevant business segment audit committee deals with the insurance subsidiary that reports into
that business operation. These committees are responsible for reviewing the financial statements and
accounting policies, the effectiveness of the management information and systems of internal control,
compliance with statutory and regulatory requirements, interim and final reports, the effectiveness of the
internal audit function, external audit plans and findings on their respective reports.
• Statutory actuaries. The independent statutory actuaries of the long-term insurance subsidiaries report
annually on the capital adequacy and the financial soundness at the year-end date and for the foreseeable
future. All new premium rates or premium rates where changes are required are reviewed by the
independent statutory actuaries and dividends are approved prior to payment to ensure that the insurance
subsidiaries remain financially sound thereafter.
105
• Capital adequacy requirements. A minimum level of solvency is required to be held within each insurance
subsidiary to meet the regulatory capital adequacy requirements. Capital adequacy risk is the risk that
there are insufficient reserves to provide for variations in actual future experience that is worse than
assumed in the financial soundness valuation. Each insurance subsidiary must maintain shareholders’
funds that will be sufficient to meet obligations in the event of substantial deviations from the main
assumptions affecting the subsidiary’s business. For the long-term insurance subsidiaries, the CAR is
calculated to determine whether the excess of assets over liabilities is sufficient to provide for the possibility
of actual future experience departing from the assumptions made in calculating the policyholder liabilities
and against fluctuations in the value of assets. CAR statutory returns are submitted to the Registrar of
Long-Term Insurance on a quarterly basis and valuations are performed by the statutory actuary on an
annual basis. As at 31 March 2014, the CAR held by the long-term insurance companies amounted to
R172 million (2013: R139 million) for AF Life, R456 million (2013: R321 million) for Investment Solutions
and R128 million (2013: R91 million) for AFI, representing shareholder funds coverage ratios of 1.69
(2013: 1.78), 2.2 (2013: 2.9) and 1.3 (2013: 1.3), respectively. Short-term insurance subsidiaries are required
to maintain a solvency capital reserve.
• Concentration risk. The Group is not exposed to any significant concentration risk as the insurance
contracts issued by the Group’s insurance subsidiaries are adequately spread across the major classes of
insurance risks.
• Reinsurance. Reinsurance is used to manage the level of underwriting risk accepted by the Group.
Reinsurance vetting procedures are in place and reinsurance programmes are assessed on a regular basis
to ensure appropriateness of the cover obtained, including the individual cessions and accumulations
per reinsurer. The financial condition of reinsurers (identified by their credit rating) is considered when
placing reinsurance cover and evaluated on an ongoing basis. The individual insurance subsidiaries
limit the level of reinsurance counterparty credit risk accepted by placing limits on their exposures to a
single counterparty. The individual insurance subsidiaries hold catastrophe reinsurance to mitigate the
risk of a single event causing multiple accumulation of claims. The Risk Committee evaluates, approves
and monitors the insurance and reinsurance markets that the Group operates in and reports back to the
relevant operational boards with recommendations.
• Enterprise-wide risk management. The Group has implemented an enterprise-wide risk management
programme to entrench risk management into the day-to-day business activities whereby the insurance
subsidiary understands the risk events that may prevent it from achieving its objective; has identified the
risk mitigating controls in place and has assessed their efficiency; and has formulated a plan wherever
additional action is required.
Insurance Risk – Personal Lines Short-Term Insurance
Personal lines insurance is provided to the general public in their individual capacities and includes property,
casualty, personal accident and motor insurance. These contracts are generally monthly renewable contracts,
with a few annual policies. The Group is able to reprice monthly policies based on changing market conditions.
As personal lines business primarily relates to the assumption of the risk or loss from events involving
persons, the Group is exposed to certain uncertainty surrounding the timing, severity and frequency of
claims under insurance contracts. The majority of these insurance contracts are “short-tail”, meaning that
any claim is settled within one year after the loss date. “Long-tail” exposures are limited to personal accident,
third-party motor and public liability claims and claims related to them account for less than 0.1% of an
average year’s claims cost. There is no significant concentration of risk as the risks are adequately spread
geographically as well as across the major classes of insurance risk.
The Group calculates its exposure to catastrophe risk by studying the spread of risk nationwide in Rand
terms and identifying the concentration per certain territories in the event of a natural catastrophe. Its
concentration exposure for the personal lines book is a possible earthquake in the Johannesburg area. This
assessment is done annually at renewal of the catastrophe programme and reinsurance protection is purchased
on a non-proportional basis, thereby limiting the Group’s exposure. The current net exposure is R4 million
(2013: R4 million).
Short-term insurance risk is managed by centralised control of pricing and acceptance criteria, underwriting
limits, reinsurance and continual monitoring of emerging issues. There is proportional reinsurance in place
for between 75% and 90% of the property and motor personal lines insurance book. Hence, the net retention
on book is no more than 25%. There is also non-proportional reinsurance providing protection on a per risk
catastrophe basis, capping the net exposure in the event of a single large loss or loss occurrence constituting
a catastrophe at a gross amount of approximately R5 million.
The personal accident insurance book is a high-volume, low-risk portfolio and is protected on a stop loss basis
whereby reinsurance protection is purchased to protect against the event of adverse claims experience. The
business is written on a monthly basis, further limiting the Group’s exposure. Exposures to individual
policyholders and groups of policyholders are monitored as part of the credit control process. In South Africa,
the Group is also protected against the non-payment of premiums collected by intermediaries by the
106
Intermediary Guarantee Facility, which is a facility set up by the short-term insurance industry for the
purposes of providing security under the STIA. See “Regulation —Short-Term Insurance Act, 1998” . As most
intermediaries are other members of the Group, they are not considered to be a credit risk.
Insurance Risk – Long-Term Insurance
The long-term insurance contracts include annually renewable group life mortality and morbidity contracts
and individual life contracts.
The group life business consists of insurance for retirement funds and other group schemes and covers the
contingencies of death and disability. Policy terms and conditions allow for an annual review of premium
rates allowing the management of premiums in line with emerging claims experience. The annual premium
reviews take all pertinent information from one year to the next into account. There is exposure to concentration
risk on the group life insurance business as there is not yet a wide spread of group schemes and a single event
could result in multiple claims, but catastrophe reinsurance is in place to mitigate this risk.
The individual life business covers death, disability and impairment contingencies. Premiums on this business
line are repriced on an annual basis and are differentiated by age, gender and smoker status, and stringent
socio-economic qualification criteria apply. Future premium rates are also not guaranteed and may be adjusted
if mortality and morbidity experience deteriorates. This business remains a relatively immaterial part of the
overall life insurance exposure.
Both short-term and long-term insurance businesses are exposed to the risk that future claims will exceed
expectations, which could result from epidemics such as AIDS and Avian Flu, as well as unexpected changes
in lifestyles and living patterns.
In respect of group insurance business, free cover limits are set on a per scheme basis and are formula-driven,
taking into account the number of lives and average sums assured. Sums assured in excess of the free cover
limit are subject to underwriting.
In respect of individual insurance business, the major risks are mortality, morbidity, withdrawal and expense.
Withdrawal risk is mitigated to a certain extent by commission clawback clauses in contracts with
intermediaries. Expense risk is mitigated through detailed analysis of costs in determining the expense
assumptions in the valuation, as well as ongoing expense management.
The insurance risks are also managed through reinsurance arrangements (except for the group funeral book,
which is not reinsured). The appropriate reinsurance structures are assessed by conducting scenario analyses
which project outcomes under different reinsurance structures. The retention limits are then set in accordance
with risk appetite. The group life insurance and individual cover businesses have proportional reinsurance
for approximately 80% of the books. There is also non-proportional reinsurance providing protection on a per
risk and catastrophe basis, capping the net exposure in the event of a single large loss or loss occurrence
constituting a catastrophe.
Critical Accounting Policies and Estimates
This management’s discussion and analysis of financial condition and results of operations is based upon the
Consolidated Financial Statements, which have been prepared in accordance with IFRS and the Listings
Requirements. The preparation of these financial statements requires us to make estimates and judgements
that affect the reported amounts of assets, liabilities, revenues and expenses as well as related disclosures. On
an ongoing basis, the management evaluates estimates and judgements based on historical experience and
various other factors that it believes to be reasonable under the circumstances. Actual results may differ from
these estimates under varying assumptions or conditions.
An accounting estimate is considered critical if:
• the nature of the estimates or assumptions is material due to the levels of subjectivity and judgement
necessary to account for highly uncertain matters or the susceptibility of such matters to change; and
• the impact of the estimates and assumptions on our financial condition or operating performance is
material.
Of the Group’s significant accounting policies, the following encompass a higher degree of judgment and/or
complexity:
Retirement Benefit Obligations
The cost of the benefits and the present value of the defined benefit pension funds and post-retirement medical
obligations depend on a number of factors that are determined on an actuarial basis using a number of
assumptions. The assumptions used in determining the charge to profit or loss arising from these obligations
include the expected long-term rate of return on the relevant plan assets, the discount rate and the expected
salary and pension increase rates. Any changes in these assumptions will impact the charge to profit or loss
and may affect planned funding of the pension plans.
107
The assumptions relating to the expected return on plan assets are determined on a uniform basis, considering
long-term historical returns, asset allocation and future estimates of long-term investment returns. The
Group determines the appropriate discount rate at the end of each year, which represents the interest rate that
should be used to determine the present value of the estimated future cash outflows expected to be required to
settle the pension and post-retirement medical obligations. In determining the appropriate discount rate, the
Group considers the interest rate on high-quality corporate bonds and government bonds that are denominated
in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of
the related pension liability. The expected salary and pension increase rates are based on inflation rates,
adjusted for salary scales and country-specific conditions. The inflation rate used is a rate within the
government’s monetary policy target for inflation and is calculated as the difference between the yields on
portfolios of fixed interest government bonds and a portfolio of index-linked bonds of a similar term.
Provisions
Provisions are, by definition, liabilities of uncertain timing or amount. In order to establish a provision,
management makes assessments of the expected amount of any future cash outflows and the estimated timing
thereof. Where the effect of discounting is material, provisions payable in more than one year are discounted
using pre-tax discount rates that reflect the current market assessment of the time value of money and, where
appropriate, the risks specific to the liability.
Valuation of Policyholder Assets and Liabilities in Respect of Long-Term Insurance Contracts
The actuarial value of policyholder assets and liabilities arising from long-term insurance contracts is
determined using the Financial Soundness Valuation method as described in SAP 104 of the Actuarial Society
of South Africa.
The method requires a number of assumptions as inputs to the valuation model. The following process is
followed to determine the valuation assumptions:
• The best estimate for a particular assumption is determined.
• Prescribed margins are then applied, as required by the LTIA in South Africa and Board Notice 72 issued
in terms of that Act.
• Discretionary margins may be applied, as required by the valuation methodology or if the statutory actuary
considers such margins necessary to cover the risks inherent in the contracts.
Best estimate assumptions as to mortality and morbidity, expenses, investment income and tax are used which
may vary at each reporting date. A margin for adverse deviations is included in the assumptions. Improvements
in estimates have a positive impact on the value of the liabilities and related assets, while deteriorations in
estimates have a negative impact.
The process for determining the assumptions used are as follows:
• Mortality and morbidity – For group life insurance contracts, the rate of recovery from disability is
derived from industry experience studies adjusted, where appropriate, for the Group’s own experience. For
individual life insurance contracts, demographic assumptions are set with reference to reinsurer rates and
industry experience.
• Expenses – Expense assumptions are based on an expense analysis, using a functional cost approach. This
analysis allocates expenses between policy and overhead expenses and within policy expenses, between
new business, maintenance and claims.
• Investment income – Estimates are made as to future investment income and are tested against market
conditions as at the valuation date taking into account the terms of the liabilities. Inflation assumptions are
tested against market conditions and, with regard to consistency, are tested against interest rate assumptions.
• Tax – Allowance is made for future taxation and taxation relief.
Ultimate Liability Arising from Claims Under Short-Term Contracts
The estimation of the ultimate liability arising from claims under short-term insurance contracts has several
sources of uncertainty. The risk environment can change suddenly and unexpectedly owing to a wide range
of events or influences. There is no absolute certainty in respect of identifying risks at an early stage,
measuring them sufficiently or correctly estimating their real hazard potential.
Goodwill and Intangible Assets
In line with the requirements of IFRS 3, the Group created significant goodwill and intangible assets upon the
acquisition by the newly established acquiring company as a result of the 2007 Acquisition. These asset
balances are evaluated for impairment on an annual basis. This evaluation is based on the estimation of future
cash flows and discount rates as further explained in Note 15 to the Consolidated Financial Statements. The
108
intangible assets identified at the time of the acquisition are amortised over their expected useful lives but
typically not exceeding 20 years. These assets are also assessed and adjusted for impairment as and when
necessary.
Fair Value
The Group holds a number of financial assets and liabilities that are designated at fair value through profit or
loss. Subsequent to initial recognition, the fair values of financial assets are based on quoted bid prices,
excluding transaction costs. If the market for a financial asset is not active or an instrument is an unlisted
instrument, the fair value is estimated using valuation techniques. These include the use of recent arm’s
length transactions, reference to other instruments that are substantially the same, discounted cash flow
analysis and option pricing models.
When a discounted cash flow analysis is used to determine the value of financial assets, estimated future cash
flows are based on management’s best estimates and the discount rate is a market-related rate, at the reporting
date, for a financial asset with similar terms and conditions. Where option pricing models are used, inputs are
based on observable market indicators at the reporting date, and profits or losses are only recognised to the
extent that they relate to changes in factors that market participants will consider in setting a price.
109
DIVIDENDS AND DIVIDEND POLICY
Following the Listing, the board of directors intends to declare a dividend on at least an annual basis. It is
intended that the total annual dividend will be split between an interim dividend and final dividend. The
Group’s dividend policy is set at a target range of 1.5x – 2.0x earnings cover.
In preparation for the implementation by the FSB of consolidated group supervision, the board of directors
does not anticipate that an interim dividend for the six-month period to 30 September 2014 will be declared.
The board of directors will consider making the final dividend payment for the year ending 31 March 2015,
after taking account of the regulatory capital position on a consolidated basis.
Any regulatory capital shortfall is expected to be eliminated by a portion of the proceeds from the subscription
for the Subscription Shares and as the Group generates positive operational cash flows such that the Group
will be in full regulatory compliance when consolidated group supervision is implemented by the FSB
(currently expected to take place on 1 January 2016).
The board retains absolute discretion to determine actual dividend declarations and will take the following
factors into consideration:
• the growth of the minimum capital requirements of the Group’s businesses;
• the capital requirements to support investments in the Group’s growth initiatives; and
• changes or prospective changes in the operating environment or operational performance of the Group.
It is the Group’s intention to return any excess reserves above its capital targets to shareholders in the form
of dividends and Share repurchases.
In accordance with the memorandum of incorporation of the Company, all unclaimed dividends may be
invested or otherwise held in trust for the benefit of the Company until claimed, provided that dividends
unclaimed for a period of three years from the date they were declared may be forfeited for the benefit of the
Company.
There is no fixed date on which entitlement to dividends arises and the date of payment will be determined by
the board of directors at the time of declaration, subject to the Listings Requirements. There are no current
arrangements under which future dividends are waived or agreed to be waived. Relevant extracts of the
memorandum of incorporation of the Company relating to dividends are set out in Annexure 11 to this pre-
listing statement.
110
INCORPORATION AND SHARE CAPITAL
Incorporation
The Company was incorporated and registered in South Africa on 15 August 2006 under the predecessor to
the Companies Act as a private limited liability company with registration number: 2006/025226/07 . The
registered address and head office of the Company is 115 West Street, Sandton 2196, Johannesburg, South
Africa.
On 23 J une 2014, the Company was converted from a private limited liability company to a public limited
liability company with registration number 2006/025226/06.
There have been no changes to the trading objects of the Company and its subsidiaries during the previous
five years, save for the following:
• in June 2009, Alexander Forbes PIK Funding Proprietary Limited changed its objects to “hold shares in
Alexander Forbes Funding Proprietary Limited, as principal”; and
• in January 2011, Alexander Forbes Retail Client Administration Proprietary Limited changed its objects
to “retail business, financial planning, actuarial services, administration services, advisory services, trust
services and related activities”.
Authorised and Issued Company Shares
The authorised and issued shares of the Company as at the Last Practicable Date is as follows:
(Pro forma)
(R)
Authorised share capital2 ,500 ,000 ,000 ordinary no par value shares –
45 ,000 ,000 non-convertible redeemable “B” Preference Shares each having
a par value of R0.01 450 ,000
Total 450 ,000
Issued share capital1 ,250 ,698 ,297 ordinary no par value shares –
96 ,024 ,745 held as treasury shares –
21 ,161 ,113 non-convertible redeemable “B” Preference Shares each having
a par value of R0.01(1) 211 ,611.13
Total 211 ,611.13
1. To be redeemed immediately upon Listing with the proceeds of the Offer.
The authorised and issued share capital of the Company after the Offer, presented on a pro forma basis, is
expected to be as follows (assuming that the new shares are issued at an issue price equal to the mid-point of
the Offer Price Range):
(Pro forma)
(R)
Authorised share capital2 ,500 ,000 ,000 ordinary no par value shares –
45 ,000 ,000 non-convertible redeemable “B” Preference Shares each having
a par value of R0.01 450 ,000
Total 450 ,000
Issued share capital 1 ,275 ,503 ,826 ordinary no par value shares(1) –
Total –
1. Assuming an Offer Price at the mid-point of the Offer Price Range.
The Offer Shares are fully paid and freely transferable.
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Description of Ordinary Shares
Set out in Annexure 11 to this pre-listing statement are extracts of the relevant provisions of the memorandum
of incorporation of the Company, regarding:
• preferential conversion and/or exchange rights of any securities and variation rights;
• voting rights of securities;
• rights to dividends, profits or capital or any other rights of each class of securities; and
• control over securities.
Alterations to Share Capital
Set out below and under “Restructure” are the alterations to the share capital of the Company which have
occurred during the past three years.
Changes to Authorised Share Capital
In 2014, the Company increased its authorised ordinary shares from 700 ,000 ,000 shares to 2 ,500 ,000 ,000
shares and underwent a conversion of all authorised and issued ordinary par value shares to ordinary no par
value shares.
Changes to Issued Share Capital
Ordinary shares
Number of shares in
issue
2012Issued shares at the beginning of the financial year 377, 358 ,491
Issued/(Repurchased) –
Issued shares at the end of the financial year 377 ,358 ,491
2013Issued shares at the beginning of the financial year 377 ,358 ,491
Issued/(Repurchased) –
Issued shares at the end of the financial year 377 ,358 ,491
2014Issued shares at the beginning of the financial year 377 ,358 ,491
Issued/(Repurchased)(1) 873 ,339 ,806
Issued shares at the end of the financial year 1 ,250 ,698 ,297
1. Issued in terms of the Restructure.
“A” Preference SharesNumber of
shares in issue
2012Issued shares at the beginning of the financial year 319 ,461 ,529
Issued/(Redeemed) –
Issued shares at the end of the financial year 319 ,461 ,529
2013Issued shares at the beginning of the financial year 319 ,461 ,529
Issued/(Redeemed) –
Issued shares at the end of the financial year 319 ,461 ,529
2014Issued shares at the beginning of the financial year 319 ,461 ,529
Issued/(Redeemed) (1) (319 ,461 ,529)
Issued shares at the end of the financial year –
1. Redeemed in terms of the Restructure.
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“B” Preference Shares
Number of shares in
issue
2012Issued shares at the beginning of the financial year 21 ,161 ,113
Issued/(Redeemed) –
Issued shares at the end of the financial year 21 ,161 ,113
2013Issued shares at the beginning of the financial year 21 ,161 ,113
Issued/(Redeemed) –
Issued shares at the end of the financial year 21 ,161 ,113
2014Issued shares at the beginning of the financial year 21 ,161 ,113
Issued/(Redeemed) –
Issued shares at the end of the financial year (1) 21 ,161 ,113
1. To be redeemed immediately upon Listing using the proceeds of the Offer.
There have been no consolidations or sub-divisions of the Company’s securities during the preceding three years
Share Issues, Offers and Repurchases
The details of issues of securities by the Company and its subsidiaries in the last three years, in particular
pursuant to the Restructure effective 31 March 2014, have been provided in Annexure 7. The repurchases in
the subsidiaries of the Company during the three years preceding the Last Practicable Date are set out in the
“Restructure” section below.
Listings on Other Stock Exchanges
There are no other classes of Shares listed with regard to the Company, and no Shares of the Company are
listed on any stock exchange, other than the JSE.
Options or Preferential Rights in Respect of Shares
The Company is not party to any contract or arrangement (or proposed contract or arrangement), whereby an
option or preferential right of any kind is (or is proposed to be) given to any person to subscribe for any shares
in the Company.
Options or Preferential Rights in Respect of Subsidiaries of the Company
None of the Company’s subsidiaries are party to any contract or arrangement (or proposed contract or
arrangement), whereby an option or preferential right of any kind is (or is proposed to be) given to any person
to subscribe for any shares in any subsidiary.
Shareholding
In 2007, the Group was sold to a private equity consortium comprising OTPP, Actis AF, Ethos, CDPQ and
HarbourVest and its affiliates (each of the foregoing a “Consortium Member” and, collectively, the “Private
Equity Consortium”), AF Pref, certain B-BBEE investors and Alexander Forbes management.
While the above entities remain current shareholders, the remaining current shareholders of the Company
are the Actis Affiliates Management SPV, BEE SPV and K2013116223 Proprietary Limited.
The B-BBEE investors comprise Dream World Investments 518 Proprietary Limited, K2013116223 Proprietary
Limited, Golden Falls, BEE SPV and Born Free Investments 580 Proprietary Limited (collectively, the “B-BBEE
Investors”).
Controlling Shareholders
To the extent known to the directors of the Company, the Company does not have any controlling shareholders.
There has been no change in the controlling shareholder of the Company or its subsidiaries in the last five
years. As a result of the issue of the Subscription Shares and the sale of the Sale Shares in this Offer, it is
expected that there will continue to be no controlling shareholder after the Offer.
Major Shareholders
Details of the shareholders of the Company, other than its directors, who held direct beneficial interests of 5%
or more of Shares in issue as at the Last Practicable Date, and details of the shareholders of the Company who,
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directly or indirectly, will beneficially hold interests of 5% or more of the Shares in issue immediately after the
Listing, are set out in the tables below.
The following tables present information showing the beneficial holdings in the issued ordinary share capital
in excess of 5% as at the Last Practicable Date and immediately after the Listing . A summary of issues or
offers of securities by the Company and its subsidiaries during the preceding three years and after the Listing
has been set out below and in Annexure 7.
The major shareholders as at the Last Practicable Date are as follows:
Shareholder
Number of Shares
held directlyPercentage
shareholding
AF Pref 355 ,178 ,339 28.4%
OTPP 233 ,840 ,549 18.7%
Actis AF and Actis Affiliates 163 ,677 ,070 13.1%
Ethos 121 ,219 ,921 9.7%
CDPQ 120 ,513 ,854 9.6%
The major shareholders immediately after the Listing will be as follows:
Shareholder
Number of Shares
held directly(1) (2) Percentage
shareholding(1 )(2) (3)
AF Pref 355 ,178 ,339 27. 3 %
Mercer(2)( 4) 194 ,0 97,033 14.9 %
OTPP 64 ,9 69,653 5.0 %
1. Assuming an Offer Price at the mid-point of the Offer Price Range and assuming the Overallotment Option is fully exercised.
2. Assuming that Mercer acquires 14.9% of the Shares of the Company on the Listing Date. See “Strategic Investor”.
3. Assuming the settlement of the 2014 ETI through the issue of Shares at the mid-point of the Offer Price Range.
4. Mercer has agreed to acquire a further 19.1% of the Shares of the Company on the Second Closing Date subject to receipt of certain
regulatory approvals. See “Strategic Investor” .
A register of beneficial interest in the shares maintained under Section 122 of the Companies Act is available
for inspection at the Company’s registered office.
Selling Shareholders
For the names of the Selling Shareholders, see Annexure 17. All entitlements to sell Shares in the Offer will
be subject to the overall demand for the Offer Shares.
AF Pref Unbundling
Subject to the Listing proceeding, the board of directors of AF Pref has resolved to unbundle its entire
shareholding in Alexander Forbes to AF Pref holders.
The unbundling will be subject to the approval of 75% of the AF Pref holders at a general meeting. The board
of directors of AF Pref has undertaken that the unbundling will be effected as soon as practicable following
the Listing, and is expected to be completed approximately 60 days following the Listing.
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RESTRUCTURE
Restructure
The Group undertook a capital reorganisation and restructure, which was completed on 31 March 2014. The
rationale for the Restructure of the Group was to optimise and simplify the capital structure of the Group and
to ensure compliance with certain regulatory changes. See “Regulation” . Before the Restructure, AF Acquisition
redeemed preference shares issued to senior lenders. Notwithstanding this, there are certain post-redemption
tax indemnities granted by AF Acquisition in favour of the previous holders of those “senior” preference
shares in respect of any taxes that may be levied on those previous holders in respect of the “senior” preference
shares post-redemption.
The Restructure of the Group involved, among other steps:
(i) the redemption of all the outstanding non-convertible cumulative redeemable class “A” preference shares
issued by the Company (which were subsequently cancelled from the authorised share capital of the
Company);
(ii) the acquisition by the Company of the high yield loan advanced to Alexander Forbes Funding Proprietary
Limited and the repayment of the high yield loan by Alexander Forbes Funding Proprietary Limited;
(iii) the repurchase by Alexander Forbes Funding Proprietary Limited of the non-redeemable class “A”
preference shares issued by it to Alexander Forbes PIK Funding Proprietary Limited in consideration
for the issuance of ordinary shares in Alexander Forbes Funding Proprietary Limited to Alexander
Forbes PIK Funding Proprietary Limited;
(iv) the repurchase by Alexander Forbes PIK Funding Proprietary Limited of the non-redeemable class “A”
preference shares issued by it to Alexander Forbes Holdco Proprietary Limited in consideration for the
issuance of ordinary shares in Alexander Forbes PIK Funding Proprietary Limited to Alexander Forbes
Holdco Proprietary Limited;
(v) the acquisition by the Company of the non-redeemable class “A” preference shares issued by Alexander
Forbes PIK Funding Proprietary Limited, the subsequent disposal of such preference shares to Alexander
Forbes Holdco Proprietary Limited and the subsequent conversion by Alexander Forbes Holdco
Proprietary Limited of such preference shares into ordinary shares in Alexander Forbes PIK Funding
Proprietary Limited; and
(vi) the settlement of the notes issued by Alexander Forbes PIK Funding Proprietary Limited to Alexander
Forbes Preference Share Investments Limited in full.
The redemptions or acquisitions effected pursuant to the Restructure were directly or indirectly settled by
issuing new ordinary shares in the Company as set out in more detail in “Incorporation and Share Capital” or
by using a combination of the proceeds from asset disposals (including the sale of the Guardrisk business in
March 2014), accumulated cash resources on the balance sheet and bridge debt funding and term funding to
the extent required.
In order for the Company to issue the new ordinary shares, it was necessary to increase the authorised share
capital of the Company. The Companies Act does not permit the creation of any new par value shares. An
existing company that has outstanding issued par value shares is allowed to retain such issued par value
shares and to issue further authorised par value shares, but it cannot create any new par value shares. The
Company thus effected a conversion of the ordinary par value shares, each having a par value of R0.01 to no
par value shares, followed by an increase to the authorised share capital of the Company to 2 ,500 ,000 ,000
ordinary no par value shares.
The Restructure resulted in a sustainable level of senior debt, consisting of the Term Loan Facility, the RCF
and the Settlement Facility. These senior debt levels are in compliance with the interim measures. See
“Regulation – Solvency Assessment and Management”.
Upon the completion of the Restructure, 21 ,161 ,113 “B” Preference Shares remained in issue, which will be
redeemed by the Company after the Listing with the proceeds of the Offer.
As part of the Restructure, two new special purpose vehicles, Management SPV and BEE SPV, were incorporated
and subscribed for shares in the Company. Management SPV and BEE SPV are wholly owned by: (i) the
Alexander Forbes Management Trust and the Alexander Forbes Management Co-Investment Trust and (ii) the
Alexander Forbes Staff Share Trust and the Alexander Forbes Community Trust, respectively. The subscriptions
for ordinary shares by Management SPV and BEE SPV were financed by way of preference shares issued by
Management SPV and BEE SPV to RMB. In particular (and similarly to the post-redemption indemnity regime
explained above in respect of the previous holders of the “senior” preference shares which were redeemed
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prior to the Restructure), each of the Management SPV and the BEE SPV have provided post-redemption tax
indemnities to RMB in respect of any taxes that may be levied on RMB in respect of the preference shares
issued to it by the Management SPV and the BEE SPV post-redemption. AF Acquisition has guaranteed these
tax indemnities. See Annexure 12 for further details.
The aggregate subscription price for the preference shares was R228 million and R158 million, respectively.
The preference shares are redeemable on 1 April 2017.
The obligations of each of Management SPV and BEE SPV to RMB in respect of the preference shares are
guaranteed by AF Acquisition.
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RELATED PARTY TRANSACTIONS
A portion of the fees paid to non-executive directors during financial year 2014 of R1.6 million (2013: R1.5 million;
2012: R1.4 million) are paid to the shareholder companies that the non-executive directors represent.
Transactions with Subsidiaries
Details of dividends and fees received from subsidiary companies, where applicable, are provided in the
Consolidated Financial Statements included in Annexure 2 to this pre-listing statement. The Company has loans
to and from its subsidiary companies, details of which are provided in the Consolidated Financial Statements. All
transactions and balances with subsidiaries are eliminated on consolidation in line with the Group’s accounting
policies.
See Note 43 to the Consolidated Financial Statements for additional details of related party transactions.
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PARTICULARS OF THE OFFER
The Offer
The Offer comprises an offer for subscription by the Company of 44,117,6 47 Shares and an offer for sale by
the Selling Shareholders of 387,822,895 Shares (assuming an Offer Price at the mid-point of the Offer Price
Range). A further 64,791,081 Shares may be sold by the Selling Shareholders pursuant to the Overallotment
Option. The aggregate amount being offered for subscription and sale represents approximately 33. 4 percent
of the Company’s issued share capital on the Listing Date.
The minimum gross sale and subscription which must be realised by the Company and the Selling Shareholders
is that which will satisfy the Listings Requirements with respect to shareholder spread and free float
requirements. There is no minimum capital requirement to be realised by the Offer. The Listing will not
proceed if the minimum subscription is not achieved, and any acceptance thereof shall not take effect and no
person shall have any claim whatsoever against the Company, the Selling Shareholders, the Joint Bookrunners
or any other person as a result of the failure of any condition.
The Offer consists of:
• an offer to institutional and other selected investors in South Africa (the Offer is not an invitation to the
general public to subscribe for or purchase the Offer Shares);
• an offering in the United States to persons who are both QPs and QIBs in reliance on Rule 144A; and
• an offering outside South Africa and the United States to selected institutional investors in reliance on
Regulation S.
Each investor will only be allowed to acquire Offer Shares for a minimum acquisition cost of R1 ,000 ,000,
acting as principal, except in the case of persons falling within one of the specified categories listed in
Section 96(1)(a) of the Companies Act.
The Company, the Selling Shareholders and the Joint Bookrunners have entered into a placement agreement
in connection with the Offer, which is subject to certain conditions, including the execution of a placement
memorandum setting forth, among other things, the size of the Offer and the Offer Price. The Offer is
conditional on the placement agreement becoming unconditional and the listing of all of the Shares on the
exchange operated by the JSE, failing which the Offer and any acceptance thereof shall not take effect and no
person shall have any claim whatsoever against the Company, the Selling Shareholders, the Joint Bookrunners
or any other person as a result of the failure of any condition. JSE approval of the Listing is conditional on
the attainment of a free float and spread of shareholders acceptable to the JSE. The Listings Requirements
require that a minimum of 20 percent of the Shares are held by the public and the number of public shareholders
number at least 300, all as defined by the Listings Requirements.
All Shares (including any Offer Shares) that are in issue as at the Listing Date will rank pari passu in all respects.
No shares in the Company, other than the Shares to be issued pursuant to the Offer and in settlement of the
2014 ETI, will be issued simultaneously, or almost simultaneously with the Offer Shares.
To the extent that this pre-listing statement is provided to persons outside South Africa, recipients are referred
to the information on pages i and ii of this pre-listing statement. No action has been or will be taken in any
jurisdiction that would permit a public offering of the Offer Shares. This pre-listing statement and the Offer
do not constitute an offer in or from any Affected Jurisdiction where the Offer, or dissemination of this pre-
listing statement, may be illegal or fail to conform to the laws of such an Affected Jurisdiction. To the extent
that this pre-listing statement may be sent to any Affected Jurisdiction, it is provided for information purposes
only. Persons in Affected Jurisdictions may not accept the Offer. No person accepting the Offer should use the
mail of any such Affected Jurisdiction nor any other means, instrumentality or facility in such Affected
Jurisdiction for any purpose, acting as principal, directly or indirectly, relating to the Offer. It shall be the
responsibility of any persons resident in a jurisdiction outside of South Africa to inform themselves about,
and observe, any applicable legal requirements in the relevant jurisdiction.
The Offer Shares have not been and will not be registered under the U.S. Securities Act and, subject to certain
exceptions, may not be offered or sold within the United States.
The Offer Shares are being offered and sold outside the United States in reliance on Regulation S. It is intended
that the placement agreement will provide that the Joint Bookrunners may directly or through their respective
U.S. broker dealer affiliates arrange for the offer and resale of Offer Shares within the United States only to
persons who are both QPs and QIBs in reliance on Rule 144A.
In addition, an offer or sale of Shares may violate the registration requirements of the U.S. Securities Act if
such offer or sale is made otherwise than in accordance with Rule 144A or another exemption from, or
otherwise in a transaction not subject to, the registration requirements of the U.S. Securities Act.
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Time and Date of the Opening and Closing of the Offer
The Offer opens at 09:00 on Monday, 7 July 2014 and is expected to close at 1 2:00 on Thursday, 17 July 2014.
Indications of interest for the purposes of the bookbuilding process, referred to under “ —Offer Price” below,
will be received up until 1 2:00 on Thursday, 17 July 2014. Any changes to these dates and times will be
released on SENS and published in the South African press.
Offer Price
It is estimated that the price for the Offer Shares will be between R 6. 90 and R 8. 05 per Offer Share. The Offer
Price may, however, be outside of this price range. The Offer Price will be exclusive of South African Securities
Transfer Tax (“STT”) and will be payable in full in Rand without deduction or set-off. The Selling Shareholders
will pay STT due on the transfer of any shares being sold by them pursuant to the Offer.
The Joint Bookrunners are seeking indications of interest from institutional investors to acquire the Offer
Shares as part of a “bookbuilding” process. Investors will only be allowed to acquire Shares for an amount no
less than R1 ,000 ,000, acting as principal, except in the case of persons falling within one of the specified
categories listed in Section 96(1)(a) of the Companies Act. Following this bookbuilding process, the Offer Price
will be determined by the Joint Bookrunners after consultation with the Company and the Selling Shareholders
either prior to or on the closing date and will be released on SENS on Friday, 18 July 2014 and published in
the South African press on Monday, 21 July 2014. Any change to these dates and times will be released on
SENS and published in the South African press.
Among the factors which may be considered by the Joint Bookrunners in determining the Offer Price are the
Group’s historical and expected results of operations, an assessment of the investment markets’ valuation of
comparable companies, the prevailing market conditions, the demand for the Offer Shares and the prices at
which investors bid to acquire the Offer Shares during the bookbuilding process and the desire to establish an
orderly after market in the Shares.
Participation in the Offer
An institutional investor wishing to participate in the Offer should contact the Joint Bookrunners prior to the
cut off time for providing indications of interest referred to under “ — Time and Date of the Opening and Closing of the Offer” above. Applicants will be required to complete the application form attached to this
pre-listing statement and submit it at the address specified in the form.
Representation
Any person applying for or accepting an offer of Offer Shares shall be deemed to have represented to the
Company, the Selling Shareholders and the Joint Bookrunners that a copy of this pre-listing statement was
specifically addressed and delivered to and was in the possession of such person. Any person applying for or
accepting an offer of Offer Shares on behalf of another person shall be deemed to have represented to the
Company, the Selling Shareholders and the Joint Bookrunners that such person is duly authorised to do so
and warrants that such person and the purchaser for whom such person is acting as agent is duly authorised
to do so in accordance with all relevant laws and such person guarantees the payment of the Offer Price and
that a copy of this pre-listing statement was specifically addressed and delivered to and was in the possession
of the purchaser for whom it is acting as agent.
Allocation
The basis of allocation of the Offer Shares will be determined by the Joint Bookrunners in their sole discretion,
after consultation with the Company and the Selling Shareholders. It is intended that notice of the allocations
will be given on or before Friday, 18 July 2014. Applicants may receive no Offer Shares or fewer than the
number of Offer Shares applied for. Any dealing in Offer Shares prior to delivery of the Offer Shares is at the
risk of the Applicant.
In the event of over-subscription of the Offer, it is not the intention of the Joint Bookrunners or the Company
to extend a preference on allotment to any particular company or group.
Application, Payment and Delivery of Offer Shares
Applicants who wish to apply for Offer Shares must do so through their duly appointed CSDP or broker by
the time stipulated in the agreement governing their relationship with their CSDP or broker, but in any event
no later than the closing date of the Offer.
Each successful Applicant must, as soon as possible after being notified of an allocation of Offer Shares,
forward to:
• its CSDP, all information required by the Applicant’s CSDP and instruct its CSDP to pay, against delivery
of the Applicant’s allocation of Offer Shares, the aggregate price for such Offer Shares to the account
designated by the Company. Such information and instructions must be confirmed to the Applicant’s CSDP
no later than 12:00, two business days prior to the Settlement Date (expected to be Thursday, 24 July 2014);
and
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• the Joint Bookrunners, details of its CSDP, the name of the account holder and number of shares and such
other information as is required by the Joint Bookrunners’ CSDP in order to effect delivery of the relevant
Offer Shares. Such information must be confirmed to the Joint Bookrunners no later than 12:00, two
business days prior to the Settlement Date (expected to be Thursday, 24 July 2014).
By no later than 12:00 on Monday, 21 July 2014, each Applicant must place its funds with its CSDP or make
other necessary arrangements to enable its CSDP to make payment for the allocated Offer Shares on the
Settlement Date, in accordance with each Applicant’s agreement with its CSDP.
The Applicant’s CSDP must commit in the Strate system to the receipt of the Applicant’s allocation of Offer
Shares against payment by no later than 17:00 on Tuesday, 22 July 2014.
On the Settlement Date (which is expected to be Thursday, 24 July 2014), the Applicant’s allocation of Offer
Shares will be credited to the Applicant’s CSDP or broker against payment during the Strate system settlement
runs which occur throughout the day.
Authorisations
The Company has sufficient authorised share capital to issue the Subscription Shares. Pursuant to a special
resolution approved by the shareholders of the Company on 20 January 2014, the authorised share capital of
the Company was increased to 2 ,500 ,000 ,000 ordinary no par value shares, of which 1 ,250 ,698 ,297 ordinary
no par value shares were in issue as at the Last Practicable Date. On 20 June 2014, and in terms of the
Companies Act, the shareholders of the Company approved, among others, special resolutions to: (i) authorise
the conversion of the Company from a private company to a public company, (ii) change the name of the
Company, (iii) adopt a new memorandum of incorporation which is appropriate for a public company and
which complies with the Listings Requirements and (iv) authorise, to the extent necessary, the issuance of
such number of the Subscription Shares for purposes of Section 41 of the Companies Act . In addition, the
shareholders approved an ordinary resolution consenting to and approving the Listing.
Exchange Control Regulations
Currency and shares are not freely transferable from South Africa and are subject to the Exchange Control
Regulations of the South African Reserve Bank as described more fully under “Exchange Rates and Exchange
Control — Exchange Control Limitations”. The Exchange Control Regulations also regulate the acquisition by
former residents and non-residents of Offer Shares. Applicants who are resident outside the Common Monetary
Area should seek advice as to whether any governmental and/or other legal consent is required and/or whether
any other formality must be observed to enable an acceptance of the Offer.
Overallotment
In connection with the Offer, RMB, acting as the Stabilisation Manager, may, for the account of the Joint
Bookrunners, during the Stabilisation Period, over-allot or effect transactions in accordance with the rules of
the Listings Requirements in relation to stabilisation, with a view to supporting the market price of the Offer
Shares at a higher level than that which might otherwise prevail for a limited period after the Listing Date.
However, there is no obligation for the Stabilisation Manager to do so. Such stabilising action, if commenced,
may be discontinued at any time, provided that two business days’ notice is given to the JSE, but may under
no circumstances continue beyond the 30th calendar day after the Listing Date. The Stabilisation Manager
may allocate more Offer Shares than the Company is obliged to issue under the placement agreement, creating
a short position. The short sale is covered if the short position is no greater than the number of Offer Shares
available for purchase under the Overallotment Option. The Stabilisation Manager may, for the account of the
Joint Bookrunners, close out a covered short sale by exercising the Overallotment Option or purchasing Offer
Shares in the open market.
If the placement agreement becomes unconditional, the Joint Bookrunners may also borrow Offer Shares from
the Selling Shareholders under a share lending arrangement to enable the Joint Bookrunners to satisfy their
delivery obligations in connection with overallotments and syndicate short positions. This arrangement will be
limited to the size of the Overallotment Option. Offer Shares borrowed under this arrangement will be returned
through the exercise of the Overallotment Option or purchases of Offer Shares in the market or otherwise.
Save as is required by the Listings Requirements, the Joint Bookrunners do not intend to disclose to the public
the extent of any stabilising transactions or the amount of any long or short position.
Dematerialisation of the Offer Shares
The Offer Shares will be issued by the Company and transferred by the Selling Shareholders to successful
applicants in dematerialised form only (the “dematerialised shares”). Accordingly, all successful applicants must
appoint a CSDP as contemplated by the South African Financial Markets Act, directly or through a broker, to
receive and hold the dematerialised shares on their behalf. Dematerialised shares are shares that have been
dematerialised (the process whereby physical share certificates are replaced with electronic records evidencing
ownership of shares for the purpose of the Strate system, as contemplated in the Financial Markets Act) and are
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“uncertificated securities” as defined in Section 91A of the Companies Act. Should a shareholder require a
physical share certificate for its Offer Shares following the Listing it should contact its CSDP to obtain one. It is
noted that there are certain risks associated with holding shares in certified form, including the risk of loss or
tainted scrip, which are no longer covered by the JSE Guarantee Fund. All shareholders who elect to convert
their dematerialised shares into shares that have not been dematerialised (“certificated shares”) will have to
dematerialise their Offer Shares should they wish to trade them in the Strate system. See “ — Strate” below.
Each successful Applicant’s duly appointed CSDP or broker will receive the dematerialised shares on its behalf
against payment of the Offer Price by such successful Applicant’s CSDP, which is expected to occur on
Thursday, 24 July 2014 during the Strate system settlement runs.
Applicable Law
The Offer, applications, allocations, acceptances and sales will be exclusively governed by the laws of South
Africa and each applicant will be deemed, by applying for Offer Shares, to have consented and submitted to the
jurisdiction of the courts of South Africa in relation to all matters arising out of or in connection with the Offer.
Strate
Shares may only be traded on the JSE in electronic form as dematerialised shares and will be trading for
electronic settlement in terms of the Strate system immediately following the Listing.
The Strate system is a system of “paperless” transfer of securities. If investors have any doubt as to the
mechanics of the Strate system they should consult their broker, CSDP or other appropriate advisor, or refer to
the Strate website at http://www.strate.co.za. Some of the principal features of the Strate system are as follows:
• electronic records of ownership replace share certificates and the physical delivery of share certificates;
• trades executed on the JSE must be settled within five business days;
• all investors owning dematerialised shares or wishing to trade their securities on the JSE are required to
appoint either a broker or a CSDP to act on their behalf and to handle their settlement requirements; and
• unless investors owning dematerialised shares specifically request their CSDP to register them as an “own
name” shareholder (which entails a fee), their CSDP’s or broker’s nominee company, holding shares on their
behalf, will be the shareholder (member) of the relevant company and not the investor. Subject to the agreement
between the investor and the CSDP or broker (or the CSDP’s or broker’s nominee company), the investor
generally is entitled to instruct the CSDP or broker (or the CSDP’s or broker’s nominee company), as to how
it wishes to exercise the rights attaching to the shares and/or to attend and vote at shareholders’ meetings.
Listing of Shares on the JSE
The JSE has conditionally approved the Listing of all the Shares in the “Financial Services – Asset Managers”
sector of the JSE under the abbreviated name “ AFORBES ”, share code “AFH” and ISIN: ZAE000191516,
subject to 20 percent shareholding by the public and the attainment of a spread of shareholders acceptable to
the JSE, being at least 300. Should such conditions be fulfilled, the Listing is expected to be effective from the
commencement of business on Thursday, 24 July 2014.
Placement Agreement
The Company, the Selling Shareholders and the Joint Bookrunners have entered into a placement agreement
in connection with the Offer, which is subject to certain conditions, including the execution of a placement
memorandum setting forth, among other things, the size of the Offer and the Offer Price, as described under
“ —Offer Price” above. Upon execution of the placement memorandum, the Company and the Selling
Shareholders will, subject to the terms and conditions described in the placement agreement, agree to issue
and sell the Offer Shares (as the case may be), and the Joint Bookrunners will agree, severally and not jointly
and severally, to procure subscribers and purchasers for or, failing that, to subscribe for and purchase
themselves, the Offer Shares at the Offer Price in accordance with their respective purchase commitments.
Pursuant to the placement agreement, if concluded, the several obligations of the Joint Bookrunners to
purchase and pay for the Offer Shares on the closing date will be subject to customary closing conditions. The
commitments of the respective Joint Bookrunners, if the placement agreement becomes unconditional, will be
as follows:
• Deutsche Bank AG, London Branch: 50 percent of the Offer Shares; and
• Morgan Stanley & Co. International plc and Rand Merchant Bank, a division of FirstRand Bank Limited,
collectively : 50 percent of the Offer Shares.
Pursuant to the placement agreement, if concluded, the Joint Bookrunners will have the right to terminate the
placement agreement under specified circumstances upon written notice to the Company and the Selling
Shareholders at any time after conclusion of the placement agreement but before the Settlement Date.
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The following are the Joint Bookrunners:
Deutsche Bank AG, London Branch
Registration number: BR000005
Registered office: Winchester House, 1 Great Winchester Street, London EC2N 2DB,
United Kingdom
Directors: Colin Grassie
Mitchell Mason
Morgan Stanley & Co. International plcRegistration number: 165935
Registered office: 25 Cabot Square, Canary Wharf,
London E14 4QA, United Kingdom
Directors: James P. Gorman Hutham S. Olayan
Erskine B. Bowles James W. Owens
Sir Howard J. Davies O. Griffith Sexton
Thomas H. Glocer Ryosuke Tamakoshi
Robert H. Herz Masaaki Tanaka
C. Robert Kidder Dr. Laura D. Tyson
Klaus Kleinfeld Rayford Wilkins, Jr.
Donald T. Nicolaisen
Rand Merchant Bank, a division of FirstRand Bank LimitedRegistration number: 1929/001225/06
Registered office: 1 Merchant Place, Rivonia Road, Sandton 2196, Johannesburg, South
Africa
Directors: LL Dippenaar NN Gwagwa
SE Nxasana PK Harris
VW Bartlett WR Jardine
JJH Bester HS Kellan
JP Burger EG Matenge-Sebesho
MS Bomela AT Nzimande
P Cooper D Premnarayen
L Crouse KB Schoeman
JJ Durand BJ van der Ross
GG Gelink JH van Greuning
PM Goss
The Offer is subject to obtaining a minimum subscription and to the attainment of a spread of 300 shareholders acceptable to the JSE. The Listings Requirements require that a minimum of 20 percent of the Shares are held by the public as defined in the Listings Requirements.
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TRANSFER AND SELLING RESTRICTIONS
Because of the following restrictions, investors are advised to consult legal counsel prior to making any offer,
resale, pledge or other transfer of the Shares:
United States
The Shares have not been and will not be registered under the U.S. Securities Act or under the securities laws
of any state of the United States and, subject to certain exceptions, may not be offered or sold within the United
States, except to persons reasonably believed to be QIBs in reliance on Rule 144A or another exemption from,
or in a transaction not subject to, the registration requirements of the U.S. Securities Act, and Qualified
Purchasers within the meaning of Section 2(a)(51) of the U.S. Investment Company Act (“QPs”). The Shares
are being offered and sold outside the United States in offshore transactions in reliance on Regulation S.
The Company has not been and will not be registered under the U.S. Investment Company Act and investors
will not be entitled to the benefits of that Act. The Company is relying on the exemption provided by
Section 3(c)(7) of the U.S. Investment Company Act and as a result the Offer Shares may only be purchased by
persons within the United States who are QPs. Purchasers in the United States or who are U.S. persons will
be required to execute and deliver a U.S. Investment Letter in the form set forth in Appendix A.
South Africa
In South Africa, the Offer will only be made by way of private placement to persons falling within the
exemptions set out in Section 96(1)(a) of the Companies Act or persons acquiring Shares for a minimum
acquisition cost of R1 ,000 ,000 (as contemplated in Section 96(1)(b) of the Companies Act) (“Qualifying
Investors”) and this pre-listing statement is only being made available to such Qualifying Investors. The Offer
does not constitute an offer for the sale of or subscription for, or the solicitation of an offer to buy and
subscribe for, shares to the public as defined in the Companies Act and will not be distributed to any person in
South Africa in any manner which could be construed as an offer to the public in terms of the Companies Act.
Should any person who is not a Qualifying Investor receive this pre-listing statement they should not and will
not be entitled to acquire any Shares or otherwise act thereon. This pre-listing statement does not, nor is it
intended to, constitute a “registered prospectus” prepared and filed under the Companies Act.
European Economic Area
In relation to each member state of the EEA which has implemented the Prospectus Directive (each, a “relevant
member state”), no Offer Shares have been offered or will be offered pursuant to the Offers contemplated by
this pre-listing statement to the public in that relevant member state, except in that relevant member state at
any time under the following exemptions under the Prospectus Directive, if they have been implemented in
that relevant member state:
• to any legal entity which is a qualified investor as defined in the Prospectus Directive;
• by the Joint Bookrunners to fewer than 100 or, if the relevant member state has implemented the relevant
provision of the 2010 PD Amending Directive, 150 natural or legal persons (other than qualified investors
as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining
the prior consent of the Joint Bookrunners; or
• in any other circumstances falling within Article 3(2) of the Prospectus Directive,
provided that no such offer of Offer Shares required the Company or any of the Joint Bookrunners to
publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant
to Article 16 of the Prospectus Directive.
For purposes of this legal notice, the expression an “offer of securities to the public” in relation to any Offer
Shares in any relevant member state means the communication in any form and by any means of sufficient
information on the terms of the Offer and any Offer Shares to be offered so as to enable an investor to decide to
purchase any Offer Shares, as the same may be varied in that member state by any measure implementing the
Prospectus Directive in that member state, the expression “Prospectus Directive” means Directive 2003/71/EC
(and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the relevant
member state) and includes any relevant implementing measure in the relevant member state and the expression
“2010 PD Amending Directive” means Directive 2010/73/EU.
The Company has not authorised and does not authorise the making of any offer of the Offer Shares through
any financial intermediary on its behalf, other than offers made by the Joint Bookrunners with a view to the
final placement of the Shares as contemplated in this pre-listing supplement. Accordingly, no purchaser of the
Offer Shares, other than the Joint Bookrunners, is authorised to make any further offer of the Offer Shares
on behalf of the Company or the Joint Bookrunners.
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United Kingdom
This pre-listing statement is only being distributed to and is only directed at: (i) persons who are outside the
United Kingdom, or (ii) to investment professionals falling within Article 19(5) of the Financial Services and
Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) or (iii) high net-worth entities falling within
Articles 49(2)(a) to (d) of the Order, and other persons to whom it may lawfully be communicated (all such
persons together being referred to as “relevant persons”). This document is directed only at relevant persons
and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment
activity to which this document relates is available only to relevant persons and will be engaged in only with
relevant persons.
Each Joint Bookrunner has represented and agreed that: (i) it has only communicated or caused to be
communicated and will only communicate or cause to be communicated an invitation or inducement to engage
in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000) in
connection with the issue or sale of the Shares in circumstances in which Section 21(1) of such Act does not
apply to the Company and (ii) it has complied and will comply with all applicable provisions of such Act with
respect to anything done by it in relation to any Shares in, from or otherwise involving the United Kingdom.
Singapore
This pre-listing statement has not been registered as a prospectus with the Monetary Authority of Singapore.
Accordingly, this pre-listing statement and any other document or material in connection with the offer or
sale, or invitation for subscription or purchase, of the Offer Shares may not be circulated or distributed, nor
may Offer Shares be offered or sold, or be made the subject of an invitation for subscription or purchase,
whether directly or indirectly, to persons in Singapore, other than: (i) to an institutional investor as defined
under Section 275(2) and under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore
(“SFA”), (ii) to a relevant person as defined under Section 275(2) and under Section 275(1), or any person
under Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA or
(iii) otherwise under, and in accordance with the conditions of, any other applicable provision of the SFA.
Where Offer Shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
• a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business
of which is to hold investments and the entire share capital of which is owned by one or more individuals,
each of whom is an accredited investor; or
• a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each
beneficiary of the trust is an individual who is an accredited investor;
shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and
interest (howsoever described) in that trust shall not be transferred within six months after that corporation
or that trust has acquired the Offer Shares under an offer made under Section 275 of the SFA, except:
• to an institutional investor (for corporations, under Section 274 of the SFA) or to a relevant person defined
in Section 275(2) of the SFA, or to any person under an offer that is made on terms that such shares,
debentures and units of shares and debentures of that corporation or such rights and interest in that
trust are acquired at a consideration of not less than US$200 ,000 (or its equivalent in a foreign currency)
for each transaction, whether such amount is to be paid for in cash or by exchange of securities or other
assets, and further for corporations, in accordance with the conditions specified in Section 275 of the SFA;
• where no consideration is or will be given for the transfer; or
• where the transfer is by operation of law.
Australia
This pre-listing statement has not been, and will not be, lodged with the Australian Securities and Investments
Commission as a disclosure document for the purposes of the Australian Corporations Act 2001. This pre-
listing statement does not purport to include the information required of a disclosure document under
Chapter 6D of the Australian Corporations Act 2001. The Offer Shares may not be, directly or indirectly,
offered for subscription or purchased or sold for at least 12 months after issuance, and no invitations to
subscribe for or buy the Offer Shares may be issued, and no draft or definitive offering memorandum,
advertisement or other offering material may be distributed relating to, any Offer Shares in the Commonwealth
of Australia, its territories and possessions or to any resident of Australia, except in circumstances where
disclosure to investors is not required under Chapter 6D of the Australian Corporations Act 2001 or is
otherwise in compliance with all applicable Australian laws and regulations. Each investor acknowledges the
above and, by applying for the Offer Shares under this pre-listing statement, gives an undertaking not to sell
those shares (except in the circumstances referred to above) for 12 months after issuance.
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Canada
The Offer Shares have not been and will not be qualified for sale under the securities laws of any province or
territory of Canada. The Offer Shares may only be offered, sold or distributed, directly or indirectly, in or to
or for the benefit of a resident of a province of Canada pursuant to an exemption from the requirement to file
a prospectus in such province and only through a dealer duly registered under the applicable securities laws
of such province in circumstances where no exemption from the applicable registered dealer requirement is
available. Each of the Joint Global Coordinators has represented and agreed that it has not offered, sold or
distributed and will not offer, sell or distribute any securities, directly or indirectly, in Canada or to or for the
benefit of any resident of Canada, other than in compliance with applicable securities laws. Each of the Joint
Global Coordinators has also represented and agreed that it has not distributed or delivered and will not
distribute or deliver this pre-listing statement, or any other offering material in connection with the Offer of
the Offer Shares, in Canada other than in compliance with applicable securities laws.
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TAXATION
The following summary describes certain tax consequences of the subscription for, purchase, ownership and
disposition of the Shares. It is not a complete description of all the possible tax consequences of such purchase,
ownership or disposition. This summary is based on the laws as of and as applied in practice on the Last
Practicable Date and is subject to changes to those laws and practices subsequent to the date of this pre-listing
statement. In the case of persons who are non-residents of South Africa for income tax purposes, it should be
read in conjunction with the provisions of any applicable double tax agreement between South Africa and
their country of tax residence. Investors should consult their own advisors as to the tax consequences of the
subscription for, purchase, ownership and disposal of Shares in light of their particular circumstances,
including, in particular, the effect of any state, regional, local or other tax laws.
South African Taxation
The South African income tax system is based on a residence system for South African tax residents and on a
source basis for non-residents.
A natural person qualifies as a South African tax resident if he or she is ordinarily resident in South Africa
or, if not ordinarily resident in South Africa, was physically present in South Africa for certain prescribed
periods in the tax year in question, as well as in the five preceding tax years. These periods amount to more
than 91 days in aggregate during the current tax year and during each of the five preceding tax years, or
more than 915 days in aggregate during the five preceding tax years. A natural person (not ordinarily
resident in South Africa) who meets the prescribed periods of physical presence and who is physically absent
from South Africa for a continuous period of 330 days, will be deemed not to be a resident from the day
immediately after the date on which he or she ceases to be physically present in South Africa. A person other
than a natural person qualifies as a South African tax resident if it is incorporated, established or formed in
South Africa or has its place of effective management in South Africa.
The residence rules are subject to a provision that, even if a person would be a South African tax resident in
terms of the rules, that person will not qualify as a South African tax resident if the person is deemed to be
exclusively a resident of another country for purposes of a double taxation agreement (“DTA”) entered into by
South Africa and the other jurisdiction. Prospective purchasers should consult their tax advisors regarding
their tax residency.
The summary of South African income tax consequences set out below is for general information only. All
prospective purchasers should consult their tax advisors as to the particular tax consequences to them of
owning the Shares, including the applicability and effect of other tax laws and possible changes in tax law.
Dividends
Currently, any amounts distributed by a company to its shareholders, including amounts distributed by a
company to acquire, cancel or redeem its own shares, are generally considered to be dividends, except to the
extent that the distribution results in a reduction of the “contributed tax capital” of the company, in which
case the distribution will be regarded as a return of capital made by the company. Subject to what is stated
below, dividends are generally exempt from income tax and returns of capital are subject to capital gains tax
in terms of special rules.
Dividends Tax
Dividends paid by South African resident companies are subject to dividends tax at the rate of 15 percent on
the amount of any dividend paid. The dividends tax applies to both resident and non-resident shareholders.
The core principle of the dividends tax is that liability rests on the “beneficial owner” of the dividend or, if a
resident company declares and pays a dividend in specie, on that company. Subject to certain rules in respect
of the Shares, the obligation to withhold dividends tax arises on the date upon which the dividend is paid.
A company is obliged to withhold tax on any dividend paid unless certain statutory exemptions are applicable,
for example, when the beneficial owner of the share in respect of which the dividend is paid is a South African
resident company. Different exemptions apply in respect of dividends and dividends in specie , and certain
administrative requirements will need to be met in order for an exemption to be applicable. Where a DTA
provides for full or partial relief from the dividends tax, such relief is also subject to compliance with certain
administrative requirements (the beneficial owner of the dividend must complete, sign and file a declaration
in the prescribed form with the CSDP or broker). The U.S.-South Africa DTA will only reduce the 15 percent
withholding tax rate to 5 percent if the beneficial owner of the share in respect of which the dividend is paid
is a company that directly holds at least 10 percent of the voting stock of the company paying the dividends
and the other requirements of the treaty are satisfied.
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In other words, the exclusions or exemptions depend on the nature or classification of the “beneficial owner”,
who is defined as the person entitled to the benefit of the dividend attaching to the share. The exemption or
non-exemption from the dividends tax must be determined as at the date of payment or deemed payment of the
dividend.
Disposal of Shares
Profits derived from the disposal of South African shares held as long-term investments are generally regarded
as profits of a capital nature and are not subject to South African income tax. The onus of proof of a capital
intent is on the taxpayer. In general, the determination of whether or not shares are held as capital assets is
a question of fact and depends primarily upon the intention with which the shares were acquired and held.
Where a shareholder owned the Shares for a continuous period of at least three years immediately before the
disposal and the Shares constituted equity shares, certain “safe harbour” provisions under Section 9C of the
Income Tax Act may apply. If applicable, these safe harbour provisions will deem certain amounts (excluding
dividends) received by or accruing to the shareholder, as a result of the disposal of those Shares, as being of a
capital nature and therefore subject to capital gains tax. If the safe harbour provisions do not apply, the capital
or revenue nature of the proceeds of the disposal will be determined by applying the normal principles.
Capital Gains Tax
Upon a disposal of Shares, a South African shareholder will generally realise a capital gain or capital loss for
South African tax purposes equal to the difference, if any, between the proceeds from the disposal and the
South African shareholder’s base cost in the Shares. In general, the base cost of the Shares will be the
subscription price of the Shares (in the event that the holder of the Shares subscribed for same), or the
purchase price paid by the South African shareholder in respect of the acquisition of the Shares from third
parties plus certain acquisition and selling costs.
Distributions from contributed tax capital generally represent a return of capital to the shareholder, and are
subject to capital gains tax. The application of special rules to the taxpayer’s circumstances determines how
the distribution must be treated for capital gains tax purposes.
Capital losses may only be set-off against other capital gains realised in the same or any subsequent tax year.
In the case of South African shareholders who are natural persons, an amount of R30 ,000 (or R300 ,000 in the
year of death), is deducted from any capital gain or capital loss realised in any tax year. A prescribed portion
(either 33.3 percent for individuals and special trusts or 66.6 percent for companies and trusts) of a net capital
gain realised by a South African shareholder will be included in normal taxable income.
Non-resident shareholders are exempt from capital gains tax on any gain made to the extent that the Shares
that they hold are not attributable to a permanent establishment of that non-resident in South Africa and are
not held, directly or indirectly, in an immovable property company (sometimes known as a “property-rich
company”). The Company is not a property-rich company.
Income Tax
If the Shares are not held as capital assets but rather for a speculative purpose (e.g., as trading stock), South
African residents will be subject to income tax on the disposal of the Shares. Non-residents will only be subject
to South African income tax on the disposal of the Shares if it is determined that the proceeds of the disposal
constitute income derived from a South African source or deemed to be from a South African source and the
DTA, if any, concluded between South Africa and their country of residence does not grant relief from South
African tax (the U.S.-South Africa DTA generally grants such relief unless the gain is attributable to a
permanent establishment in South Africa).
Securities Transfer Tax
STT is a tax levied on every transfer of a security at the rate of 0.25 percent of the taxable amount. In respect
of the transfer of listed securities, generally the taxable amount is the consideration for which the security is
acquired or, where no consideration is declared or the consideration declared is less than the lowest price of
the security, the closing price of that security. The tax applies to the transfer of beneficial ownership in a share
in a company which is incorporated, established or formed in South Africa, or in a company which is not
incorporated, established or formed in South Africa but which is listed in South Africa. The tax is triggered
by a transfer of beneficial ownership, including the cancellation or redemption of a share. There is no STT
payable upon the issue of a share by a company, a cancellation or redemption of a share where the issuing
company is being wound up, liquidated or deregistered, or any event that does not result in a change in
beneficial ownership. Therefore, STT will not be payable if investors subscribe for Offer Shares, but STT will
be payable if investors acquire the Offer Shares from a third party.
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U.S. Federal Income Tax Consideratio ns1
The following is a description of certain U.S. federal income tax consequences to the U.S. Holders described
below of purchasing, owning and disposing of Offer Shares, but it does not purport to be a comprehensive
description of all tax considerations that may be relevant to a particular person’s decision to acquire Offer
Shares. This discussion applies only to a U.S. Holder that owns Offer Shares as capital assets for U.S. federal
income tax purposes. In addition, it does not describe all of the tax consequences that may be relevant in light
of the U.S. Holder’s particular circumstances, including alternative minimum tax consequences, the potential
application of the Medicare contribution tax, and tax consequences applicable to U.S. Holders subject to special
rules, such as:
• certain financial institutions;
• dealers or traders in securities that use a mark-to-market method of tax accounting;
• persons holding Offer Shares as part of a hedging transaction, straddle, wash sale, conversion transaction
or integrated transaction or persons entering into a constructive sale with respect to the Offer Shares;
• persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar;
• entities classified as partnerships for U.S. federal income tax purposes;
• tax-exempt entities, including “individual retirement accounts” or “Roth IRAs”;
• persons that own or are deemed to own ten percent or more of the Company’s voting stock; or
• persons holding Offer Shares in connection with a trade or business conducted outside of the United States.
If an entity that is classified as a partnership for U.S. federal income tax purposes owns Offer Shares, the U.S.
federal income tax treatment of a partner will generally depend on the status of the partner and the activities
of the partnership. Partnerships owning Offer Shares and partners in such partnerships should consult their
tax advisors.
This discussion is based on the Internal Revenue Code of 1986, as amended (the “Code”), administrative
pronouncements, judicial decisions and final, temporary and proposed Treasury regulations and the Income
Tax Treaty between the United States and South Africa (the “Treaty”), all as of the date hereof, any of which is
subject to change possibly with retroactive effect.
A “U.S. Holder” is a beneficial owner of Offer Shares that is, for U.S. federal income tax purposes:
• a citizen or individual resident of the United States;
• a corporation, or other entity taxable as a corporation, created or organised in or under the laws of the
United States, any state therein or the District of Columbia; or
• an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.
U.S. Holders should consult their own tax advisors concerning the U.S. federal, state, local and non-U.S. tax
consequences of purchasing, owning and disposing of Offer Shares in their particular circumstances.
Taxation of Distributions
Subject to the passive foreign investment company rules described below, distributions paid on Offer Shares,
including any South African taxes withheld, other than certain pro rata distributions of ordinary shares, will
be treated as foreign-source dividend income to the extent paid out of the Company’s current or accumulated
earnings and profits (as determined under U.S. federal income tax principles). Because the Company does not
calculate its earnings and profits under U.S. federal income tax principles, it is expected that distributions
generally will be reported to U.S. Holders as dividends. The amount of a dividend a U.S. Holder will be required
to include in income will equal the U.S. dollar value of the Rand dividend, calculated by reference to the
exchange rate in effect on the date the dividend is received by the holder, regardless of whether the dividend
is converted into U.S. dollars on the date of receipt. If a U.S. Holder converts Rand after the date of receipt, the
U.S. Holder may realise foreign currency gain or loss, which will be U.S.-source ordinary income or loss.
Corporate U.S. Holders will not be entitled to claim the dividends received deduction with respect to dividends
paid by the Company. Subject to applicable limitations, dividends paid to certain non-corporate U.S. Holders
may be eligible for taxation as “qualified dividend income” and therefore may be taxable at tax rates lower
than the rates applicable to ordinary income, provided that the Company is not a passive foreign investment
company. Non-corporate U.S. Holders should consult their tax advisors regarding the availability of the
reduced tax rates on dividends in their particular circumstances.
South African taxes withheld from dividends on Offer Shares (at a rate not exceeding the rate provided by the
Treaty) generally will be creditable against a U.S. Holder’s U.S. federal income tax liability, subject to applicable
restrictions and limitations. Dividends will generally constitute passive-category income for purposes of the
foreign tax credit rules. Instead of claiming a credit, a U.S. Holder may elect to deduct South African taxes in
computing its taxable income, subject to generally applicable limitations. An election to deduct foreign taxes
instead of claiming foreign tax credits must apply to all foreign taxes paid or accrued in the taxable year.
1.
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Sale, Redemption or Other Disposition of Offer Shares
Subject to the passive foreign investment company rules described below, a U.S. Holder will generally recognise
capital gain or loss on the sale, redemption, or other disposition of Offer Shares, which will be long-term
capital gain or loss if the U.S. Holder has held such Offer Shares for more than one year. The amount of the
U.S. Holder’s gain or loss will be equal to the difference between the amount realised on the sale or other
disposition and such U.S. Holder’s tax basis in the Offer Share, each as determined in U.S. dollars. Any gain
or loss will generally be U.S.-source gain or loss for foreign tax credit purposes.
Passive Foreign Investment Company Rules
In general, a non-U.S. corporation will be considered a passive foreign investment company (“PFIC”) for any
taxable year in which: (i) 75% or more of its gross income consists of passive income or (ii) 50% or more of the
average quarterly value of its assets consists of assets that produce, or are held for the production of, passive
income. For purposes of the above calculations, a non-U.S. corporation that directly or indirectly owns at least
25% by value of the shares of another corporation is treated as if it directly held its proportionate share of the
assets of the other corporation and received directly its proportionate share of the income of the other
corporation. Passive income generally includes dividends, interest, rents, royalties and capital gains.
Exceptions exist for certain income derived in the conduct of certain active businesses, including income
derived in the active conduct of an insurance business by certain bona fide non-U.S. insurance companies.
While there is an exception for income earned in the active conduct of an insurance business by bona fide non-
U.S. insurance companies (the “active insurance exception”), there is substantial uncertainty as to the extent
to which the Company and its subsidiaries can benefit from that exception. Under the active insurance
exception, passive income does not include income derived in the active conduct of an insurance business by
a corporation that is predominantly engaged in an insurance business and that would be subject to tax as an
insurance company if it were a U.S. corporation. More than 90% of the assets reflected on the consolidated
balance sheet of the Company are financial assets that are held under multi-manager investment contracts in
connection with “linked policies” issued by registered long-term insurers under the South African Long-Term
Insurance Act, 19 98 (the “LTIA”). These “linked policies” are retirement investment products that a regulated
South African insurer may offer in accordance with the LTIA, the return on which matches the performance
of the assets underlying them. The Company and its subsidiaries’ net income with respect to these policies and
assets is limited to management fees. While “linked policies” are retirement investment products that conform
to the regulatory requirements of South Africa applicable to insurers, they are not designed to conform to U.S.
insurance regulatory requirements . Absent further guidance, it is unclear how to apply the PFIC rules and
the active insurance exception to non-U.S. insurance companies offering products that, while conforming to
the regulatory requirements applicable to insurance companies in the jurisdictions in which they operate, do
not conform to those applicable to U.S. insurance companies. It is therefore unclear whether the Company and
its subsidiaries could benefit from the active insurance exception or whether the assets held in connection
with “linked policies” are appropriately treated as assets of the Company and its subsidiaries for PFIC purposes.
Accordingly, the Company and certain of its subsidiaries may be determined to be PFICs for any taxable year.
Potential purchasers should consult their own tax advisors with respect to the PFIC status of the Company
and its subsidiaries.
If the Company were a PFIC for any year during which a U.S. Holder held Offer Shares, it generally would
continue to be treated as a PFIC with respect to that U.S. Holder for all succeeding years during which the U.S.
Holder held Offer Shares, even if the Company ceased to meet the threshold requirements for PFIC status.
Generally, if the Company were a PFIC for any taxable year during which a U.S. Holder held Offer Shares,
gain recognised by a U.S. Holder on a sale or other disposition (including certain pledges) of the Offer Shares
would be allocated rateably over the U.S. Holder’s holding period for the Offer Shares. The amounts allocated
to the taxable year of the sale or other disposition and to any taxable year before the Company became a PFIC
would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at
the highest rate in effect for individuals or corporations, as appropriate, for that taxable year, and an interest
charge would be imposed on the resulting tax liability for each such taxable year. Further, to the extent that
any distribution received by a U.S. Holder on its Offer Shares exceeds 125% of the average of the annual
distributions on the Offer Shares received during the preceding three years or the U.S. Holder’s holding
period, whichever is shorter, that distribution would be subject to taxation in the same manner as gain from
a sale or other disposition of the Offer Shares.
Under attribution rules, if the Company were a PFIC and any of its subsidiaries or other entities in which it
owns equity interests were also a PFIC (a “Lower-tier PFIC”), a U.S. Holder would be deemed to own its
proportionate share of the Lower-tier PFIC shares and would be subject to U.S. federal income tax according
to the rules described in the above paragraph on (i) certain distributions by a Lower-tier PFIC and (ii) a
disposition of shares of a Lower-tier PFIC, in each case as if the U.S. Holder held such shares directly, even
though the U.S. Holder had not received the proceeds of those distributions or dispositions. Appropriate
adjustments would be made to the tax basis of the U.S. Holder’s Offer Shares to reflect these income inclusions.
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Alternatively, if the Company were a PFIC and if the Offer Shares were “regularly traded” on a “qualified
exchange”, a U.S. Holder could make a mark-to-market election that would result in tax treatment different
from the general tax treatment for PFICs described above. The Offer Shares would be treated as “regularly
traded” in any calendar year in which more than a de minimis quantity of the Offer Shares were traded on a
qualified exchange on at least 15 days during each calendar quarter. The Internal Revenue Service has not
identified non-U.S. exchanges that are “qualified” for this purpose. If a U.S. Holder makes the mark-to-market
election, the U.S. Holder generally will recognise as ordinary income any excess of the fair market value of the
Offer Shares at the end of each taxable year over their adjusted tax basis, and will recognise an ordinary loss
in respect of any excess of the adjusted tax basis of the Offer Shares over their fair market value at the end of
the taxable year (but only to the extent of the net amount of income previously included as a result of the
mark-to-market election). If a U.S. Holder makes the election, the U.S. Holder’s tax basis in the Offer Shares
will be adjusted to reflect these income or loss amounts. In addition, if a U.S. Holder makes the election, any
gain recognised on the sale or other disposition of Shares in a taxable year during which the Company is a
PFIC will be treated as ordinary income and any loss will be treated as an ordinary loss (but only to the extent
of the net amount of income previously included as a result of the mark-to-market election). U.S. Holders
should consult their tax advisors regarding the availability and advisability of making a mark-to-market
election in their particular circumstances. In particular, U.S. Holders should consider carefully the impact of
a mark-to-market election with respect to their Offer Shares given that the Company could have Lower-tier
PFICs for which a mark-to-market election would not be available.
A timely election to treat the Company as a “qualified electing fund” under Section 1295 of the Code would
result in an alternative treatment. U.S. Holders should be aware, however, that the Company does not intend
to satisfy record-keeping and other requirements that would permit U.S. Holders to make “qualified electing
fund” elections.
If the Company were a PFIC for the taxable year in which it paid a dividend or for the prior taxable year, the
reduced tax rate discussed above with respect to certain dividends paid to certain non-corporate U.S. Holders
would not apply with respect to the Company and any Lower-tier PFIC.
If the Company were a PFIC for any taxable year during which a U.S. Holder owned any Offer Shares, the U.S.
Holder would generally be required to file IRS Form 8621 with its annual U.S. federal income tax return.
U.S. Holders should consult their own tax advisors regarding the PFIC status of the Company and its
subsidiaries, and the U.S. federal income tax consequences that apply to an investment in a PFIC.
Information Reporting and Backup Withholding
Payments of dividends and sales proceeds that are made within the United States or through certain
U.S. -related financial intermediaries generally are subject to information reporting, and may be subject to
backup withholding, unless: (i) the U.S. Holder is a corporation or other exempt recipient or (ii) in the case of
backup withholding, the U.S. Holder provides a correct taxpayer identification number and certifies that it is
not subject to backup withholding.
The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the
holder’s U.S. federal income tax liability and may entitle such U.S. Holder to a refund, provided that the
required information is timely furnished to the Internal Revenue Service.
130
EXCHANGE RATES AND EXCHANGE CONTROL
Exchange Rates
Rand-Euro Exchange Rate
The following table sets forth, for the period from 1 January 2009 to 27 June 2014, the Bloomberg Composite
Rate expressed as Rands per €1.00. The Bloomberg Composite Rate is a “best market” calculation. At any point
in time, the bid rate is equal to the highest bid rate of all contributing bank indications. The ask rate is set to the
lowest ask rate offered by these banks. The Bloomberg Composite Rate is a mid-value rate between the applied
highest bid rate and the lowest ask rate. The Company does not represent that the Rand amounts referred to
below could be or could have been converted into Euro at any particular rate indicated or any other rate.
The average rate for a period means the average of the daily Bloomberg Composite Rates during that specified
period.
Period end Average rate High Low
Year2009 8.80 11.61 13.55 10.58
2010 8.80 9.67 10.80 8.75
2011 10.46 10.06 11.39 8.81
2012 11.19 10.53 11.56 9.88
2013 14.51 12.77 14.51 11.17
2014 (through 27 June) 14. 53 14.66 15. 34 14.0 4
Period end Average rate High Low
MonthDecember 2013 14.51 14.22 14.51 13.91
January 2014 15.01 14.79 15.34 14.37
February 2014 14.79 14.97 15.20 14.71
March 2014 14.49 14.86 15.04 14.49
April 2014 14.60 14.56 14.73 14.39
May 2014 14.43 14.29 14.62 14.04
Ju ne 2014 (through 27 June) 14. 53 14.5 3 14. 68 14. 39
Rand-U.S. Dollar Exchange Rate
The following table sets forth, for the period from 1 January 2014 to 27 June 2014, the Bloomberg Composite
Rate expressed as Rands per $1.00. The Bloomberg Composite Rate is a “best market” calculation. At any point
in time, the bid rate is equal to the highest bid rate of all contributing bank indications. The ask rate is set to
the lowest ask rate offered by these banks. The Bloomberg Composite Rate is a mid-value rate between the
applied highest bid rate and the lowest ask rate. The Company does not represent that the Rand amounts
referred to below could be or could have been converted into U.S. dollars at any particular rate indicated or
any other rate.
The average rate for a year means the average of the Bloomberg Composite Rates on the last day of each
month during a year. The average rate for a month, or for any shorter period, means the average of the daily
Bloomberg Composite Rates during that month, or during any shorter period, as the case may be.
Period end Average rate High Low
Year2009 7.38 8.30 10.60 7.26
2010 6.59 7.30 8.01 6.59
2011 8.08 7.22 8.53 6.58
2012 8.48 8.19 8.96 7.46
2013 10.52 9.62 10.53 8.47
2014 (through 27 June) 10. 62 10.69 11. 23 10. 30
131
Period end Average rate High Low
MonthDecember 2013 10.52 10.38 10.53 10.27
January 2014 11.12 10.87 11.23 10.44
February 2014 10.72 10.95 11.22 10.72
March 2014 10.52 10.74 10.89 10.52
April 2014 10.53 10.54 10.64 10.42
May 2014 10.57 10.41 10.57 10.30
Ju ne 2014 (through 27 June) 10. 62 10.6 9 1 1.23 10. 30
Exchange Control Limitations
The transfer of currency and shares are not freely transferable from South Africa to any jurisdiction falling
outside the geographical borders of South Africa, other than jurisdictions falling within the Common Monetary
Area and must be dealt with in terms of the South African Exchange Control Regulations as described below.
The South African Exchange Control Regulations also regulate the acquisition by former residents and
non-residents of Offer Shares.
Applicants for Offer Shares who are resident outside the Common Monetary Area should seek advice as to
whether any governmental and/or other legal consent is required and/or whether any other formality must be
observed to enable an application to be made in response to the Offer.
The following summary is intended as a guide and is therefore not comprehensive. Investors should consult their
professional advisors to determine the exchange control implications for them, given their facts and circumstances.
Emigrants from the Common Monetary Area
A former resident of the Common Monetary Area who has emigrated from South Africa may use emigrant
blocked Rand accounts (“emigrant blocked Rands”) to acquire Offer Shares pursuant to this pre-listing statement.
All payments in respect of subscriptions for or purchases of Offer Shares by non-residents using emigrant
blocked Rands must be made through an authorised dealer in foreign exchange controlling the blocked assets.
Share certificates issued in respect of Offer Shares acquired with emigrant blocked Rands will be endorsed
“non-resident” in accordance with the South African Exchange Control Regulations. Share certificates will be
placed under the control of the authorised dealer through whom the payment for the Offer Shares was made.
Dematerialised Offer Shares acquired with emigrant blocked Rands will be credited to the emigrant’s blocked
share account at the CSDP controlling their blocked portfolios.
If applicable, refund monies payable in respect of unsuccessful applications for Offer Shares pursuant to this
pre-listing statement, emanating from emigrant blocked Rand accounts will be returned, under the South
African Exchange Control Regulations, to the authorised dealer administering such emigrant blocked Rand
accounts for the credit of such applicants’ blocked Rand accounts.
Applicants Resident Outside the Common Monetary Area
In respect of persons resident outside the Common Monetary Area (including an emigrant not using emigrant
blocked Rands) who are applying for Offer Shares pursuant to this pre-listing statement, there are no
restrictions similar to those placed on emigrants using emigrant blocked Rands.
All share certificates issued to non-residents of South Africa should be endorsed “non-resident” in accordance
with the South African Exchange Control Regulations.
All non-resident holders of dematerialised Shares will have their Shares credited to an electronic share account
at their CSDP or broker through which they dematerialised their Shares and will have the account annotated
non-resident and their statements issued by the CSDP or broker endorsed “non-resident”.
The appointed CSDP or broker is responsible for ensuring compliance with the South African Exchange
Control Regulations.
132
ADDITIONAL INFORMATION
Information on Subsidiaries
Details of the Company’s subsidiaries are set out in Annexures 7 and 8 to this pre-listing statement.
Government Protection and Investment Encouragement Laws
The Group does not benefit from any government protection or investment encouragement law affecting
its business.
Principal Immovable Property Owned or Leased
Details of the principal immovable properties owned or leased by the Company are set out in Annexure 9 to
this pre-listing statement. None of the directors have any material interest in any of the immovable properties
owned or leased by the Company.
Material Acquisitions
There were no material acquisitions by the Company or its subsidiaries in the three years preceding the date of this
pre-listing statement of any of the securities in, or the business undertakings of, any other company or business
enterprise or any immovable properties or other property in the nature of fixed assets (collectively, “property”).
None of the directors or the promoters has a material beneficial interest in any of the property acquired or
proposed to be acquired by the Company out of the proceeds of the Offer or during the three years preceding
the date of this pre-listing statement. As at the date of this pre-listing statement, there are no proposed
acquisitions by the Company of any property, and there are no options to acquire any such property.
Material Disposals
Except as detailed in Annexure 14 to this pre-listing statement, there was no material property disposed of or
to be disposed of by the Company or its subsidiaries in the three years preceding the date of this pre-listing
statement. As at the date of this pre-listing statement, there are no proposed disposals by the Company of any
property and there are no options to acquire any such property.
Additional Financial Information
Pro Forma Consolidated Financial Information
Pro forma consolidated financial information for the Group, the preparation of which is the responsibility of
the directors, is set out in Annexure 4.
The pro forma consolidated financial information should be read in conjunction with the independent reporting
accountant’s report as set out in Annexure 5.
The pro forma consolidated financial information has been prepared for illustrative purposes only and because
of its nature it may not fairly present the Group’s financial position, changes in equity, results of operations
or cash flows, or the effect and impact of the Restructure and Offer going forward.
Independent Reporting Accountants’ Confirmation
The independent reporting accountants have provided confirmation to the JSE that they have reviewed this
pre-listing statement and that the content herein is not contradictory to any of the information contained in
any of their reports.
Interests of Advisors and Promoters
None of the advisors, as set out in the “Corporate Information” section on pages v and vi of this pre-listing
statement, hold any Shares or have agreed to acquire any Shares, except as contemplated in the placement
agreement in respect of the Offer.
The Company has not paid any amount (whether in cash or in securities), nor given any benefit to any
promoters or any partnership, syndicate or other association of which any promoter was a member during the
three years preceding the date of this pre-listing statement.
133
Material Contracts
Annexure 12 to this pre-listing statement sets out:
• material contracts that have been entered into by the Company or its subsidiaries during the two years
preceding the date of this pre-listing statement, other than in the ordinary course of business;
• material contracts entered into at any time prior to the two years preceding the date of this pre-listing
statement, other than in the ordinary course of business, that contain obligations or settlements material
to the Company or its subsidiaries as at the date of this pre-listing statement; and
• particulars of the material inter-company transactions during the two years preceding the date of this
pre-listing statement.
There are no existing or proposed contracts relating to royalties or secretarial or technical fees payable by
the Company.
Third-Party Management
Certain aspects of the Group’s business are managed by third parties pursuant to regulated outsourcing and
binder agreements and other mandate or service agreements. Details of these arrangements are set out in
Annexure 13. In addition, a number of intra-Group outsourcing, binder, mandate and service agreements are
in place, pursuant to which various functions are outsourced to other Group companies.
Material Capital Commitments
The future capital commitments of the Company as at 31 March 2014 were R13 million split into capital
commitments contracted for of R9 million and capital commitments authorised but not contracted of
R4 million.
Contingent Liabilities
In the conduct of its ordinary course of business, the Group is exposed to various actual and potential claims,
lawsuits and other proceedings relating to alleged errors and omissions, or non-compliance with laws and
regulations. The directors are satisfied, based on present information and the assessed probability of claims
eventuating, that the Group has adequate insurance programmes and provisions in place to meet such claims.
However, like all businesses of this type, the risk exists that significant adverse developments in past claims,
or a significant increase in the frequency or severity of future claims for errors and omissions, could have a
material effect on the Group’s reported results.
The contingent liabilities of the Company as at 31 March 2014 are set out in Note 37 to the Consolidated
Financial Statements.
Lease Payments
In 2013, the Group entered into a lease agreement for a new head office building. The lease is for a period of
12 years. The new head office building comes fully furnished with items of furniture and fixtures (including
IT equipment). These items will be used for a majority of their economic lives and consequently have been
classified as a finance lease. The minimum lease payments were therefore split between: (i) land and building
(the operating lease component) and (ii) furniture and fixtures, including IT equipment (the finance lease
component) based on their relative fair values.
Loan Capital and Material Loans
Details of outstanding loan capital in relation to the material borrowings of the Company as at the Last
Practicable Date are set out in Annexure 10 to this pre-listing statement.
Working Capital Statement
The directors of the Company are of the opinion that the working capital available to the Group is sufficient for the
Group’s present requirements, that is, for at least 12 months following the date of this pre-listing statement.
Litigation Statement
Except as disclosed under “Business —Investigations and Legal Proceedings” , no legal or arbitration
proceedings have been instituted that may have or have had in the last 12 months, a material effect on the
Group’s financial position nor is the Company aware of any such proceedings that are pending or threatened.
Material Changes
There have been no material changes to the financial or trading position or the controlling shareholders of
the Group since the date of the last financial statements.
134
Save for the information disclosed in this pre-listing statement under “Business”, there have been no material
changes to the business of the Company during the past five years.
Expenses
The Company has not incurred any preliminary expenses (within the meaning of the Listings Requirements
and the Companies Act) over the last three financial years.
The total expenses of the Offer (including expenses incurred in relation to issuing the new shares, referred to
as the issue expenses), estimated to be in the sum of approximately R 85 million (assuming an Offer Price at
the mid-point of the Offer Price Range and assuming that the Overallotment Option is fully exercised) shall
be paid by the Company and the Selling Shareholders as set out in the table below:
Rand ( million)
Joint Global Coordinator, Joint Bookrunner and Joint Transaction Sponsor – Deutsche
Bank(1) 35 . 1
Joint Global Coordinator and Joint Bookrunner – Morgan Stanley(1) 13. 5
Joint Global Coordinator, Joint Bookrunner, Lead Transaction Sponsor and Stabilisation
Manager – RMB(1) 13. 5
U.S. counsel and English legal advisor to the Company – Davis Polk & Wardwell London LLP 7 .0
South African legal advisor to the Company – Bowman Gilfillan Inc. 7.0
U.S. counsel and English legal advisor to the Joint Global Coordinators and Joint
Bookrunners – Freshfields Bruckhaus Deringer LLP 4 .1
South African legal advisor to the Joint Global Coordinators and Joint Bookrunners –
Edward Nathan Sonnenbergs Inc. 0.9
Auditors and independent reporting accountants 2.2
JSE listing and document inspection fees 1.1
Printing, publication and distribution costs 0. 6
Other expenses 0. 4
Total estimated expenses 85. 3
1. To be paid by the Company and the Selling Shareholders on a pro rata basis, determined in accordance with the amount to be received by
each of the Company and the Selling Shareholders in respect of the Offer Shares.
Commissions Paid or Payable in Respect of Underwriting
Other than as set out below, no consideration has been paid, or has accrued as payable, within the three years
preceding this pre-listing statement as commission to any person (including commission so paid or payable to
any sub-underwriter that is the holding company or a promoter or director or officer of the Company) for
subscribing or agreeing to subscribe or procuring or agreeing to procure subscriptions for any securities of
the Company. No commissions, discounts, brokerages or other special terms were granted during the three
years preceding the date of this pre-listing statement in connection with the issue or sale of any securities,
stock or debentures in the capital of the Company. Should the placement agreement become unconditional, the
Selling Shareholders and the Company will pay to the Joint Bookrunners the commission set out in “Particulars
of the Offer —Placement Agreement” and will reimburse certain related expenses incurred on a pro rata basis,
determined in accordance with the amount to be received by each of the Company and the Selling Shareholders
in respect of the Offer Shares.
Consents
Each of the legal advisors, the competent person, the auditors and independent reporting accountants, the
Joint Bookrunners, the Transaction Sponsors and the transfer secretary, named in this pre-listing statement
have consented in writing to act in the capacities stated, and to their names being stated in this pre-listing
statement, and none of these consents have been withdrawn prior to publication of this pre-listing statement
with the Registrar.
For the purpose of complying with the Listings Requirements in South Africa only, PricewaterhouseCoopers
has given and has not withdrawn its written consent to the issue of this pre-listing statement with the
inclusion herein of, and all references to: (i) its name, (ii) its independent reporting accountant’s report dated
1 July 2014 on the audit of the Group’s consolidated financial information for the years ended 31 March 2014,
2013 and 2012 and (iii) its independent reporting accountant’s report dated 1 July 2014 on the Group’s
pro forma consolidated financial information, in the form and context in which they are, respectively, included
in this pre-listing statement. A written consent in accordance with the Listings Requirements is different
from a consent filed with the U.S. Securities and Exchange Commission under Section 7 of the U.S. Securities
Act, which is applicable only to transactions involving securities registered under the U.S. Securities Act. As
the Offer Shares have not and will not be registered under the U.S. Securities Act, PricewaterhouseCoopers
has not filed a consent under Section 7 of the U.S. Securities Act.
135
Directors’ Responsibility Statement
The directors of the Company, whose names are given under “Management and Corporate Governance —
Directors of the Company”, collectively and individually, accept full responsibility for the accuracy of the
information contained herein and certify that, to the best of their knowledge and belief, there are no facts that
have been omitted that would make any statement false or misleading, and that all reasonable enquiries to
ascertain such facts have been made and that this pre-listing statement contains all information required by
law, the Companies Act and the Listings Requirements.
Documents Available for Inspection
Copies of the following documents will be available for inspection at the Company’s registered office and the
transaction sponsors’ offices set out in the “Corporate Information” section during normal business hours
(Saturdays, Sundays and official South African public holidays excepted) from the date of issue of this pre-
listing statement until the closing date:
• the memoranda of incorporation of the Company and the Company’s subsidiaries;
• the trust deeds of: (i) Alexander Forbes Management Trust, (ii) Alexander Forbes Management
Co -Investment Trust, (iii) Alexander Forbes Staff Share Trust and (iv) Alexander Forbes Community Trust;
• a signed copy of this pre-listing statement;
• the reports of the independent reporting accountants, which are included as Annexures 3 and 5 to this
pre-listing statement;
• the written consents of each of the legal advisors, the auditors and independent reporting accountants,
the Joint Bookrunners (in their respective capacities as bookrunner, global coordinator, financial advisor
and transaction sponsor) and the transfer secretary, named in this pre-listing statement to act in those
capacities;
• the written consent of the auditors and independent reporting accountants to the publication of its reports
included as Annexures 3 and 5 to this pre-listing statement and references thereto in the form and context
in which they are included in this pre-listing statement;
• the Consolidated Financial Statements ;
• service contracts of the Directors of the Company; and
• copies of the material contracts referred to in “ —Material Contracts”.
SIGNED AT JOHANNESBURG ON 7 JULY 2014 BY OR ON BEHALF OF THE DIRECTORS OF
ALEXANDER FORBES GROUP HOLDINGS LIMITED
Date: By:
Name: EC Kieswetter
Title: Group Chief Executive
136
LEGAL MATTERS
The validity of the Subscription Shares and certain other legal matters will be pronounced upon by Bowman
Gilfillan Inc., the Company’s South African counsel. Certain legal matters will be passed upon by Davis Polk
& Wardwell London LLP, U.S. counsel and English legal advisors to the Company. Certain legal matters will
be passed upon by Freshfields Bruckhaus Deringer LLP, U.S. counsel and English legal advisors to the Joint
Global Coordinators and Joint Bookrunners and by Edward Nathan Sonnenbergs Inc., South African counsel
to the Joint Global Coordinators and Joint Bookrunners.
137
INDEPENDENT REPORTING ACCOUNTANTS
The Group’s historical information for the financial years ended 31 March 2014, 2013 and 2012 included in
this pre-listing statement has been audited by PricewaterhouseCoopers, as stated in their independent
reporting accountant’s report set out in Annexure 3 to this pre-listing statement.
138
Annexure 1
DEFINITIONS, GLOSSARY AND INTERPRETATION
In this pre-listing statement, unless otherwise stated or the context clearly indicates otherwise, the words in
the first column have the meanings stated opposite them in the second column, words in the singular shall
include the plural and vice versa, words importing one gender include the other genders and references to a
person include juristic persons and associations of persons and vice versa:
“2007 Acquisition” the 2007 acquisition of the Group by the Private Equity Consortium;
“AF Acquisition” Alexander Forbes Acquisition Proprietary Limited (registration number
2006/023218/07), a private company incorporated in accordance with the
laws of South Africa;
“Actis AF” Actis AF Holdings Limited (subsidiary of funds managed and co-managed
by Actis LLP and members of the Actis LLP group) (registration number
64533), a private company incorporated in accordance with the laws of
Mauritius;
“Actis Affiliates” Actis Investment Holdings No. 86 Limited (a subsidiary of funds managed
by Actis LLP) and Actis Executive Co-Investment Plan, LP (a Guernsey
Limited partnership managed by a subsidiary of Actis LLP) ;
“AF Access” Alexander Forbes Access Fund;
“AF Financial Planning” Alexander Forbes Financial Planning Consultants Proprietary Limited
(registration number 1995/012764/07), a private company incorporated in
accordance with the laws of South Africa;
“AF Health” Alexander Forbes Health Proprietary Limited (registration number
2007/015447/07), a private company incorporated in accordance with the
laws of South Africa, or the AF Health business, as the context requires;
“AF International” Alexander Forbes International Limited (registration number 2265613),
a private company incorporated in accordance with the laws of England
and Wales or the AF International business, as the context requires;
“AF Life” Alexander Forbes Life Limited (registration number 1997/022561/06)
a public company incorporated in accordance with the laws of South
Africa, or the AF Life business, as the context requires;
“AF Limited” Alexander Forbes Limited (registration number 1958/001974/06) a public
company incorporated in accordance with the laws of South Africa;
“AF Pref” Alexander Forbes Preference Share Investments Limited (registration
number 2006/031561/06), a public company incorporated in accordance
with the laws of South Africa. According to Nasdaq OMX Advisory
Services, the following shareholders held 3% or more of AF Pref’s share
capital as of 3 0 June 201 4: Liberty Life Association of Africa Limited,
Rand Merchant Bank Limited, Nedgroup Investments Rainmaker Fund,
Allan Gray Balanced Fund, Ethos General Partner SPV (Pty) Ltd, Alteren
Management (Pty) Ltd, Allan Gray Equity Fund, Allan Gray Global
Balanced Portfolio, Allan Gray Stable Fund and Nedgroup Investment
Opportunity Fund;
“AF Pref holders” holders of AF Pref’s “ S” preference shares;
“AFACT” Alexander Forbes Accident Compensation Technologies Proprietary
Limited (registration number 2000/021810/07), a private company
incorporated in accordance with the laws of South Africa;
“AFAS” Alexander Forbes Administration Services Proprietary Limited
(registration number 1972/000632/07), a private company incorporated in
accordance with the laws of South Africa;
“AFCA UK” Alexander Forbes Consultants and Actuaries Limited (registration number
01804276), a private company incorporated in accordance with the laws of
England and Wales;
“AFCT” Alexander Forbes Compensation Technologies Proprietary Limited
(registration number 2001/011416/07), a private company incorporated in
accordance with the laws of South Africa or the Alexander Forbes
Compensation Technologies business, as the context requires;
139
“Affected Jurisdiction” a jurisdiction where the dissemination of the pre-listing statement or the
making of the Offer may be illegal or fails to conform to the laws of such
jurisdiction;
“AFFS” Alexander Forbes Financial Services Proprietary Limited (registration
number 1969/018487/07), a private company incorporated in accordance
with the laws of South Africa or the Alexander Forbes Financial Services
business, as the context requires;
“AFFS Holdings” Alexander Forbes Financial Services Holdings Proprietary Limited
(registration number 1995/012732/07), a private company incorporated in
accordance with the laws of South Africa;
“AFGTS” Alexander Forbes Group and Technology Services Proprietary Limited
(registration number 1977/003357/07), a private company incorporated in
accordance with the laws of South Africa;
“AFI” Alexander Forbes Insurance business;
“AFIC” Alexander Forbes Insurance Company Limited (registration number
1976/001547/06), a public company incorporated in accordance with the
laws of South Africa;
“AFICA” Alexander Forbes Individual Client Administration Proprietary Limited
(registration number 2007/015632/07), a private company incorporated in
accordance with the laws of South Africa;
“AFRF” the Alexander Forbes Retirement Fund;
“AfriNet” Alexander Forbes AfriNet Investments Proprietary Limited (registration
number 1997/004662/07), a private company incorporated in accordance
with the laws of South Africa; or the AfriNet business, as the context
requires;
“ Alexander Forbes Management
Co-Investment Trust”
Alexander Forbes Management Co-Investment Trust (Master’s IT reference:
337/08);
“ Alexander Forbes Management
Trust”
Alexander Forbes Management Trust (Master’s IT reference: 336/08), a
trust formed for the benefit of certain members of management of the
Group for the purpose of holding an interest in the Company;
“ANC” African National Congress;
“ “B” Preference Shares” the 45 ,000 ,000 “B” redeemable preference shares of the Company each
having a par value of R0.01, authorised as at the Listing Date and
redeemable at an amount of R179 million;
“B-BBEE” broad-based black economic empowerment, as defined by the B-BBEE Act;
“B-BBEE Act” the South African Broad-Based Black Economic Empowerment Act, 2003
(Act 53 of 2003);
“B-BBEE Investors” as defined in “Incorporation and Share Capital —Shareholding”;
“BEE SPV” Alexander Forbes BEE Funding SPV Proprietary Limited (registration
number 2014/011138/07), a private company incorporated in accordance
with the laws of South Africa;
“board of directors”, “board” or
“directors”
the board of directors of the Company;
“Bowman Gilfillan” Bowman Gilfillan Inc., South African legal advisors to the Company;
“business day” any day other than a Saturday, Sunday or official public holiday in
South Africa;
“CAGR” compound annual growth rate;
“CAR” capital adequacy requirements;
“Caveo” Caveo Fund Solutions Proprietary Limited (registration number
2003/017504/07), a private company incorporated in accordance with the
laws of South Africa;
“CDPQ” Caisse de Dépôt et Placement du Québec, a body constituted under the Act
respecting the Caisse de Dépôt et Placement du Québec of the province of
Québec, Canada;
“certificated shares” Shares that have not been dematerialised;
140
“CGT” capital gains tax, as envisaged in the South African Income Tax Act;
“closing date” the closing date of the Offer, expected to be 17 July 2014, but which may
be amended by way of an announcement in the South African press and
on SENS;
“CMS” the South African Council for Medical Schemes;
“Codes” the B-BBEE Codes of Good Practice;
“Common Monetary Area” collectively, South Africa, the Republic of Namibia, and the Kingdoms of
Lesotho and Swaziland;
“Companies Act” the South African Companies Act, 2008 (Act 71 of 2008), as amended and
substituted from time to time;
“Company” Alexander Forbes Group Holdings Limited, a public company duly
incorporated in accordance with the laws of South Africa under registration
number 2006/025226/06;
“Competition Act” the South African Competition Act (Act 89 of 1998), as amended or
substituted from time to time;
“Competition Commission” the South African Competition Commission, established under the
Competition Act;
“Consolidated Financial
Statements”
the Group’s Report of Historical Financial Information for financial years
2014, 2013 and 2012 contained in Annexure 2 to this pre-listing statement;
“Consortium Member” each of OTPP, Actis AF, Ethos, CDPQ and HarbourVest;
“CSDP” a Central Securities Depository Participant, as defined in the South African
Financial Markets Act, appointed by a shareholder for purposes of, and in
regard to, dematerialisation of shares evidenced by physical documents of
title into the Strate system;
“Davis Polk” Davis Polk & Wardwell London LLP, the Company’s U.S. counsel and
English legal advisors;
“DB” defined benefit;
“DC” defined contribution;
“dematerialisation” the process whereby physical share certificates are replaced with electronic
records evidencing ownership of shares for the purpose of the Strate
system;
“dematerialised shares” Offer Shares issued or transferred in dematerialised form;
“Deutsche Bank” Deutsche Bank AG, London Branch (registration number BR000005), one
of the Joint Bookrunners, or, when referring to the Joint Transaction
Sponsor, Deutsche Securities (SA) Proprietary Limited (registration
number 1995/011798/09);
“DTA” double taxation agreement;
“EBITDA” trading profit before property lease adjustment and depreciation and
amortisation;
“EEA” European Economic Area;
“ENS” Edward Nathan Sonnenbergs Inc., South African legal advisors to the
Joint Global Coordinators and Joint Bookrunners;
“Ethos” Ethos Capital V GP (SA) Proprietary Limited (in its capacity as general
partner of The Ethos Fund V (Non-Opic Investments) Partner SA and The
Ethos Fund V (Opic Investments) Partnership SA); Ethos Capital V GP
(Jersey) Limited (in its capacity as managing general partner of Ethos
U.S. Dollar Fund V (Non-Opic-Jersey), L.P., Ethos U.S. Dollar Fund V-B
(Non-Opic-Jersey), L.P., Ethos SA Rand Fund V (Non-Opic-Jersey), L.P.,
Ethos U.S. Dollar Fund V (Opic-Jersey), L.P., Ethos U.S. Dollar Fund V-B
(Opic-Jersey), L.P.; and Ethos SA Rand Fund V (Opic-Jersey), L.P.) and The
Trustees for the time being of Ethos Fund V Co-Investment Trust
“euro” or “€” lawful currency of the member states of the European Union that adopted
the single currency in accordance with the Treaty establishing the
European Community;
“Exchange Act” the United States Securities Exchange Act of 1934, as amended;
141
“Exchange Control Regulations” the Exchange Control Regulations of South Africa, as amended,
promulgated under Section 9 of the South African Currency and Exchanges
Act, 1933 (Act 9 of 1933), as amended or substituted from time to time;
“FAIS” the South African Financial Advisory and Intermediary Services Act, 2002
(Act 37 of 2002);
“FIC” the South African Financial Intelligence Centre;
“FICA” the South African Financial Intelligence Centre Act, 2001 (Act 38 of 2001);
“Financial Markets Act” the South African Financial Markets Act, 2012 (Act 19 of 2012), as amended
or substituted from time to time;
“First Closing Date” the date on which Mercer acquires 14.9% of the Shares of the Company
pursuant to the Sale of Shares Agreement, which will be the Listing Date
or such later date as may be agreed between the parties;
“FPC” financial planning consultants (including private client wealth managers);
“Freshfields” Freshfields Bruckhaus Deringer LLP, U.S. counsel and English legal
advisors to the Joint Global Coordinators and Joint Bookrunners;
“FS Charter” the South African Financial Sector Charter;
“FS Code” the South African Financial Sector Code;
“FSB” South African Financial Services Board;
“FSLGA” the South African Financial Services Laws General Amendment Act, 2014
(Act 45 of 2014);
“FSP” financial service providers;
“GDP” gross domestic product;
“General Codes” general, non-sector specific Codes;
“Group” the Company and its subsidiaries and its predecessor or successor
companies from time to time, as the context requires;
“Guardrisk” Guardrisk Holdings Limited, its subsidiaries and its associate, Euroguard
Insurance Company PCC Limited;
“HarbourVest” HarbourVest International Private Equity Partners V−Direct Fund L.P., a
limited partnership organised under the laws of the State of Delaware,
USA, and its affiliates;
“IFA” independent financial advisor;
“IFRS” the International Financial Reporting Standards as issued by the
International Accounting Standards Board, as amended from time to time;
“ILAB” the South African Insurance Laws Amendment Bill, 2013;
“Income Tax Act” the South African Income Tax Act, 1962 (Act 58 of 1962), as amended;
“Investment Solutions” Investment Solutions Limited (registration number 1997/000595/06),
a public company incorporated in accordance with the laws of South
Africa, or the Investment Solutions business, as the context requires;
“Investment Solutions Holdings” Investment Solutions Holdings Limited (registration number
1997/022540/06), a public company incorporated in accordance with the
laws of South Africa;
“IT” information technology;
“JIBAR” Johannesburg Interbank Agreed Rate being the interest rate at which
major banks in South Africa offer to lend short-term funds to other banks
from time to time;
“Joint Bookrunners” the joint bookrunners of the Offer, being Deutsche Bank, Morgan Stanley
and RMB;
“Joint Global Coordinators” the joint global coordinators of the Offer, being Deutsche Bank, Morgan
Stanley and RMB;
“Joint Transaction Sponsor” the joint transaction sponsor of the Offer, being Deutsche Bank;
142
“JSE” JSE Limited, a company duly registered and incorporated with limited
liability under the company laws of South Africa under registration
number 2005/022939/06, licensed as an exchange under the Financial
Markets Act;
“King Code” the South African Code of Corporate Practices and Conduct as set out in
the third King Report on Corporate Governance;
“Last Practicable Date” Friday, 27 June 2014, being the last date, prior to finalisation of this
pre-listing statement, on which information could be included in this pre-
listing statement;
“LCP” Lane Clark & Peacock LLP, a limited liability partnership incorporated in
accordance with the laws of England and Wales;
“LCP Ireland” LCP Ireland Limited (registration number 337796) a company incorporated
in accordance with the laws of Ireland;
“LCP Netherlands” LCP Netherlands BV (registration number 3023762) a company incorporated
in accordance with the laws of Netherlands;
“Lead Transaction Sponsor” the lead transaction sponsor of the Offer, being RMB;
“legal advisors” Bowman Gilfillan, Davis Polk, Freshfields and ENS;
“Listing” the admission and listing of the Shares on the exchange operated by the
JSE;
“Listing Date” the date of Listing, which is expected to be Thursday, 24 July 2014;
“Listings Requirements” the JSE Listings Requirements;
“LSM” Living Standards Measure;
“LTIA” the South African Long-Term Insurance Act, 1998 (Act 52 of 1998);
“management” the senior management of the Company;
“Management SPV” Alexander Forbes Management Share Trust Funding SPV (registration
number 2014/011143/07), a private company incorporated in accordance
with the laws of South Africa;
“Mercer” Mercer Africa Limited (company number 9093306), a company organised
under the laws of England and Wales;
“Memorandum of Incorporation”
or “MOI”
the memorandum of incorporation of the Company;
“Morgan Stanley” Morgan Stanley & Co. International plc (registration number 2068222),
one of the Joint Bookrunners;
“National Treasury” the South African National Treasury;
“net revenue” operating income net of direct expenses;
“NSSF” the Kenyan National Social Security Fund;
“NSSF Act” the Kenyan National Social Security Fund Act;
“Offer” the offer for sale, subject to certain conditions, by the Selling Shareholders
and the offer for subscription by the Company, subject to certain conditions,
to certain selected institutional and other investors in South Africa and to
selected institutional investors in other jurisdictions;
“Offer Price” the price at which the Offer Shares are offered for sale and subscription
pursuant to this pre-listing statement, to be determined in accordance
with the provisions of the paragraph headed “Particulars of the Offer— Offer Price” and specified in the placement agreement;
“Offer Price Range” the current estimated price at which the Offer Shares will be offered for
sale or subscription pursuant to this pre-listing statement, being between
R 6.90 and R 8. 05 per Offer Share;
“Offer Shares” the shares of the Company subject to the Offer, which comprise
431,940,542 Shares (assuming an Offer Price at the mid-point of the
Offer Price Range) which includes both the Subscription Shares and
the Sale Shares ;
“Order” the UK Financial Services and Markets Act 2000 (Financial Promotion)
Order 2005;
143
“OTPP” Ontario Teachers’ Pension Plan Board, a non-share capital corporation
established under the laws of the Province of Ontario, Canada;
“Overallotment Option” the 30-day option granted by the Selling Shareholders to the Joint
Bookrunners to purchase additional shares up to a maximum of 15 percent
of the Offer Shares, on the same terms and conditions as those applicable
to the Offer, for the purpose of covering short positions resulting from
overallotments or from sales of Offer Shares at or before the end of the
Stabilisation Period;
“Overallotment Shares” the Shares that may be sold by the Selling Shareholders pursuant to the
Overallotment Option, which comprise 64,791,081 Shares (assuming an
Offer Price at the mid-point of the Offer Price Range);
“Participant” a central securities depository participant, in terms of the Financial
Markets Act;
“PFA” the South African Pension Funds Act, 1956 (Act 24 of 1956);
“placement agreement” the agreement which is intended to be entered into between the Joint
Bookrunners, the Selling Shareholders and the Company which, if
concluded, will provide that the Joint Bookrunners will, subject to certain
conditions, procure subscribers and purchasers for, or failing that,
subscribe and purchase themselves, the Offer Shares;
“POPIA” the South African Protection of Personal Information Act, 2013 (Act 4
of 2013);
“pound sterling” and “£” the lawful currency of the United Kingdom;
“pre-listing statement” this entire document and all annexures to it;
“PricewaterhouseCoopers” PricewaterhouseCoopers Inc., Registered Accountants and Auditors,
Chartered Accountants (SA), incorporated in South Africa with registration
number 1998/012055/21, being the auditors and accountants of the
Company;
“Private Equity Consortium” the consortium comprising OTPP, Actis AF, Ethos, CDPQ and HarbourVest;
“Prospectus Directive” Directive 2003/71/EC;
“QIBs” qualified institutional buyers, as defined in Rule 144A;
“QPs” qualified purchasers, as defined in the U.S. Investment Company Act;
“Regulation S” Regulation S under the U.S. Securities Act;
“Relationship Agreement” the Relationship Agreement between the Company and Mercer dated
20 June 2014;
“Restructure” the Group’s capital reorganisation and restructure, which was completed
on 31 March 2014, as described in “Restructure”;
“Retail Cluster” the Group’s dedicated operations relating to the Retail growth strategy;
“Retail growth strategy” Alexander Forbes’ focus on the holistic financial planning and wellbeing
of the individual members within the Group’s institutional client base, as
well as the broader individual market;
“RMB” Rand Merchant Bank, a division of FirstRand Bank Limited (registration
number 1929/001225/06), one of the Joint Bookrunners;
“Rule 144A” Rule 144A under the U.S. Securities Act;
“SAARF” South African Audience Research Foundation;
“Sale of Shares Agreement” the Sale of Shares Ageement among the Selling Shareholders and Mercer
dated 20 June 2014;
“Sale Shares” the Shares to be sold by the Selling Shareholders pursuant to the
Offer, which comprise 387,822,895 Shares (assuming an Offer Price at the
mid-point of the Offer Price Range);
“SAM” Solvency Assessment and Management regulatory framework for
insurance entities and groups in South Africa;
“SARS” the South African Revenue Service;
“SARS Settlement” the settlement between the Company and the SARS as described in
“Business —Investigations and Legal Proceedings — SARS Settlement”;
144
“SEC” the United States Securities and Exchange Commission;
“Second Closing Date” the date o n which Mercer acquires an additional 19.1% of the Shares of the
Company pursuant to the Sale of Shares Agreement, which will be as soon
as possible after the First Closing Date but no later than 1 November 2014;
“Selected Foreign Institutions” selected institutional investors in jurisdictions outside of South Africa to
whom the Offer will specifically be addressed;
“Selling Shareholders” the Company’s existing shareholders who are selling shares in the Offer
as set out in Annexure 17 to this pre-listing statement;
“SENS” the Stock Exchange News Service of the JSE;
“Settlement Date” the date of implementation of the Offer when the Offer Shares will be
transferred to successful Applicants against payment of the Offer Price
in accordance with the paragraph headed “Particulars of the Offer — Application, Payment and Delivery of Offer Shares”, expected to be
24 July 2014;
“Shares” ordinary no par value shares each constituting part of the authorised
share capital of the Company;
“South Africa” the Republic of South Africa;
“ South African Rand”, “Rand”,
“R” and “cents”
the lawful currency of South Africa;
“ South African Securities
Transfer Tax” or “STT”
South African securities transfer tax, levied under the South African
Securities Transfer Tax Act;
“ South African Securities
Transfer Tax Act”
South African Securities Transfer Tax Act, 2007 (Act 25 of 2007),
as amended;
“Stabilisation Manager” RMB;
“Stabilisation Period” the period commencing on the Listing Date and ending 30 days thereafter,
during which RMB, as Stabilisation Manager, may carry out stabilisation
activities as contemplated in, and in accordance with, the Listings
Requirements;
“STIA” the South African Short-Term Insurance Act, 1998 (Act 53 of 1998);
“Strate” Strate Limited, a public company incorporated in South Africa under
registration number 1998/022242/06, and registered as a central securities
depository under the Financial Markets Act;
“Strate system” an electronic custody, clearing and settlement environment, managed by
Strate, for all share transactions concluded on the JSE and off-market, and
in terms of which transactions in securities are settled and transfers of
ownership in securities are recorded electronically;
“STT” South African securities transfer tax, levied under the South African
Securities Transfer Tax Act, 25 of 2007;
“Subscription Shares” the new shares to be issued by the Company pursuant to the Offer, which
comprise 44,117,647 Shares (assuming an Offer Price at the mid-point of
the Offer Price Range);
“Superflex” SuperFlex Limited (registration number 1995/010767/06), a public
company incorporated in accordance with the laws of South Africa;
“TCF” Treating Customers Fairly;
“TLAA” the South African Taxation Laws Amendment Act, 2013 (Act 31 of 2013);
“Transaction Sponsors” the Lead Transaction Sponsor and the Joint Transaction Sponsor;
“Treaty” the Income Tax Treaty between the United States and South Africa;
“United Kingdom” or “UK” the United Kingdom of Great Britain and Northern Ireland;
“United States” or “U.S.” the United States of America, its territories and possessions, any state of
the United States and the District of Columbia;
“U.S. dollar”, “$”, “US$”, “dollars” the lawful currency of the United States;
“U.S. Investment Company Act” the United States Investment Company Act of 1940, as amended; and
“U.S. Securities Act” the United States Securities Act of 1933, as amended.
145
Annexure 2
report of tHe HistoricAl finAnciAl informAtion of tHe group for tHe YeArs ended 31 mArcH 2014, 2013 And 2012
report of HistoricAl finAnciAl informAtion of AleXAnder forBes group Holdings limited (formerly Alexander forbes equity Holdings proprietary limited)
The directors accept responsibility for the report of historical financial information contained in this pre‑listing statement.
1. introduction
The historical financial information for Alexander Forbes Group Holdings Limited and its subsidiaries (the “Group”) for the years ended 31 March 2014, 2013 and 2012 have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board and the Listings Requirements.
The historical financial information of the Group is the responsibility of the directors of Alexander Forbes Group Holdings Limited and were approved and authorised for issue by the board of directors on 4 July 2014 and signed on their behalf by:
ms moloko e christian KieswetterChairman Group Chief Executive
2. commentArY
Detailed commentary on the historical financial information is provided in the Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this pre‑listing statement.
3. HistoricAl finAnciAl informAtion
The historical information for the financial years ended 31 March 2014, 31 March 2013 and 31 March 2012 are presented on pages 145 to 257.
The principal accounting policies applied in the preparation of the Group financial statements are set out below. These policies are consistent with those applied in the previous year, except for the changes required by Standards and Interpretations effective in 2014.
146
ACCOUNTING POLICIES
BASIS OF PREPARATION
The group financial statements have been prepared in accordance with International Financial Reporting
Standards as issued by the International Accounting Standards Board (“IFRS”). They have been prepared in
accordance with the going concern principle under the historical cost basis, except for the following:
• Derivative financial instruments are measured at fair value.
• Financial instruments at fair value through profit or loss are measured at fair value.
• Available-for-sale financial assets are measured at fair value.
The preparation of the consolidated financial statements in conformity with IFRS requires management to
make judgments, estimates and assumptions that affect the application of accounting policies and the reported
amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates
are recognised prospectively.
The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates
are significant to the consolidated financial statements are disclosed in the notes to these financial statements.
These consolidated financial statements are presented in Rands, which is the company’s functional currency
and the group’s presentation currency. All financial information presented in Rands is rounded to the nearest
million except when otherwise indicated.
STANDARDS AND INTERPRETATIONS EFFECTIVE IN 2014
The following standards and interpretations have been adopted by the group as at the reporting date of
31 March 2014:
Title Nature Date Impact
IFRS 1 –
Amendment to IFRS
1 – First-time
adoption –
Government loans
This amendment addresses how a first-time
adopter would account for a government loan
with a below-market rate of interest when
transitioning to IFRS. It also adds an
exception to the retrospective application of
IFRS, which provides the same relief to
first-time adopters granted to existing
preparers of IFRS financial statements when
the requirement was incorporated into IAS 20
in 2008.
The amendment
is effective for
annual periods
commencing on
or after
1 January 2013.
The impact of
this amendment
is not considered
to be relevant to
the group.
IFRS7 – Amendment
to IFRS 7 – Financial
instruments:
disclosures –
Offsetting Financial
Assets and Financial
Liabilities
The IASB has published an amendment to
IFRS 7, ‘Financial instruments: Disclosures’,
reflecting the joint requirements with the
FASB to enhance current offsetting
disclosures. These new disclosures are
intended to facilitate comparison between
those entities that prepare IFRS financial
statements to those that prepare financial
statements in accordance with US GAAP.
The amendment
is effective for
annual periods
commencing on
or after
1 January 2013.
The impact of
this amendment
is not significant
for the group.
IAS 1 – Amendments
to IAS 1 –
Presentation of
financial statements
The IASB has issued an amendment to IAS 1,
‘Presentation of financial statements’. The
main change resulting from these
amendments is a requirement for entities to
group items presented in other comprehensive
income (OCI) on the basis of whether they are
potentially reclassifiable to profit or loss
subsequently (reclassification adjustments).
The amendments do not address which items
are presented in OCI.
The amendment
is effective for
annual periods
commencing on
or after
1 July 2012.
The impact of
this amendment
is not considered
to be significant
for the group.
147
Title Nature Date Impact
IAS 19 – Amendment
to IAS 19 – Employee
benefits
The IASB has issued an amendment to IAS 19,
‘Employee benefits’, which makes significant
changes to the recognition and measurement
of defined benefit pension expense and
termination benefits, and to the disclosures
for all defined benefit plans.
The amendment
is effective for
annual periods
commencing on
or after
1 January 2013.
Refer to the
change in
accounting policy
under note 50,
Restatement of
comparative
information.
IFRS 10 –
Consolidated
financial statements
This standard builds on existing principles by
identifying the concept of control as the
determining factor in whether an entity
should be included within the consolidated
financial statements. The standard provides
additional guidance to assist in determining
control where this is difficult to assess.
The standard is
effective for
annual periods
commencing on
or after
1 January 2013.
Refer to the
change in
accounting policy
note 50,
Restatement of
comparative
information.
IFRS 11 – Joint
arrangements
This standard provides for a more realistic
reflection of joint arrangements by focusing
on the rights and obligations of the
arrangement, rather than its legal form.
There are two types of joint arrangements:
joint operations and joint ventures. Joint
operations arise where a joint operator has
rights to the assets and obligations relating to
the arrangement. Joint ventures arise where
the joint operator has rights to the net assets
of the arrangement. Proportional
consolidation of joint ventures is no longer
allowed. Equity accounting is mandatory for
participants in a joint venture.
The standard is
effective for
annual periods
commencing on
or after
1 January 2013.
The impact of
this new
standard is not
considered to be
significant for
the group.
IFRS 12 –
Disclosures of
interests in other
entities
This standard includes the disclosure
requirements for all forms of interests in
other entities, including joint arrangements,
associates, structured entities and other
off-balance sheet vehicles.
The standard is
effective for
annual periods
commencing on
or after
1 January 2013.
The additional
disclosure
required by
IFRS 12 in
notes 48 and 49.
IFRS 13 – Fair value
measurement
This standard aims to improve consistency
and reduce complexity by providing a precise
definition of fair value and a single source of
fair value measurement and disclosure
requirements for use across IFRSs. The
requirements, which are largely aligned
between IFRSs and US GAAP, do not extend
the use of fair value accounting but provide
guidance on how it should be applied where
its use is already required or permitted by
other standards within IFRSs.
The standard is
effective for
annual periods
commencing on
or after
1 January 2013.
The impact of
this new
standard is not
considered to be
significant for
the group.
IAS 27 (Revised) –
Separate financial
statements
This standard includes the accounting and
disclosure required for separate financial
statements.
The revised
standard is
effective for
annual periods
commencing on
or after
1 January 2013.
The impact of
this revised
standard is not
considered to be
significant for
the group.
IAS 28 (Revised) –
Investments in
associates and joint
ventures
This standard includes the requirements for
joint ventures, as well as associates,
to be equity accounted following the issue
of IFRS 11.
The revised
standard is
effective for
annual periods
commencing on
or after
1 January 2013.
The impact of
this revised
standard is not
considered to be
significant for
the group.
148
Title Nature Date Impact
IFRS 10 –
Amendment to the
transition
requirements in
IFRS 10 –
Consolidated
financial statements,
IFRS 11 – Joint
arrangements, and
IFRS 12 – Disclosure
of interests in other
entities
The amendment clarifies that the date of
initial application is the first day of the
annual period in which IFRS 10 is adopted −
for example, 1 January 2013 for a calendar-
year entity that adopts IFRS 10 in 2013.
Entities adopting IFRS 10 should assess
control at the date of initial application; the
treatment of comparative figures depends on
this assessment. The amendment also requires
certain comparative disclosures under
IFRS 12 upon transition.
The amendment
is effective for
annual periods
commencing on
or after
1 January 2013.
The impact of
this amendment
is not significant
for the group.
IFRS 1 –
Amendment to
IFRS 1, First-time
adoption of IFRS
The amendment clarifies that an entity may
apply IFRS 1 more than once under certain
circumstances. The amendment clarifies that
an entity can choose to adopt IAS 23,
‘Borrowing costs’, either from its date of
transition or from an earlier date. The
consequential amendment (as a result of the
amendment to IAS 1 discussed below) clarifies
that a first-time adopter should provide the
supporting notes for all statements presented.
The amendment
is effective for
annual periods
commencing on
or after
1 January 2013.
The impact of
this amendment
is not considered
to be significant
for the group.
IAS 1 – Amendment
to IAS 1 –
Presentation of
financial statements
The amendment clarifies the disclosure
requirements for comparative information
when an entity provides a third balance sheet
either: as required by IAS 8, ‘Accounting
policies, changes in accounting estimates and
errors’; or voluntarily.
The amendment
is effective for
annual periods
commencing on
or after
1 January 2013.
The impact of
this amendment
is not considered
to be significant
for the group.
IAS 16 – Amendment
to IAS 16 – Property,
plant and equipment
The amendment clarifies that spare parts and
servicing equipment are classified as property,
plant and equipment rather than inventory
when they meet the definition of property,
plant and equipment.
The amendment
is effective for
annual periods
commencing on
or after
1 January 2013.
The impact of
this amendment
is not considered
to be relevant to
the group.
IAS 32 – Amendment
to IAS 32 – Financial
instruments:
presentation
The amendment clarifies the treatment of
income tax relating to distributions and
transaction costs. The amendment clarifies
that the treatment is in accordance with
IAS 12. As a result, income tax related to
distributions is recognised in the income
statement, and income tax related to the costs
of equity transactions is recognised in equity.
The amendment
is effective for
annual periods
commencing on
or after
1 January 2013.
The impact of
this amendment
is not considered
to be significant
for the group.
IAS 34 – Amendment
to IAS 34 – Interim
financial reporting
The amendment brings IAS 34 into line with
the requirements of IFRS 8, ‘Operating
segments’. A measure of total assets and
liabilities is required for an operating segment
in interim financial statements if such
information is regularly provided to the
CODM and there has been a material change
in those measures since the last annual
financial statements.
The amendment
is effective for
annual periods
commencing on
or after
1 January 2013.
The impact of
this amendment
is not considered
to be relevant to
the group.
149
Title Nature Date Impact
IFRIC 20 – Stripping
costs in the
production phase of
a surface mine
In surface mining operations, entities may
find it necessary to remove mine waste
materials (‘overburden’) to gain access to
mineral ore deposits. This waste removal
activity is known as ‘stripping’. The
interpretation clarifies there can be two
benefits accruing to an entity from stripping
activity: usable ore that can be used to produce
inventory and improved access to further
quantities of material that will be mined in
future periods. The Interpretation considers
when and how to account separately for these
two benefits arising from the stripping
activity, as well as how to measure these
benefits both initially and subsequently.
This
interpretation is
effective for
annual periods
commencing on
or after
1 January 2013.
The impact of
this
interpretation is
not considered to
be relevant to the
group.
STANDARDS AND INTERPRETATIONS NOT YET EFFECTIVE
The following standards and interpretations have been issued but are not yet effective for the group as at the
reporting date of 31 March 2014:
Title Nature Date Impact
IFRS 9 – Financial
instruments (2009),
IFRS 9 – Financial
instruments (2010)
IFRS 9 (2009) introduces new requirements
for the classification and measurements of
financials assets. Under IFRS 9 (2009),
financial assets are classified and measured
on the business model in which they are held
and the characteristics of their contractual
cash flows. IFRS 9 (2010) introduces changes
relating to financial liabilities. The IASB
currently has an active project to make limited
amendments to the classification and
measurement requirements of IFRS 9 and add
new requirements to address the impairment
of financial assets and hedge accounting.
These standards
are effective for
annual periods
commencing on
or after
1 January 2015.
The impact of
these standards
is not considered
to be significant
for the group.
IAS 32 –
Amendments to
IAS 32 – Financial
instruments:
presentation
The IASB has issued amendments to the
application guidance in IAS 32, ‘Financial
Instruments: Presentation’, that clarify some
of the requirements for offsetting financial
assets and financial liabilities on the balance
sheet. However, the clarified offsetting
requirements for amounts presented in the
statement of financial position continue to be
different from US GAAP.
The amendments
are effective for
annual periods
commencing on
or after
1 January 2014.
The impact of
these
amendments may
be significant for
the group.
Amendment to
IAS 39 on novation
of derivatives
The IASB has amended IAS 39 to provide
relief from discontinuing hedge accounting
when novation of a hedging instrument to a
CCP meets specified criteria. Similar relief will
be included in IFRS 9, ‘Financial Instruments’.
1 January 2014. The impact of
these
amendments may
be significant for
the group.
Amendments to
IAS 36, ‘Impairment
of assets’
These amendments address the disclosure of
information about the recoverable amount of
impaired assets if that amount is based on fair
value less cost of disposal.
1 January 2014. The impact of
these
amendments may
be significant for
the group.
150
Title Nature Date Impact
Amendments to
IFRS 10,
Consolidated
financial statements,
IFRS 12 and IAS 27
for investment
entities
The amendments mean that many funds and
similar entities will be exempt from
consolidating most of their subsidiaries.
Instead they will measure them at fair value
through profit or loss. The amendments give
an exception to entities that meet an
‘investment entity’ definition and which
display particular characteristics.
Changes have also been made in IFRS 12 to
introduce disclosures that an investment
entity needs to make.
1 January 2014. The impact of
these
amendments may
be significant for
the group.
IFRIC 21 –
Accounting for
levies
IFRIC 21, ‘Levies’, sets out the accounting for
an obligation to pay a levy that is not income
tax. The interpretation addresses diversity in
practice around when the liability to pay a
levy is recognised.
1 January 2014. The impact of
this
interpretation
may be
significant for
the group.
CONSOLIDATION
(a) Subsidiaries
Subsidiaries are all entities (including structured entities) over which the group has control. The group
controls an entity when the group is exposed to, or has rights to, variable returns from its involvement
with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries
are consolidated from the date on which control is transferred to the group. They are deconsolidated from
the date that control ceases.
The group applies the acquisition method to account for business combinations. The consideration
transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities
incurred to the former owners of the acquiree and the equity interests issued by the group. The
consideration transferred includes the fair value of any asset or liability resulting from a contingent
consideration arrangement.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination
are measured initially at their fair values at the acquisition date. Costs related to the acquisition, other
than those associated with the issue of debt or equity securities, that the group incurs in connection with
a business combination are expensed as incurred.
If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s
previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; with
the resulting gains or losses on re-measurement recognised in profit or loss.
Any contingent consideration to be transferred by the group is recognised at fair value at the acquisition
date. Subsequent changes to the fair value of the contingent consideration that is an asset or liability is
recognised in profit or loss. Contingent consideration that is classified as equity is not re-measured, and
its subsequent settlement is accounted for within equity.
All material intra-group transactions, balances and unrealised gains on intra-group transactions are
eliminated. Unrealised losses are also eliminated in the same way as unrealised gains but only to the
extent that there is no evidence of impairment.
The accounting policies of subsidiaries have been changed when necessary to align them with the policies
adopted by the group. Losses applicable to the non-controlling interest in a subsidiary are allocated to the
non-controlling interest even if doing so causes the non-controlling interest to have a deficit balance. This
treatment has been applied prospectively from 1 April 2010.
On the loss of control, the group derecognises the assets and liabilities of the subsidiary, any non-
controlling interests and components of equity related to the subsidiary. This may mean that amounts
previously recognised in other comprehensive income are reclassified to profit or loss. If the group retains
any interest in the previous subsidiary, then such interest is measured at fair value at the date the control
is lost, with the change in carrying amount recognised in profit or loss under discontinued operations.
The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained
interest as an associate, joint venture or financial asset, depending on the level of influence retained.
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(b) Non-controlling interests
Non-controlling interests in the net assets of subsidiaries are separately identified and presented from
the group’s equity therein. Non-controlling interests are initially measured either at fair value or at the
non-controlling interest’s proportionate share of the subsidiary’s identifiable net assets at the acquisition
date. This is not an accounting policy election and the group will apply the choice of measurement basis
on an acquisition-by-acquisition basis.
Subsequently the non-controlling interest consists of the amount attributed to such interest at initial
recognition plus the non-controlling interest’s share of change in equity since the date of the combination.
Non-controlling interests are treated as equity participants of the subsidiary companies. The group treats
all acquisitions and disposals of its non-controlling interests in subsidiary companies, which do not
result in a loss of control, as an equity transaction. The carrying amounts of the controlling and non-
controlling interests are adjusted to reflect the change in their relative interests in the subsidiary. Any
difference between the amount by which the non-controlling interests are adjusted and fair value of the
consideration paid or received is recognised directly in equity and attributed to the owners of the group.
(c) Structured entities
A structured entity is an entity that has been designed so that voting or similar rights are not the dominant
factor in deciding who controls the entity, such as when any voting rights relate to administrative
tasks only and the relevant activities are directed by means of contractual arrangements. The group
establishes structured entities for business purposes. The group may or may not have any direct or
indirect shareholdings in these entities.
(d) Joint arrangements
Joint arrangements are classified as either joint operations or joint ventures depending on the contractual
rights and obligations of each investor. The group has assessed the nature of its joint arrangements and
has determined them to be joint ventures. Joint ventures are accounted for using the equity method.
Under the equity method of accounting, interests in joint ventures are initially recognised at cost and
adjusted thereafter to recognise the group’s share of the post-acquisition profits or losses and movements
in other comprehensive income. When the group’s share of losses in a joint venture equals or exceeds its
interests in the joint ventures (which includes any long-term interests that, in substance, form part of the
group’s net investment in the joint ventures), the group does not recognise further losses, unless it has
incurred legal or constructive obligations or made payments on behalf of the joint ventures.
(e) Associates
Associates are entities in which the group has significant influence, but not control, over the financial
and operating policies. Significant influence is presumed to exist when the group holds between 20
and 50 percent of the voting power of another entity. Investments in associates are accounted for using
the equity method of accounting and are recognised initially at cost.
The group’s share of post-acquisition profit or loss is recognised in the income statement, and its share of
post-acquisition movements in other comprehensive income is recognised in other comprehensive income
with a corresponding adjustment to the carrying amount of the investment.
When the group’s share of losses in an associate equals or exceeds its interest in that associate, including
any other unsecured receivables, the group does not recognise any further losses, unless the group has
incurred legal or constructive obligations or made payments on behalf of the associate.
Unrealised gains on transactions between the group and its associates are eliminated to the extent of the
group’s interest in the associates. Unrealised losses are also eliminated in the same way as unrealised
gains but only to the extent that there is no evidence of impairment. Associates’ accounting policies have
been changed where material and necessary to ensure consistency with the policies adopted by the group.
Dilution gains and losses arising in investments in associates are recognised in the income statement.
If the ownership interest in an associate is reduced but significant influence is retained, only a
proportionate share of the amounts previously recognised in other comprehensive income is reclassified
to profit or loss where appropriate.
The group determines at each reporting date whether there is any objective evidence that the investment
in the associate is impaired. If this is the case, the group calculates the amount of impairment as the
difference between the recoverable amount of the associate and its carrying value and recognises the
amount adjacent to share of profit/(loss) of associates in the income statement.
The group’s investment in associates includes goodwill identified on acquisition, net of any accumulated
impairment losses.
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(f) Collective investment schemes
Collective investment schemes (or unit trusts) managed by the group are consolidated in the same way as
subsidiary companies, provided the group can demonstrate the following:
• Power to direct the relevant activities that impact the variable returns of the unit trust through its
mandates and voting rights;
• Exposure to the variable returns of the unit trust through its size of investment in the unit trust (for
instance, investment by the group is greater than 20 percent); and
• Ability to use its power to impact the variable returns for its own benefit.
The consolidated financial assets of the collective investment schemes attributable to unitholders are
shown within “Financial assets held under multi-manager investment contracts” in the group statement
of financial position with a matching linked liability to the unitholders shown within ‘Financial liabilities
held under multi-manager investment contracts’.
Fair value adjustments to the financial assets and liabilities of collective investment schemes are
recognised in profit or loss.
FOREIGN CURRENCY
(a) Functional and presentation currency
Items included in the financial statements of each of the group’s entities are measured using the currency
of the primary economic environment in which the entity operates, in other words its functional currency.
(b) Foreign exchange gains and losses arising in entity accounts
Foreign currency transactions are translated into the functional currency using the exchange rates
prevailing at the date of the transactions. Foreign exchange gains and losses resulting from the settlement
of such transactions are recognised in profit or loss.
Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to
the functional currency at the exchange rates at that date. Foreign exchange gains and losses resulting
from the translation of monetary assets and liabilities are recognised in profit or loss, except when
deferred in other comprehensive income for qualifying cash flow hedges.
All foreign exchange gains and losses including those that relate to borrowings and cash and cash
equivalents are presented in the income statement within ‘investment income or finance costs’, respectively.
Translation differences on monetary items, such as financial assets held at fair value through profit
or loss, are reported as part of the fair value gain or loss on such instruments. Non-monetary assets
and liabilities denominated in foreign currencies that are measured at fair value are translated to the
functional currency at the exchange rate at the date that the fair value was determined. Translation
differences on non-monetary financial assets and liabilities such as equities held at fair value through
profit or loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences
on non-monetary items, such as equities classified as available-for-sale financial assets, are included in
other comprehensive income.
(c) Foreign exchange gains and losses arising on consolidation
Items included in the financial statements of each of the group’s entities are measured using the currency
of the primary economic environment in which the entity operates (‘the functional currency’). The results
and financial positions of all the group entities (none of which has the currency of a hyper-inflationary
economy) that have a functional currency different from the presentation currency of the group are
translated into South African rand, as follows:
• All assets and liabilities of items in the statement of financial position are translated at the reporting
date at the exchange rate at that date.
• All income and expenses for each income statement item are translated at the average exchange
rates for the relevant financial period (unless this average is not a reasonable approximation of the
cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses
are translated using the applicable exchange rates at the dates of the transactions).
• All resulting exchange differences are recognised in other comprehensive income and accumula ted
in the foreign currency translation reserve.
When the settlement of a monetary item receivable from or payable to a foreign operation is neither
planned nor likely to occur in the foreseeable future, foreign currency gains or losses on such item
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are considered to form part of the net investment in the foreign operation and are recognised in other
comprehensive income and presented in the foreign currency translation reserve in equity.
On the disposal of a foreign operation (that is, a disposal of the group’s entire interest in a foreign
operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation, a
disposal involving loss of joint control over a jointly controlled entity that includes a foreign operation,
or a disposal involving loss of significant influence over an associate that includes a foreign operation),
all of the exchange differences accumulated in equity in respect of that operation are reclassified to profit
or loss.
In the case of a partial disposal that does not result in the group losing control over a subsidiary that
includes a foreign operation, the proportionate share of accumulated exchange differences are re-
attributed to non-controlling interests and are not recognised in profit or loss. For all other partial
disposals (that is, reductions in the group’s ownership interest in associates or jointly controlled entities
that do not result in the group losing significant influence or joint control) the proportionate share of the
accumulated exchange difference is reclassified to profit or loss.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as the
foreign entity’s assets and liabilities and are translated at the reporting date at the exchange rate at
that date.
PROPERTY AND EQUIPMENT
Items of property and equipment are measured at cost less any accumulated depreciation and accumulated
impairment losses.
Cost includes expenditure that is directly attributable to the acquisition of the asset. Cost may also include
transfers from equity of any gains or losses on qualifying cash flow hedges of foreign currency purchases of
property, plant and equipment.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate,
only when it is probable that future economic benefits associated with the items will flow to the group and the
cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All day-
to-day servicing of property and equipment is recognised in profit or loss as incurred.
Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part
of an item of property and equipment. Leased assets are depreciated over the shorter of the lease term and
their useful lives. Land is not depreciated. The expected useful lives applied are as follows:
Item of property and equipment Period of depreciation
Leasehold property and improvements Shorter of useful life or period of lease
Computer and network equipment 3 to 5 years
Motor vehicles 4 to 10 years
Furniture and fittings 4 to 10 years
Office equipment 4 to 7 years
Depreciation methods, residual values and useful lives are reviewed at each reporting date and adjusted if
required.
Gains and losses on disposals of property and equipment are determined by comparing proceeds from the
disposal with the carrying amount of the relevant asset and are recognised in profit or loss. When revalued
assets are sold, the amounts included in the revaluation surplus are transferred to retained earnings.
GOODWILL
Goodwill arises on the acquisition of subsidiaries, associates and joint ventures.
• The group measures goodwill at the acquisition date as: the fair value of the consideration transferred
PLUS
• The amount of any non-controlling interest in the acquiree measured at the proportionate share of the
acquiree’s identifiable net assets
PLUS
• The fair value of the existing equity interest in the acquiree (if the business combination is achieved
in stages)
LESS
• The fair value of the net identifiable assets acquired, liabilities (including contingent liabilities) assumed.
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When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss. The
consideration transferred does not include amounts related to the settlement of pre-existing relationships.
Such amounts are generally recognised in profit or loss.
Goodwill is measured at cost less accumulated impairment losses and is tested annually for impairment.
In respect of equity-accounted investees (associates and joint ventures), the carrying amount of goodwill is
included in the carrying amount of the investment, and an impairment loss on such an investment is not
allocated to any asset, including goodwill, that forms part of the carrying amount of the equity-accounted
investee. Gains and losses on the disposal of an entity are stated after deducting the carrying amount of
goodwill relating to the entity sold.
INTANGIBLE ASSETS
Intangible assets are measured at cost less accumulated amortisation and accumulated impairment losses.
(a) Purchased and developed computer software
Purchased computer software and the direct costs associated with the customisation and installation
thereof, are capitalised and amortised over the useful life of the asset.
Purchased computer software licences are capitalised on the basis of the costs incurred to acquire and
bring into use the specific software. These costs are amortised over the useful life of the asset. Costs that
are directly associated with the production of identifiable and unique software products, which will be
controlled by the group and generate economic benefits exceeding costs beyond one year, are recognised
as intangible assets.
The directly associated costs include employee costs and an appropriate portion of relevant overheads
of the system development team. All other costs associated with developing or maintaining computer
software programmes are recognised in profit or loss as incurred.
Expenditure, which enhances and extends the benefits of computer software programmes beyond their
original specifications and lives, is recognised as a capital improvement and added to the original cost of
the software. Previously expensed costs are not subsequently capitalised.
Computer software development costs recognised as assets are amortised on a straight-line basis over
their estimated useful lives of between three and five years.
(b) Contractual customer relationships acquired as part of a business combination
Contractual customer relationships acquired as part of a business combination are recognised as
intangible assets. The initial recognition of the customer relationship is determined by estimating the net
present value of future cash flows from the contracts in force at the date of acquisition. These customer
relationships are amortised on a straight-line basis over the estimated life of the acquired contracts.
(c) Deferred acquisition costs (DAC)
Incremental costs directly attributable to securing rights to receive fees for multi-manager investment
services sold with investment contracts are capitalised as intangible assets if they can be separately
identified, measured reliably and it is probable that their value will be recovered. An incremental cost is
one that would not have been incurred if the group had not secured the investment contract.
The DAC represents the group’s contractual right to benefit from providing multi-manager investment
services and is amortised on a straight-line basis over the period in which the group expects to recognise
the related revenue, not exceeding five years. The costs of securing the right to provide these services do
not include transaction costs relating to the origination of the investment contract.
The accounting policy in respect of DAC relating to insurance contracts is described in the relevant
accounting policy on insurance contracts.
(d) Trademarks and licences
No value is attributed to internally developed trademarks, patents and similar rights. Costs incurred on
these items are recognised in profit and loss as incurred. Expenditure on the development and marketing
of the group’s brands is also recognised in profit and loss as incurred.
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FINANCIAL ASSETS
The group classifies its financial assets into the following categories:
• Financial assets at fair value through profit or loss.
• Loans and receivables.
• Held-to-maturity financial assets.
• Available-for-sale financial assets.
The classification depends on the purpose for which the financial assets were acquired.
All financial assets are initially recognised at fair value plus, in the case of financial assets not at fair value
through profit or loss, any directly attributable transaction costs. The best evidence of fair value on initial
recognition is the transaction price, unless the fair value is evidenced by comparison with other observable
current market transactions in the same instrument or based on discounted cash flow models and option
pricing valuation techniques of which variables include only data from observable markets. Where the
transaction price is not necessarily the fair value of the financial asset, the day one gain or loss is taken to
profit or loss unless it qualifies for recognition as some other type of asset.
The purchases and sales of financial assets that require delivery are recognised on trade date, being the date
on which the group commits to purchase or sell the asset. Financial assets are derecognised when the rights
to receive cash flows from the investments have expired or where they have been transferred and the group
has also transferred the risks and rewards of ownership.
Subsequent to initial recognition, the fair values of financial assets are based on quoted market prices,
excluding transaction costs. If the market for a financial asset is not active or an instrument is an unlisted
instrument, the fair value is estimated using valuation techniques. These include the use of recent arm’s
length transactions, reference to other instruments that are substantially the same, discounted cash flow
analysis and option pricing models.
When a discounted cash flow analysis is used to determine the value of financial assets, estimated future
cash flows are based on management’s best estimates and the discount rate is a market-related rate, at the
reporting date, for a financial asset with similar terms and conditions. Where option pricing models are used,
inputs are based on observable market indicators at the reporting date.
(a) Financial assets at fair value through profit or loss
This category has two sub-categories: financial assets held for trading and those designated at fair value
through profit or loss.
A financial asset is classified as held for trading if acquired principally for the purpose of selling in the
short term, or if it forms part of a portfolio of financial assets in which there is evidence of short-term
profit-taking. Derivatives are also classified as held for trading, unless they are designated as hedges
at inception. All classes of financial assets classified on the statement of financial position as ‘Financial
assets held under multi-manager investment contracts’ are designated at fair value through profit or loss.
A financial asset is designated as fair value through profit or loss if the group manages such investments
and makes purchase and sale decisions based on their fair value in accordance with the group’s documented
risk management or investment strategy. Under these criteria, the main classes of financial assets
designated by the group are preference shares, unit trusts and debt securities. All classes of financial
assets classified on the statement of financial position as ‘Assets of cell-captive insurance facilities’ are
designated at fair value through profit or loss. Financial assets at fair value through profit or loss are
measured at fair value and changes therein are recognised in profit or loss.
(b) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not
quoted in an active market and include purchased loans. This category does not include those loans and
receivables that the group intends to sell in the short term or that it has designated at fair value through
profit or loss or available for sale. Origination transaction costs and origination fees are capitalised to the
value of the loan.
Loans and receivables are carried at amortised cost using the effective interest method, less any
impairment losses.
Receivables arising from insurance contracts are also classified into this category and are reviewed for
impairment as part of the impairment review of loans and receivables.
Short-term trade receivables are carried at original invoice amount less an estimate made for impairment
based on a review of all outstanding amounts at the end of each reporting period. The difference between
the fair value of short-term receivables and the invoice amount is immaterial.
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Long-term trade receivables are initially recognised at fair value and subsequently measured at amortised
cost using the effective interest method, less any impairment losses.
Impairment is recognised in profit or loss when there is objective evidence that the group will not be
able to collect all amounts due according to the original terms of the receivables. Objective evidence that
receivables are impaired includes observable data that comes to the attention of the company regarding
the following events:
• Significant financial difficulty of the debtor.
• A breach of contract, such as default or delinquency in payments.
• It becoming probable that the debtor will enter bankruptcy or other financial re-organisation.
Other receivables include work-in-progress in respect of unbilled fee-based services, which is stated at
net realisable value. Net realisable value is generally based on the unbilled time incurred to date at the
expected charge rates and is the undiscounted value of the receivable.
(c) Held-to-maturity financial assets
Held-to-maturity financial assets are non-derivative financial assets with fixed or determinable payments
and fixed maturities that management has the positive intention and ability to hold to maturity, other
than those that meet the definition of loans and receivables. Any sale or reclassification of a more than
an insignificant amount of held-to-maturity investments not close to their maturity would result in the
reclassification of all held-to-maturity investments as available for sale, and prevent the group from
classifying investment securities as held-to-maturity for the current and the following two financial years.
The only class of financial asset classified as held-to-maturity is preference shares held for securitisation
operations. Held-to-maturity financial assets are carried at amortised cost using the effective interest
method, less any impairment losses.
(d) Available-for-sale financial assets
Available-for-sale financial assets are those intended to be held for an indefinite period of time and may be
sold in response to liquidity needs or changes in interest rate, exchange rates or equity prices. Financial
assets that are designated in this category or not classified in any of the other categories are classified
as available-for-sale financial assets. The main classes of assets classified as available for sale are unlisted
debt, equity and property securities.
Subsequent to initial recognition, available-for-sale financial assets are measured at fair value and changes
therein, other than impairment losses and foreign currency differences on available-for-sale monetary
items, are recognised directly in other comprehensive income and presented in the non-distributable
reserve in equity. When an investment is derecognised, the cumulative gain or loss in equity is reclassified
to profit or loss.
Interest income received on available-for-sale financial assets is recognised in profit or loss, using the
effective interest rate method. Dividend income received on available-for-sale financial assets is recognised
in profit or loss when the group’s right to receive payments is established.
IMPAIRMENT OF FINANCIAL ASSETS
A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine
whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence
indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a
negative effect on the estimated future cash flows of that asset that can be estimated reliably.
Objective evidence that financial assets (including equity securities) are impaired can include default or
delinquency by a debtor, restructuring of an amount due to the group on terms that the group would not
consider otherwise, or disappearance of an active market for a security. In addition, for an investment in
an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence
of impairment.
(a) Financial assets carried at amortised cost
The group assesses whether there is objective evidence that a financial asset is impaired at each reporting
date. A financial asset is impaired, and impairment losses are recognised in profit or loss only if there
is objective evidence of impairment as a result of one or more events that have occurred after the initial
recognition of the asset and that event has an impact on the estimated future cash flows of the financial
asset that can be reliably estimated.
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If there is objective evidence that an impairment loss has been incurred on loans and receivables or held-
to-maturity investments carried at amortised cost, the amount of the loss is measured as the difference
between the asset’s carrying amount and the present value of estimated future cash flows discounted
at the original effective interest rate of the financial asset. The carrying amount of the asset is reduced
and the amount of the loss is recognised in profit or loss. If a held-to-maturity investment or a loan has
a variable interest rate, the discount rate for measuring any impairment loss is the current effective
interest rate determined under contract. As a practical expedient, the group may measure impairment on
the basis of an instrument’s fair value using an observable market price.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related
objectively to an event occurring after the impairment was recognised, such as improved credit rating,
the previously recognised impairment loss is reversed and is recognised in profit or loss.
(b) Assets classified as available for sale
The group assesses at the end of each reporting period whether there is objective evidence that a financial
asset or a group of financial assets is impaired. For debt securities, the group uses the criteria referred
to in (a) above. In the case of equity investments classified as available for sale, a significant or prolonged
decline in the fair value of the security below its cost is also evidence that the assets are impaired. If
any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the
difference between the acquisition cost and the current fair value, less any impairment loss on that
financial asset previously recognised in profit or loss – is removed from equity and recognised in profit
or loss. Impairment losses recognised in the profit or loss on equity instruments are not reversed through
profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available for sale
increases and the increase can be objectively related to an event occurring after the impairment loss was
recognised in profit or loss, the impairment loss is reversed through profit or loss.
IMPAIRMENT OF NON-FINANCIAL ASSETS
(a) Goodwill
Goodwill is assessed annually for impairment. For purposes of impairment testing, goodwill is allocated
to cash-generating units, being the lowest component of the business which is expected to generate cash
flows that are largely independent of any other business component. Each of those cash-generating units
represents a grouping of assets no larger than an operating segment before aggregation as used for
segmental reporting purposes in the group financial statements. Impairment losses relating to goodwill
are not reversed.
(b) Impairment of other non-financial assets
Assets that have an indefinite useful life are not subject to amortisation and are tested annually for
impairment at each reporting date. Assets that are subject to amortisation are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognised for the amount by which the carrying amount of an asset exceeds its
recoverable amount. The recoverable amount is the higher of the fair value of the asset less costs to sell
and value in use. Value in use is the present value of projected cash flows covering the remaining useful
life of the asset. For the purposes of assessing impairment, assets are grouped at the lowest levels for
which there are separately identifiable cash flows.
Impairment losses recognised in prior periods are assessed at each reporting date for any indications that
the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in
the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent
that the asset’s carrying amount does not exceed the carrying amount that would have been determined,
net of depreciation or amortisation, if no impairment loss had been recognised.
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING
Derivatives are initially recognised at fair value at the date on which a derivative contract is entered into
and are subsequently re-measured to fair value at each reporting date. Any attributable transaction costs
are recognised in profit or loss as incurred. The fair value of publicly-traded derivatives are based on quoted
bid prices for assets held or liabilities to be issued and the current offer prices for assets to be acquired and
liabilities held. The fair value of non-traded derivatives is based on discounted cash flow analyses and option
pricing models as appropriate.
All derivative instruments of the group are carried as assets when the fair value is positive and as liabilities
when the fair value is negative, subject to offsetting principles.
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The method of recognising the resulting fair value gain or loss depends on whether the derivative is designated
as a hedging instrument and, if so, the nature of the item being hedged. The group designates derivatives as
hedges of the interest payable (cash flow hedge) on the senior debt.
At the inception of the transaction the group documents the relationship between hedging instruments
and hedged items, as well as its risk management objectives and strategy for undertaking various hedge
transactions. The group also documents its assessment, both at hedge inception and on an ongoing basis,
of whether the derivatives that are used in hedging transactions are expected to be, and have been, highly
effective in offsetting changes in cash flows of hedged items. The fair values of derivative instruments used
for hedging purposes are disclosed in the notes to the financial statements.
(a) Cash flow hedge
The effective portion of changes in the fair value of the derivatives that are designated and qualify as cash
flow hedges is recognised in other comprehensive income and presented in the cash flow hedge reserve
in equity. The gain or loss relating to any ineffective portion is recognised immediately in profit or loss.
Amounts accumulated in equity are recycled to profit or loss in the periods in which the hedged item
affects profit or loss.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge
accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised
when the hedged item is ultimately recognised in profit or loss.
(b) Derivatives that do not qualify for hedge accounting
Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of all such
derivative instruments are recognised immediately in profit or loss.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include the following:
• Cash on hand.
• Deposits held on call with banks.
• Other short-term highly liquid investments with original maturities of three months or less.
• Demand deposits.
• Bank overdrafts offset against cash balances in terms of cash management arrangements.
Cash and cash equivalents backing financial liabilities held under multi-manager investment contracts
and liabilities of cell-captive insurance facilities are included in the definition of cash and cash equivalents.
However, given the restrictions involved in accessing this cash, it is separately identified on the statement
of cash flows. Cash and cash equivalents are carried at amortised cost in the statement of financial position.
EQUITY
(a) Share capital
Ordinary shares and qualifying preference shares are classified as equity. Incremental costs directly
attributable to the issue of equity are recognised as a deduction from equity, net of any tax effects.
Incremental costs directly attributable to the issue of ordinary shares and share options as consideration
for the acquisition of a business are included in the cost of acquisition.
(b) Dividend distributions
Dividend distributions on ordinary shares are recognised as a reduction in equity in the period in which
they are approved by the company’s shareholders. Distributions declared after the reporting date are not
recognised but are disclosed in the financial statements.
CLASSIFICATION OF INSURANCE AND INVESTMENT CONTRACTS
The group issues contracts that transfer insurance risk or financial risk or both. Insurance contracts are
those contracts that transfer significant insurance risk. Such contracts may also transfer financial risk. As a
general guideline, the group defines a significant insurance risk as the possibility of having to pay benefits,
on the occurrence of an insured event, that are at least 10% more than the benefits payable if the insured
event did not occur. Investment contracts are those contracts that transfer financial risk with no significant
insurance risk. Financial risk is the risk of a possible future change in one or more of a specified interest rate,
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financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or
credit index or other variable. Amounts received under investment contracts are recorded as deposits under
investment contract liabilities. Amounts paid under investment contracts are recorded as deductions from
investment contract liabilities.
INSURANCE CONTRACTS
Insurance contracts are classified into two main categories, depending on the duration of risk and whether or
not the terms and conditions are fixed.
(a) Short-term insurance contracts
These contracts are casualty, property and short duration life insurance contracts. For all these contracts,
premiums are recognised as revenue (earned premiums) in profit or loss proportionally over the period
of coverage. Premiums are shown gross of commission and reinsurance and exclude any taxes or duties
levied on premiums. Claims and related claims adjustment expenses are charged to profit or loss as
incurred based on the estimated liability for compensation owed to contract holders or third parties
damaged by the contract holders.
(b) Short-term insurance liabilities
The following are classified as short-term insurance liabilities:
Unearned premiums
Short-term insurance premiums are recognised in profit or loss proportionately over the period of cover
for even risk business or in line with the exposure to risk. The portion of premium accrued on in-force
contracts that relates to unexpired risks at the reporting date is reported as an unearned premium
liability, which is included in insurance-related payables from underwriting activities.
Outstanding claims
Liabilities for unpaid claims are estimated using the input of assessments for individual cases reported to
the group and statistical analyses of the claims incurred but not reported. Outstanding claims liabilities
are recognised as liabilities and included in insurance-related payables from underwriting activities. The
expense is recognised in profit or loss as a result of the liability being raised. The group does not discount
its liabilities for unpaid claims.
(c) Long-term insurance contracts
These contracts insure events associated with human life over a long duration. Premiums are recognised
as revenue in profit or loss when they become payable by the contract holder. Premiums are shown gross
of commission and exclude any taxes or duties levied on premiums. Benefits payable to beneficiaries are
recorded as an expense in profit or loss when they are paid.
(d) Long-term insurance liabilities
In terms of IFRS 4 – Insurance Contracts, insurance liabilities are permitted to be measured under existing
local practice. The Long-Term Insurance Act of 1998, as amended, in South Africa requires long-term
insurance liabilities to be valued in terms of the Financial Soundness Valuation (FSV) basis as described in
Statement of Actuarial Practice 104 (SAP 104) issued by the Actuarial Society of South Africa. The result
of the valuation methodology and assumptions is that profits are released appropriately over the term of
the policy to avoid the premature recognition of profits that may give rise to losses in future years.
The liability is valued using a discounted cash flow approach. This approach takes the sum of future
expected benefit payments and administration expenses that are directly related to the contract, deducts
the expected premiums that would be required to meet the benefits and administration expenses based on
the valuation assumptions used and then discounts these resultant cash flows at market-related rates of
interest. The liability is based on assumptions of the best estimates of future experience as to mortality,
persistency, maintenance expenses and investment income.
Compulsory margins for adverse deviations (first tier margins) increase the liability as required in
terms of SAP 104. Such margins are intended to provide a minimum level of prudence in the liabilities
and to ensure that profits are not recognised prematurely. In addition, discretionary margins (second
tier margins) may be added to the liability to ensure that profit and risk margins in the premiums are
not capitalised prematurely and that profits are recognised in line with the risk profile inherent in the
contracts and services provided.
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Discretionary margins unwind as these risks are met over the term of each policy. Where insurance
contracts have a single premium or a limited number of premium payments due over a significantly
shorter period than the period during which benefits are provided, the excess of the premiums payable
over the valuation premiums is deferred and recognised as income in line with the decrease of unexpired
insurance risk of the contracts in force or, for annuities in force, in line with the decrease of the amount
of future benefits expected to be paid. The long-term insurance liabilities are recalculated annually by
independent actuaries.
(e) Receivables and payables related to insurance contracts
Receivables and payables are recognised when due. These include amounts due to and from agents,
brokers and insurance contract holders. If there is objective evidence that the insurance receivable is
impaired, the group reduces the carrying amount of the insurance receivable accordingly and recognises
the impairment loss in profit or loss. The group gathers evidence that an insurance receivable is impaired
using the same process adopted for loans and receivables.
(f) Embedded derivatives
The group does not separately measure embedded derivatives in an insurance contract if the embedded
derivative itself qualifies for recognition as an insurance contract. Such an embedded derivative is
measured as an insurance contract. All other embedded derivatives are separated and carried at fair
value if they are not closely related to the host insurance contract and meet the definition of a derivative.
(g) Deferred policy acquisition costs (DPAC)
Commissions and other acquisition costs arising from property and casualty short-term insurance
contracts that vary with, and are related to, securing new contracts and renewing existing contracts
are capitalised. All other costs are recognised in profit or loss when incurred. The DPAC is subsequently
amortised and recognised in profit or loss over the life of the policies as premiums are earned.
For long-term insurance contracts, commissions and other acquisition costs are recognised in profit or
loss when incurred. The portion of the premium which recoups these costs is included in the valuation
of long-term insurance contract liabilities. The commission and other acquisition costs are therefore
implicitly deferred over the period of the contract in the calculation of the liabilities under long-term
insurance contracts.
(h) Value of business acquired (VOBA)
On acquisition of a portfolio of contracts, either directly from another insurer or through the acquisition
of a subsidiary company, the group recognises an intangible asset representing the VOBA.
The VOBA represents the present value of future profits embedded in acquired insurance contracts. The
group amortises the VOBA over the effective life of the acquired contracts on the same basis as DPAC. The
group assesses the value for impairment annually. This amortisation and any impairment are recognised
in profit or loss.
(i) Liability adequacy test
At each reporting date, for contracts measured on a retrospective basis, liability adequacy tests for
insurance contracts are performed to ensure the adequacy of the contract liabilities. In performing these
tests, current best estimates of future contractual cash flows and claims handling and administration
expenses, as well as investment income from the assets backing such liabilities, are used. For contracts
measured on the financial soundness valuation basis, the financial soundness basis is a discounted cash
flow method, which meets the requirements of a liability adequacy test. Any deficiency is immediately
charged to profit or loss.
(j) Reinsurance contracts held
Contracts entered into by the group with reinsurers, under which the group is compensated for losses on
one or more contracts issued by the group and that meet the classification requirements for insurance
contracts, are classified as reinsurance contracts held. Contracts that do not meet these classification
requirements are classified as financial assets. The benefits to which the group is entitled under its
reinsurance contracts are recognised as reinsurance assets and are included in insurance-related
receivables from underwriting activities. These assets consist of short-term balances due from reinsurers,
as well as longer-term receivables that are dependent on the expected claims and benefits arising under
the related reinsured insurance contracts. Amounts recoverable from, or due to, reinsurers are measured
consistently with the amounts associated with the reinsured insurance contracts and in accordance with
the terms of each reinsurance contract.
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Reinsurance liabilities are primarily premiums payable for reinsurance contracts and are recognised
in profit or loss when due. The group assesses its reinsurance assets for impairment at each reporting
date. If there is objective evidence that the reinsurance asset is impaired, the group reduces the carrying
amount of the reinsurance asset to its recoverable amount and recognises the impairment loss in profit
or loss. The group gathers evidence that a reinsurance asset is impaired using the same process adopted
for financial assets held at amortised cost.
(k) Salvage and subrogation reimbursements
Some insurance contracts permit the group to sell property acquired in settling a claim (in other words
salvage). Estimates of salvage recoveries are included as an allowance in the measurement of the insurance
liability for claims. Salvage property is recognised as an asset when the liability is settled. The allowance
is the amount that can reasonably be recovered from the disposal of the property.
The group may also have the right to pursue third parties for payment of some or all costs (in other words
subrogation). Subrogation reimbursements are also considered as an allowance in the measurement of the
insurance liability for claims and are recognised as assets when the liability is settled. The allowance is
based on an assessment of the amount that can be recovered from the action against the liable third party.
INVESTMENT CONTRACTS
The group issues investment contracts without fixed terms (unit-linked) and investment contracts with
fixed and guaranteed terms (capital guarantees). Investment contracts without fixed terms and investment
contracts with fixed and guaranteed terms are financial liabilities whose fair value is dependent on the fair
value of underlying financial assets, derivatives or investment property (unit-linked) and are designated at
inception as financial assets at fair value through profit or loss.
Valuation techniques are used to establish the fair value at inception and at each reporting date. The group’s
main valuation techniques incorporate all factors that market participants would consider and are based on
observable market data. The fair value of a unit-linked financial liability is determined using the current unit
values that reflect the fair values of the financial assets contained within the group’s unitised investment
funds linked to the financial liability, multiplied by the number of units attributed to the contract holder at
the reporting date. If the investment contract is subject to a put or surrender option, the fair value of the
financial liability is never less than the amount payable on surrender, discounted for the required notice
period, where applicable.
FINANCIAL LIABILITIES
The group classifies its financial liabilities into the following categories:
• Financial liabilities at fair value through profit or loss.
• Financial liabilities at amortised cost.
The classification depends on the purpose for which the financial liabilities were acquired. Management
determines the classification of financial liabilities at initial recognition.
Financial liabilities are recognised when the group becomes a party to the contractual provisions of the
instrument. Financial liabilities are initially recognised at fair value, net of transaction costs incurred in
the case of financial liabilities not at fair value through profit or loss.
The best evidence of fair value on initial recognition is the transaction price, unless the fair value is evidenced
by comparison with other observable current market transactions in the same instrument or based on
discounted cash flow models and option pricing valuation techniques whose variables include only data from
observable markets. Where the transaction price is not necessarily the fair value of the financial asset, the day
one gain or loss is taken to profit or loss unless it qualifies for recognition as some other type of asset.
A substantial modification of the terms of an existing financial liability or a part of it shall be accounted for as
an extinguishment of the original financial liability and the recognition of a new financial liability.
The group derecognises a financial liability when its contractual obligations are discharged, cancelled or
expired.
(a) Financial liabilities at fair value through profit or loss
This category has two sub-categories:
• Financial liabilities held for trading.
• Those designated at fair value through profit or loss at inception.
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A financial liability is classified as held for trading if the linked financial asset associated with this
liability is acquired principally for the purpose of selling in the short term or if it forms part of a portfolio
of financial assets in which there is evidence of short-term profit-taking. Derivative liabilities are also
classified as held for trading, unless they are designated as hedges at inception.
All classes of financial liabilities classified on the statement of financial position as ‘Financial liabilities
held under multi-manager investment contracts’ are designated at fair value through profit or loss.
A financial liability is designated as fair value through profit or loss where the group determines such a
designation will eliminate and accounting mismatch because the related assets are carried at fair value
through profit or loss. All classes of financial liabilities classified on the statement of financial position as
‘Liabilities of cell-captive insurance facilities’ are designated as fair value through profit or loss.
Financial liabilities at fair value through profit or loss are measured at fair value, with subsequent
changes in fair value recognised in profit or loss.
(b) Financial liabilities at amortised cost
Financial liabilities at amortised cost are non-derivative financial liabilities with fixed or determinable
payments and fixed maturities.
Financial liabilities classified as financial liabilities at amortised cost comprise borrowings and trade and
other payables. Subsequent to initial recognition, these financial liabilities are measured at amortised cost
and any difference between the proceeds, net of transaction costs, and the redemption value is recognised
in profit or loss over the period of the borrowings, using the effective interest method.
DEFERRED TAX
Deferred tax is recognised using the balance sheet method, providing for temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation
purposes.
Deferred tax is not recognised for the following temporary differences:
• Temporary differences on the initial recognition of assets and liabilities in a transaction that is not a
business combination and that affects neither accounting nor taxable profit or loss.
• Temporary differences relating to investments in subsidiaries and jointly controlled entities to the extent
that it is probable that they will not reverse in the foreseeable future.
• Taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they
reverse, based on the laws that have been enacted or substantively enacted by the reporting date.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax assets
and liabilities and they relate to income taxes levied by the same tax authority on the same taxable entity or on
different tax entities, and the company intend to settle current tax assets and liabilities on a net basis or their
tax assets and liabilities will be settled simultaneously.
A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences,
to the extent that it is probable that future taxable profits will be available against which the temporary
differences can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the
extent that it is no longer probable that the related tax benefit will be realised.
Deferred tax relating to fair value re-measurements of available-for-sale assets and cash flow hedges, which
are recognised in other comprehensive income are accumulated in equity and are subsequently reclassified
into profit or loss together with the deferred gain or loss.
EMPLOYEE BENEFITS
(a) Pension obligations
Group companies operate various pension schemes. The schemes are generally funded through trustee
administered funds, determined by periodic actuarial calculations. The group has both defined benefit and
defined contribution plans. The pension plans are funded by payment from the relevant group companies
and/or by employees.
A defined contribution plan is a post-employment benefit plan under which the group and/or employees
pay fixed contributions into a separate entity. The group has no legal or constructive obligations to
pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits
relating to current or prior employee service. The group pays contributions to the plan on a mandatory,
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contractual or voluntary basis. The group has no further payment obligation once the contributions
have been paid. Obligations for contributions to defined contribution pension plans are recognised as an
employee benefit expense in profit or loss when they are due.
A defined benefit plan is a post-employment benefit plan that defines an amount of pension benefit that
an employee will receive on retirement, usually dependent on one or more factors such as age, years of
service and compensation.
The liability recognised in the statement of financial position in respect of defined benefit pension plans is
the present value of the defined benefit obligation at the reporting date less the fair value of plan assets.
The present value of the defined benefit obligation is determined by discounting the estimated future cash
outflows using interest rates of high-quality corporate bonds that are denominated in the currency in
which the benefits will be paid, and that have terms to maturity approximating to the terms of the related
pension obligation. In countries like South Africa where there is no deep market for corporate bonds,
the government bond rate is used. This rate is the yield at the reporting date on government bonds that
are denominated in the currency in which the benefits will be paid and that have terms to maturity that
approximate the terms of the group’s obligation.
The calculation is performed annually by qualified actuaries using the projected unit credit method.
When the calculation results in a benefit for the group, in other words plan assets exceed the defined
benefit obligation, the recognised asset is limited to the present value of economic benefits available in the
form of any future refunds from the plan or reductions in future contributions to the plan. The group
measures the economic benefits available to it in the form of refunds or reductions in future contributions
at the maximum amount that is consistent with the terms and conditions of the plan and any statutory
requirements in the jurisdiction of the plan in accordance with IFRIC 14.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions
are charged or credited to other comprehensive income in the period in which they arise.
Past-service costs are recognised immediately in profit or loss.
The group’s current service costs of the defined benefit plans are recognised in profit or loss in the
current year.
(b) Post-retirement medical obligations
In terms of certain employment contracts, the group provides post-retirement medical benefits to
qualifying employees and retired personnel by subsidising a portion of their medical aid contributions.
The entitlement to these benefits is based upon employment prior to a certain date and is conditional
on employees remaining in service up to retirement age. New employees are not entitled to this benefit.
The expected costs of these benefits are accrued over the period of employment, using an accounting
methodology similar to that for defined benefit pension plans.
The post-retirement medical obligation has been partly funded through an insurance arrangement with
a subsidiary company of the group.
(c) Leave pay provision
Short-term employee benefit obligations are measured on an undiscounted basis and are recognised in
profit or loss as the related service is provided. A liability is recognised for the amount that is expected
to be paid in the form of annual leave entitlements if the group has a present legal or constructive
obligation to pay this amount as a result of past services provided by the employee and the obligation can
be estimated reliably.
(d) Termination benefits
Termination benefits are payable when employment is terminated by the group before the normal
retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits.
The group recognises termination benefits at the earlier of the following dates: (a) when the group can no
longer withdraw the offer of those benefits and (b) when the entity recognises costs for a restructuring
that is within the scope of IAS 37 and involves the payment of termination benefits. In the case of an offer
made to encourage voluntary redundancy, the termination benefits are measured based on the number
of employees expected to accept the offer. Benefits falling due more than 12 months after the end of the
reporting period are discounted to their present value.
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PROVISIONS
Provisions are recognised when the group has a present legal or constructive obligation, as a result of past
events, for which it is more likely than not that an outflow of resources will be required to settle the obligation.
Provisions are determined by discounting the expected future cash flows at a pre-tax discount rate that reflects
the current market assessment of the time value of money and, where appropriate, the risks specific to the
liability. The unwinding of the discount is recognised as a finance cost.
A provision for onerous contracts is recognised when the expected benefits to be derived by the group from a
contract are lower than the unavoidable costs of meeting the obligations under the contract. The provision is
measured at the present value of the lower of the expected cost of terminating the contract and the expected net
cost of continuing with the contract. Before a provision is established, the group recognises any impairment
loss on the assets associated with that contract.
A provision for restructuring is recognised when the group has approved a detailed and formal restructuring
plan, and the restructuring either has commenced or has been announced publicly. Future operating costs
are not provided for. Where there are a number of similar obligations, the likelihood that an outflow will
be required in settlement is determined by considering the class of obligations as a whole. A provision is
recognised even if the likelihood of an outflow, with respect to any one item included in the same class of
obligations, may be small obligations as a whole.
Where the group expects a provision to be reimbursed, for example under an insurance contract, the
reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain.
Provisions are reviewed at the end of each financial year and are adjusted to reflect current best estimates.
LEASES
(a) Finance leases
Assets acquired under lease agreements that transfer substantially all the risks and rewards of ownership
to the group are accounted for as finance leases. The asset is capitalised at the lower of the fair value of
the asset or the present value of the minimum lease payments upon initial recognition, with an equivalent
amount being stated as a finance lease liability. The capitalised asset is depreciated over the shorter of
the useful life of the asset or the lease term. Lease payments are apportioned between finance costs and
capital repayments using the effective interest method.
Finance costs are allocated to each period during the lease term so as to produce a constant periodic rate
of interest on the remaining balance of the liability. Finance costs are recognised in profit or loss over the
lease period.
(b) Operating leases
Other leases are operating leases and the leased assets are not recognised on the group’s statement of
financial position. Payments made under operating leases, net of any incentives received from the lessor,
are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received
are recognised as an integral part of the total lease expense over the term of the lease.
When an operating lease is terminated before the lease term has expired, any payment required to be
made to the lessor by way of a penalty is recognised as an expense in the period in which termination
takes place.
CONTINGENCIES AND COMMITMENTS
Transactions are classified as contingencies when the group’s obligations depend on uncertain future events
not within the group’s control. Items are classified as commitments when the group commits itself to future
transactions with external parties.
OFFSETTING
Financial assets and liabilities are offset and the net amount reported on the statement of financial position,
only when there is a current legally enforceable right to offset the assets and liabilities and there is an
intention to settle on a net basis or to realise the asset and settle the liability simultaneously.
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INCOME FROM OPERATIONS
Income from operations, which excludes value-added tax, comprises:
• Commission (when the group acts in the capacity of an agent rather than as the principal in a transaction)
and fees in respect of brokerage, administration, management and consultancy services.
• Net underwriting profit from the risk-taking activities of insurance operations.
• Net interest income from financing operations.
INCOME RECOGNITION – GENERAL OPERATIONS
(a) Risk services
• Insurance broking commission and fee income – comprise commission income and negotiated fees
earned in respect of the placement of insurance and servicing of clients under insurance programmes.
Income is recorded on the effective commencement or renewal dates of the related insurance programme.
When further servicing is required to be rendered to the client, a portion of the income is deferred.
The amount deferred is that which will cover the expected future servicing costs, together with a
reasonable profit thereon, and is recognised as a liability. The deferred income is recognised in profit
or loss over the servicing period on a consistent basis reflecting the pattern of servicing activities.
• Consulting fees – comprise negotiated fees for advisory services. Income is recognised based on the
stage of completion as the related services are rendered. The stage of completion is determined with
reference to the services performed to date as a percentage of total services to be performed.
• Claims facilitation fees – comprise fees earned in respect of the preparation, submission and collection
of insurance claims. Income is recognised based on the stage of completion determined with reference
to the proportion that costs incurred to date bear to the estimated total costs. Only costs that reflect
services performed or to be performed are included in the estimated costs.
• Underwriting agency income – comprises commissions, fee income and profit shares earned from
insurance binders and underwriting agency agreements. Commission and fee income is recorded on
the effective commencement or renewal dates of the related insurance policy. When further servicing
is required to be rendered, a portion of the income is deferred. The amount deferred is that which
will cover the expected future servicing costs, together with a reasonable profit thereon, and is
recognised as a liability. The deferred income is recognised in profit or loss over the servicing period
on a consistent basis reflecting the pattern of servicing activities. Income which is dependent on
underwriting performance is recognised when it can be measured reliably.
• Operational interest income – comprises interest income earned from insurance broking operations
and is recognised on a time : proportionate basis using the effective interest method.
(b) Financial services
• Consulting fees – comprise fees earned in respect of actuarial and other advisory services. Income
is recognised based on the stage of completion as the related services are rendered. The stage of
completion is determined with reference to the services performed to date as a percentage of total
services to be performed.
• Administration fees – comprise fees earned for the administration of retirement funds. Income is
recognised as services are provided.
• Commission income – comprises commissions earned in respect of insurance and investment products.
Commission income is recognised on the effective commencement or renewal date of the insurance
or investment policy. A portion of the income is deferred when further servicing is required to be
rendered. The amount deferred is that which will cover the expected future servicing costs, together
with a reasonable profit thereon, and is recognised as a liability. Deferred income is recognised in
profit or loss evenly over the period of the policy. Where commission income is earned on an indemnity
basis, provision is made for the potential repayment of commissions.
• Healthcare commission income – comprises commissions earned in respect of healthcare
products. Commission income is recognised on the effective commencement or renewal date of the
healthcare product.
• Fund annuity purchase fees – comprise fees earned on fund annuity purchases. Income is recognised
based on the stage of completion determined by reference to the value of the assets transferred.
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(c) Multi-manager investment (Investment Solutions)
• Multi-manager investment fees – comprise fees earned for multi-manager investment and
administration. Initial administration fees are brought to account upon inception of the investment
contract and are recognised on a straight-line basis over the expected period of the contract. Ongoing
multi-manager investment and administration fees are calculated on a daily basis as a percentage of
assets under management. These fees are recognised as services are provided.
• Structured product fees – comprise fees earned on the structuring and administration of portfolios of
financial instruments designed to hedge specific financial risks. These fees are recognised in profit or
loss evenly over the expected period of the contract.
• Transition management fees – comprise fees earned for services provided in relation to the transfer of
investment assets.
Income is recognised based on the stage of completion determined with reference to the value of the
assets transferred.
(d) Direct marketing
• Commission income – comprises commissions earned on the direct marketing of insurance products.
Income is recognised on the effective commencement or renewal date of the insurance policy. Where
commission income is earned on an indemnity basis, provision is made for the potential repayment
of commissions.
• Underwriting agency income – comprises commission and fee income earned from the direct
marketing and administration of insurance products under insurance binder agreements. Income is
recognised on the effective commencement or renewal dates of the related insurance policy. Upfront
direct marketing costs are recognised in profit or loss immediately.
INCOME RECOGNITION – FINANCING OPERATIONS
Interest and other finance income received in the form of an interest margin are recognised in profit or loss
on a time : proportionate basis using the effective interest method. Any directly related interest expense is
recognised on the same basis.
INCOME RECOGNITION – INSURANCE OPERATIONS
• Income from insurance activities – refers to the accounting policies on insurance contracts.
• Reinsurance commission income – comprises commissions earned in respect of insurance referred to
reinsurers. Income is recognised on the effective commencement or renewal date of the insurance policy.
A portion of the income is deferred when further servicing is required to be rendered. The amount deferred
is that which will cover the expected future servicing costs, together with a reasonable profit thereon, and
is recognised as a liability. Deferred income is recognised in profit or loss evenly over the period of the
policy.
• Profit commission – comprises negotiated profit shares with reinsurers. Income is recognised when earned.
• Investment management fees on cell-captive insurance facilities – income is calculated as a percentage of
investment income. These fees are recognised as services are provided.
• Management fees on cell-captive insurance facilities – income is calculated as a percentage of premiums
received. Income is recognised on the effective commencement or renewal dates of the related insurance
programme. A portion of the management fees is deferred to cover the expected future servicing costs,
together with a reasonable profit thereon, and is recognised as a liability. The deferred income is recognised
over the servicing period on a consistent basis reflecting the pattern of servicing activities.
PROFIT FROM OPERATIONS BEFORE NON-TRADING AND CAPITAL ITEMS
The profit from operations before non-trading and capital items is made up of trading activities of the group.
The trading activities are those revenues and expenses generated by the business operations of the group
which are regularly reported to the board of directors when making resource allocation decisions and
assessing operational performance.
Items of an exceptional nature which are not considered to be fundamental to the resource allocation and
performance of business operations are thus disclosed separately as non-trading and capital items. The
separate disclosure of these items consequently achieves representative disclosure of activities normally
regarded as operating in nature.
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NON-TRADING AND CAPITAL ITEMS
Non-trading activities relate to items such as the group professional indemnity insurance cell, adjustments
arising due to business combinations, non-recurring items linked to corporate finance activities, items related
to historical client settlement, impairment losses and recoveries and capital gains or losses on sale of non-
current assets. Items of non-trading nature do not form part of management’s consideration of the operational
performance or allocation of resources of the group.
INVESTMENT INCOME
Investment income comprises interest income on funds invested, dividend income and fair value gains on
financial assets at fair value through profit or loss. Interest income is recognised on a time : proportionate
basis in profit or loss, using the effective interest method. Dividend income earned on preference share
investments held as money market investments is also recognised on a time : proportionate basis using
the effective interest method. All other dividend income is recognised when the right to receive payment is
established, which is the ex-dividend date for equity securities.
FINANCE COSTS
Finance costs comprise interest expense on borrowings and unwinding of discount on provisions and
contingent consideration and fair value losses on financial assets at fair value through profit or loss. All
borrowing costs are recognised in profit or loss using the effective interest method.
INCOME TAX
Income tax expense comprises current and deferred taxes, capital gains tax, as well as secondary tax on
companies applicable in South Africa. Due to the nature of indirect taxes, including non-recoverable value-
added tax, stamp duty, skills development levies, these are included in operating expenses in profit or loss.
Current tax and deferred tax is recognised in profit or loss, except to the extent that it relates to a business
combination, or items recognised directly in equity or in other comprehensive income.
(a) Current tax
The current income tax and capital gains tax charges are the expected tax payable or receivable on the
taxable income or loss for the year, using applicable tax rates enacted or substantively enacted at the
reporting date, and any adjustment to tax payable in respect of prior years. Current tax payable also
includes any tax liability arising from the declaration of dividends.
(b) Deferred tax
Deferred tax is recognised in respect of all temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for taxation purposes as detailed in
the relevant accounting policy note. Effective 1 April 2012, STC has been replaced by dividend withholding
tax, the local rate for dividend tax will be 15%.
SEGMENT REPORTING
An operating segment is a component of the group that engages in business activities from which it may earn
revenues and incur expenses, including revenues and expenses that relate to transactions with any of the
group’s other components.
All operating segments’ operating results are reviewed regularly by the group’s key decision-maker (which
is the group executive committee, which is ultimately overseen by the board of directors) to make decisions
about resources to be allocated to the segments and assess its performance and for which discrete financial
information is available.
Segment results that are reported to the key decision-maker include operating income net of direct expenses
(net revenue) and profit from operations before non-trading and capital items (trading result) directly
attributable to a segment.
168
NON-CURRENT ASSETS HELD FOR SALE
Non-current assets, or disposal groups comprising assets and liabilities, that are expected to be recovered
primarily through sale rather than through continuing use, are classified as held for sale. The assets, or
disposal group, are measured at the lower of their carrying amount and fair value less costs to sell. Any
impairment loss on a disposal group first is allocated to goodwill, and then to remaining assets and liabilities
on a pro rata basis, except that no loss is allocated to financial assets, deferred tax assets, or employee benefit
assets, which continue to be measured in accordance with the group’s accounting policies. Impairment losses
on initial classification as held for sale or distribution and subsequent gains and losses on re-measurement
are recognised in profit or loss.
Gains are not recognised in excess of any cumulative impairment loss.
Intangible assets and property and equipment once classified as held for sale are not amortised or depreciated.
DISCONTINUED OPERATIONS
A discontinued operation is a component of the group’s business that represents a separate major line of
business or geographical area of operations that has been disposed of or is held for sale. Classification as
a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as
held for sale, if earlier. When an operation is classified as a discontinued operation, the comparative income
statement and statement of other comprehensive income and statement of cash flows are represented as if the
operation had been discontinued from the start of the comparative year.
CRITICAL ASSUMPTIONS
The following critical accounting assumptions and judgments have been applied when preparing these
financial statements:
1. PROVISIONS
Provisions are, by definition, liabilities of uncertain timing or amount. In order to establish a provision,
management makes assessments of the expected amount of any future cash outflows and the estimated
timing thereof. Where the effect of discounting is material, provisions payable in more than one year are
discounted using pre-tax discount rates that reflect the current market assessment of the time value of
money and, where appropriate, the risks specific to the liability.
Refer to note 30, ‘Provisions’ for further detail.
2. TAXATION
The group is subject to income tax in numerous jurisdictions and has many transactions and calculations
for which the ultimate tax determination may be uncertain during the ordinary course of business. The
group recognises liabilities for anticipated tax charges. Where the outcome of a transaction is different
from the amounts that were initially recorded, such differences will impact the tax provisions in the
period in which such determination is made.
Refer to note 8, ‘Income tax’ for further detail.
3. VALUATION OF POLICYHOLDER ASSETS AND LIABILITIES IN RESPECT OF LONG-TERM INSURANCE CONTRACTS
The actuarial value of policyholder assets and liabilities arising from long-term insurance contracts is
determined using the Financial Soundness Valuation method as described in SAP 104 of the Actuarial
Society of South Africa.
The method requires a number of assumptions as inputs to the valuation model. The following process is
followed to determine the valuation assumptions:
• The best estimate for a particular assumption is determined.
• Prescribed margins are then applied, as required by the Long-term Insurance Act in South Africa and
Board Notice 72 issued in terms of the Act.
• Discretionary margins may be applied, as required by the valuation methodology or if the statutory
actuary considers such margins necessary to cover the risks inherent in the contracts.
Best estimate assumptions as to mortality and morbidity, expenses, investment income and tax are used
which may vary at each reporting date. A margin for adverse deviations is included in the assumptions.
Improvements in estimates have a positive impact on the value of the liabilities and related assets, while
deteriorations in estimates have a negative impact.
169
The process for determining the assumptions used are as follows:
• Mortality and morbidity
For group life insurance contracts, the rate of recovery from disability is derived from industry
experience studies adjusted, where appropriate, for the group’s own experience. For individual life
insurance contracts, demographic assumptions are set with reference to reinsurer rates and industry
experience.
• Expenses
Expense assumptions are based on an expense analysis, using a functional cost approach. This analysis
allocates expenses between policy and overhead expenses and within policy expenses, between new
business, maintenance and claims.
• Investment income
Estimates are made as to future investment income and are tested against market conditions as at the
valuation date taking into account the terms of the liabilities. Inflation assumptions are tested against
market conditions and, with regard to consistency, are tested against interest rate assumptions.
• Tax
Allowance is made for future taxation and taxation relief.
Refer to note 11, Financial assets held under multi-manager investment contracts’, note 12, ‘Financial
assets of cell-captive and other insurance facilities’, note 25, ‘Financial liabilities held under multi-
manager investment contracts’ and note 26, ‘Liabilities of cell-captive and other insurance facilities’ for
further detail.
4. ULTIMATE LIABILITY ARISING FROM CLAIMS UNDER SHORT-TERM CONTRACTS
The estimation of the ultimate liability arising from claims under short-term insurance contracts has
several sources of uncertainty. The risk environment can change suddenly and unexpectedly owing to
a wide range of events or influences. There is no absolute certainty in respect of identifying risks at an
early stage, measuring them sufficiently or correctly estimating their real hazard potential.
Refer to note 20, ‘Insurance receivables’ and note 34, ‘Insurance payables’ for further detail.
5. ERRORS AND OMISSIONS IN THE ORDINARY COURSE OF BUSINESS
Due to the nature of its activities the group is exposed to various actual and potential claims, lawsuits and
other proceedings relating to alleged errors and omissions or non-compliance with laws and regulations
in the conduct of its ordinary course of business. As with any business with similar operations to the
group, the risk exists that new claims relating to past events and significant adverse developments in
past claims could result in material changes to provisions made in respect of prior years.
Refer to note 30, ‘Provisions’ for further detail.
6. GOODWILL
The group created significant goodwill and intangible assets upon its reorganisation in 2007 in terms of
IFRS 3. These asset balances are evaluated for impairment on an annual basis. This evaluation is based on
the estimation of future cash flows and discount rates as further explained in note 15 .
7. FAIR VALUE
The group’s policy for determining the fair value of financial instruments is described in the Accounting
Policies. The group holds a number of financial assets and liabilities that are designated at fair value
through profit or loss. Full disclosure of the valuation hierarchy and sensitivities is contained in the risk
management section of this report.
Refer to note 45, ‘Financial risk’ for further detail.
8. HEDGE ACCOUNTING
With regard to the application of cash flow hedge accounting, management applies judgment in assessing,
at both inception of the hedge and on an ongoing basis, whether the hedging instruments are effective in
offsetting changes in fair values or cash flows of hedged items. Refer to note 24, ‘Equity holders’ funds’.
170
GROUP INCOME STATEMENTSfor the years ended 31 March
Rm Notes 2014* 2013* 2012*
Continuing operationsFee and commission income 2 4 ,776 4 ,038 3 ,603
Direct expenses attributable to fee and commission income 2 (801) (651) (591)
Net income from insurance operations 3 417 350 310
Insurance premiums earned 1 ,806 1 ,584 1 ,412
Less: Amounts ceded to reinsurers (1 ,085) (1 ,034) (950)
Investment income from insurance operations 10 8 12
Less: Insurance claims and withdrawals (1 ,302) (1 ,162) (1 ,031)
Plus: Insurance claims and benefits covered by reinsurance
contracts 988 954 867
Operating income net of direct expenses 4, 392 3 ,737 3 ,322
Operating expenses 4 (3 ,352) (2 ,812) (2 ,460)
Profit from operations before non -trading and capital items 1 ,040 925 862
Non-trading and capital items 5 (108) (113) (108)
Operating profit 932 812 754
Investment income 6 233 129 161
Finance costs 7 (843) (848) (816)
Share of net profit of associates (net of income tax) 18 2 1 1
Profit before taxation 324 94 100
Income tax expense 8 (487) (192) (316)
Loss for the year from continuing operations (163) (98) (216)
Discontinued operationsProfit / (loss) on discontinued operations (net of income tax) 23 542 (10) 157
Profit / (loss) for the year 379 (108) (59)
Profit / (loss) attributable to:
Equity holders 269 (191) (136)
Non-controlling interest 9 110 83 77
379 (108) (59)
* Refer to note 50 for a summary of adjustments made to previously reported
historical financial information.
Earnings per share from continuing operationsBasic loss per share (cents) (77) (51) (82)
Earnings per share from discontinued operationsBasic profit / (loss) per share (cents) 155 (4) 43
Earnings per share from continuing and discontinued operations
Basic profit / (loss) per share (cents) 10 78 (55) (39)
171
GROUP STATEMENTS OF COMPREHENSIVE INCOMEfor the years ended 31 March
Rm Note 2014* 2013* 2012*
Profit / (loss) for the year 379 (108) (59)
Foreign currency translation differences of foreign operations 329 90 89
Foreign currency translation reserve of disposed
operations recycled to profit or loss 23.2 82 30 –
Changes in fair value of cash flow hedges (1) (13) (39)
Portion of cash flow hedge recycled to profit or loss 20 45 71
Other (5) 3 –
Other comprehensive income that will be reclassified to profit or loss 425 155 121
Actuarial gain / (loss) on employee benefits 4 (4) (5)
Other comprehensive income that will not be reclassified to profit or loss 4 (4) (5)
Total comprehensive income for the year 808 43 57
Total comprehensive income / (loss) attributable to:
Equity holders 654 (30) (33)
Non-controlling interest 154 73 90
Total comprehensive income for the year 808 43 57
* Refer to note 50 for a summary of adjustments made to previously reported historical financial information.
172
GROUP STATEMENTS OF FINANCIAL POSITIONas at 31 March
Rm Notes 2014* 2013* 2012*
AssetsFinancial assets held under multi-manager investment
contracts 11 253 ,747 222 ,790 209 ,994
Financial assets of cell-captive and other insurance facilities 12 315 11 ,374 9 ,484
Property and equipment 13 335 239 165
Purchased and developed computer software 14 80 129 166
Goodwill 15 3 ,985 4 ,490 4 ,652
Intangible assets 16 886 1 ,211 1 ,437
Investment in associates 18 6 4 3
Deferred tax assets 29 117 164 110
Financial assets 19 409 2 ,064 1 209
Insurance receivables 20 814 1 ,073 896
Trade and other receivables 21 873 935 913
Cash and cash equivalents 22 3 ,907 3 ,626 3 ,062
Assets of disposal group classified as held for sale 23 91 29 ,938 288
Total assets 265 ,565 278 ,037 232 ,379
Equity and liabilitiesShare capital 5 ,819 3 ,261 3 ,261
Treasury shares (405) (21) (29)
Accumulated loss (889) (1 ,162) (967)
Other reserves 102 (8) (173)
Equity holders’ funds 24 4 ,627 2 ,070 2 ,092
Non-controlling interest 210 194 185
Total equity 4 ,837 2 ,264 2 ,277
Financial liabilities held under multi-manager investment
contracts 25 253 ,747 222 ,790 209 ,994
Liabilities of cell-captive and other insurance facilities 26 315 11 ,374 9 ,484
Borrowings 27 1 ,652 5 ,409 5 ,448
Employee benefits 28 168 181 170
Deferred tax liabilities 29 432 450 491
Provisions 30 284 284 265
Finance lease liability 31 90 93 –
Operating lease liability 32 119 40 29
Deferred income 33 25 72 69
Insurance payables 34 2 ,270 3 ,985 2 ,693
Trade and other payables 35 1 ,591 1 ,353 1 ,328
Liabilities of disposal group classified as held for sale 23 35 29 ,742 131
Total liabilities 260 ,728 275 ,773 230 ,102
Total equity and liabilities 265 ,565 278 ,037 232 ,379
* Refer to note 50 for a summary of adjustments made to previously reported historical financial information.
173
GROUP STATEMENTS OF CASH FLOWSfor the years ended 31 March
Rm Notes 2014* 2013* 2012*
Cash flows from operating activitiesCash generated from operations 38 1 ,331 1 ,101 830
Interest received 228 137 169
Finance costs paid 39 (2 ,125) (593) (567)
Movement in working capital and insurance balances 40 501 300 728
Cash settlement of cash management claims (7) – (3)
Cash settlement of retirement benefit obligations (7) (7) (6)
Cash flows from policyholder investment contracts 41 (5 ,054) (2 ,482) (3 ,223)
Taxation paid 42 (387) (426) (242)
Cash flows from operating activities – discontinued operations 163 227 246
Net cash outflow from operating activities (5 ,357) (1 ,743) (2 ,068)
Cash flows from investing activitiesNet proceeds from sale of subsidiaries, associates and
businesses 23.2 1 ,236 279 (153)
Repayment of assumed debt by acquirer – – 511
Investment in financial assets (594) (617) (759)
Proceeds on disposal of financial assets 580 597 10
Movement in premium finance receivables – – (37)
Capital expenditure incurred on property, equipment and
computer software (208) (106) (119)
Capital expenditure incurred on goodwill – – (12)
Proceeds from sale of property, equipment and intangibles 6 3 1
Cash flows from investing activities – discontinued operations 22 (5) (2)
Net cash inflow/(outflow) from investing activities 1 042 151 (560)
Cash flows from financing activitiesIssue of shares (net of SPV treasury shares) 24 1 ,903 – –
Borrowings raised by SPVs in order to purchase shares 386 – –
Term loan raised 1 ,250 – –
Increase in shareholder loan 4 – –
Repayment of borrowings 27.2 (4 ,095) (252) (642)
Payments made to non-controlling interests (126) (74) (76)
Cash flows from financing activities – discontinued operations – – 29
Net cash outflow from financing activities (678) (326) (689)
Decrease in cash and cash equivalents (4 ,993) (1 ,918) (3 ,317)
Cash and cash equivalents at beginning of year 16 ,975 18 ,833 22 ,06 8
Foreign subsidiaries exchange differences 147 60 82
Cash and cash equivalents at end of year 12 ,129 16 ,975 18 ,833
Analysed as follows:
Cash and cash equivalents for disposal groups held for sale 24 97 37
Cash and cash equivalents for continuing operations 3 ,907 3 ,626 3 ,062
Cash held under multi-manager investment contracts 8 ,197 11 ,958 14 ,984
Cash held under cell-captive insurance facilities 1 1 ,294 750
12 ,129 16 ,975 18 ,833
* Refer to note 50 for a summary of adjustments made to previously reported historical financial information.
174
GROUP STATEMENT OF CHANGES IN EQUITYfor the years ended 31 March
Rm
Share capital
and premium
Treasury shares
Non-distribut-
able reserves
Accum-ulated
loss
Total equity
holders’ funds
Non-control-
ling interest
Total equity
At 1 April 2011 3 ,261 – (252) (867) 2 ,142 172 2 ,314
Restatement for the
adoption of IFRS 10
Consolidated Financial
Statements – (29) – (6) (35) – (35)
At 1 April 2011 restated 3 ,261 (29) (252) (873) 2 ,107 172 2 ,279
(Loss) / profit for the year – – – (136) (136) 77 (59)
Other comprehensive
income/(loss) – – 108 (5) 103 13 116
Total comprehensive
income / (loss) – – 108 (141) (33) 90 57
Removal of contingency
reserve of short-term
insurance company – – (29) 29 – – –
Other movements
contingency reserves and in
non-controlling interest* – – – 18 18 (77) (59)
At 31 March 2012 3 ,261 (29) (173) (967) 2 ,092 185 2 ,277
(Loss) / profit for the year – – – (191) (191 ) 83 (108)
Other comprehensive
income – – 165 (4) 161 (10) 151
Total comprehensive
income / (loss) – – 165 (195) (30) 73 43
Movement in treasury
shares – 8 – – 8 – 8
Other movements
contingency reserves and in
non-controlling interest* – – – – – (64) (64)
At 31 March 2013 3 ,261 (21) (8) (1 ,162) 2 ,070 194 2 ,264
Profit for the year – – – 269 269 110 379 Other comprehensive
income – – 381 4 385 44 429
Total comprehensive income – – 381 273 654 154 808 Issue of share 2 ,558 – – – 2 ,558 – 2 ,558 SPV Treasury shares – (384) – – (384) – (384)Redemption of PIK Co Prefs – – (271) – (271) – (271)Other movements in
non-controlling interest* – – – – – (138) (138)
At 31 March 2014 5 ,819 (405) 102 (889) 4 ,627 210 4 ,837
* Refer to note 50 for a summary of adjustments made to previously reported historical financial information.
175
GROUP SEGMENTAL INCOME AND PROFIT ANALYSISfor the years ended 31 March
Operating income net of direct expenses 2014 % 2013 % 2012
Africa Continuing Operations (Rm)SA Financial Services 1 ,754 9 1 ,603 8 1 ,485
Investment Solutions 717 13 635 15 553
AF Insurance 350 14 307 6 289
AfriNet 249 23 202 19 170
Total Africa Continuing operations (Rm) 3 ,070 12 2 ,747 10 2 ,497
International Continuing Operations (£m)Total International (£m) 81 11 73 5 70
Total International Continuing operations (Rm) 1 ,322 34 990 20 825
Total Continuing Operations (Rm) 4 ,392 18 3 ,737 12 3 ,322
Profit from operations before non -trading and capital items
2014 % 2013 % 2012
Africa Continuing Operations (Rm)SA Financial Services 387 6 365 11 330
Investment Solutions 360 16 311 12 279
AF Insurance 88 10 80 (2) 81
AfriNet 48 33 36 36 27
Total Africa Continuing operations (Rm) 883 11 792 10 717
International Continuing Operations (£m)Total International (£m) 12 20 10 11 9
Total International Continuing operations (Rm) 204 45 141 31 108
Total Continuing Operations – excluding property lease (Rm) 1 ,087 17 933 13 825
Accounting for property lease (47) (8) 37
Total continuing operations – including property lease (Rm) 1 ,040 12 925 7 862
Depreciation and amortisation 2014 % 2013 % 2012
Africa Continuing Operations (Rm)SA Financial Services 10 14 18
Investment Solutions 3 3 3
AF Insurance 3 3 2
AfriNet 3 3 3
Total Africa Continuing operations (Rm) 19 (17) 23 (15) 26
International Continuing Operations (£m)Financial Services 1 1 1
Total International Continuing operations (£m) 1 1 1
Total International Continuing operations (Rm) 13 30 10 – 10
Discontinued operations (refer note 23.2) 20 28 32
Unallocated:Corporate services 48 47 39
Total Group Operations (Rm) 100 (7) 108 1 107
176
GROUP SEGMENTAL INCOME AND PROFIT ANALYSIS (continued)for the years ended 31 March
Assets 2014 % 2013 % 2012
Africa Continuing Operations (Rm)SA Financial Services 63 ,063 49 ,540 37 ,154
Investment Solutions 253 ,872 222 ,873 190 ,920
AF Insurance 592 505 397
AfriNet 3 ,188 2 ,706 2 ,142
Total Africa Continuing operations (Rm) 320 ,715 16 275 ,624 19 230 ,613
Total international (£m) 73 90 112
International Continuing operations (Rm) 1 ,388 11 1 ,248 (9) 1 ,378
Discontinued operations (refer note 23.2) 385 43 ,990 30 ,847
Unallocated:Corporate services 692 502 2 ,628
Goodwill 3 985 4 ,490 3 ,460
Consolidation elimination* (61 ,600) (47 ,817) (36 ,547)
Total Group Operations (Rm) 265 ,565 (4) 278 ,037 20 232 ,379
* This amount relates mainly to assets invested by group companies with Investment Solutions.
** The prior year comparative figures in the table above have been re-presented following the disposal of Guardrisk, LCP Liberia and IS UK
and the discontinuance of various other businesses during the year under review. The segmental report has been re-presented to take
account of the effects of discontinued operations including the re-allocation of shared services expenses that were previously allocated to
currently discontinued operations but which remains in the continuing cost base of the group. The expenses amount to R31 million in
the current year and R25 million in the prior year.
The group measures segments based on Operating income net of direct expenses and Profit from operations
before non-trading and capital items.
The group has five reportable segments, as detailed above, which are the group’s business units. The business
units offer different products and services, and are managed separately because they require different
technology and marketing strategies. For each of the business units, the group’s chief operations decision-
maker reviews internal management reports on a quarterly basis.
The following summary describes the operations in each of the group’s reportable segments:
• SA Financial Services – is the leading retirement funds consulting and administration provider and
corporate health consulting business in South Africa. The divisions include Institutional, which provides
retirement fund administration, consulting and actuarial services; Retail, which provides financial and
wealth advice and solutions to individuals; Healthcare, which provides medical scheme and health-related
advice and actuarial services.
• Investment Solutions – as a multi-manager investment manager, the company selects appropriate asset
managers and portfolios and monitors and reports on manager performance. The operations are currently
in South Africa and Namibia.
• AF Insurance (AFI) – provides motor and household insurance cover.
• AfriNet (Africa excluding South Africa) – offers financial services products in Africa (outside South
Africa). It focuses on and meets the demands of each local market, as well as adapt business products to
local legislation.
• International Financial Services – pan-European employee benefits consultants and actuaries, providing
solutions across all aspects of employee benefits to employers and their employees, pensions, investments,
healthcare and risk solutions and business analytics of insurance products.
177
NOTES TO THE GROUP FINANCIAL STATEMENTS
Rm 2014 2013 2012
1 FOREIGN CURRENCY EXCHANGE RATESThe income statements and statements of financial position of
material foreign subsidiaries have been translated to rands in
line with IAS 21. The effect of changes in foreign exchange rates,
using the following exchange rates:
Rand : sterling R:£ R:£ R:£
Weighted average rate 16.4 13.6 11.9
Closing rate 17.5 13.9 12.3
Swiss franc : sterling CHF:£ CHF:£ CHF:£
Weighted average rate 2.0 1.5 1.6
Closing rate 1.5 1.4 1.4
Other less material foreign subsidiaries have been translated to
rands in line with IAS 21. The effect of changes in foreign
exchange rates, using the weighted average rates for income
statement items and the closing rates for items in the statement.
Certain transactions of the group occur in foreign currencies.
The most material of these currencies is the euro. These
transactions have been translated using the following
exchange rates:
Rand : euro R:€ R:€ R:€
Weighted average rate 14.7 10.9 10.3
Closing rate 14.5 11.8 10.2
2 FEE AND COMMISSION INCOMEBrokerage fees and commission income 25 26 18
Fee income from consulting and administration services 3 ,233 2 ,716 2 ,432
Fee income from investment management activities 1 ,499 1 ,268 1 ,136
Interest income from lending operations 1 8 6
Other income 18 20 11
4 ,776 4 ,038 3 ,603
The direct expenses related to fees and commission income
relate to sub-agent expenses, commissions paid and asset
management fees (801) (651) (591)
Fee income from investment management activities is based on financial assets held at fair value through
profit or loss.
178
3 NET INCOME FROM INSURANCE OPERATIONS
Long-term insurance Short-term insurance Total Rm 2014 2013 2012 2014 2013 2012 2014 2013 2012
Gross earned premiums 417 395 789 1 ,389 1 ,189 623 1 ,806 1 ,584 1 ,412
Gross written premiums 417 395 407 1 ,402 1 ,192 1 ,037 1 ,819 1 ,587 1 ,444
Less: Movement in unearned
premium provision – – 382 (13) (3) (414) (13) (3) (32)
Reinsurers’ share thereof (288) (275) (673) (797) (759) (277) (1 ,085) (1 ,034) (950)
Net earned premiums 129 120 116 592 430 346 721 550 462
Net investment income from
insurance operations – – – 10 8 12 10 8 12
Net expenses of insurance
contracts (4) (6) (8) (21) (17) (9) (25) (23) (17)
Net premium and investment
income 125 114 108 581 421 349 706 535 457
Gross claims and transfers to
policyholder funds (238) (274) (306) (1 ,039) (865) (708) (1 ,277) (1 ,139) (1 ,014)
Reinsurers’ share thereof 204 225 258 784 729 609 988 954 867
Net claims and transfers to policyholders’ funds (34) (49) (48) (255) (136) (99) (289) (185) (147)
Net income from insurance
operations 91 65 60 326 285 250 417 350 310
179
Rm 2014 2013 2012
4 OPERATING EXPENSESOperating expenses classified by nature are as follows:
Amortisation (7) (6) (8)
Purchased and developed computer software (refer note 14) (6) (5) (7)
Intangible assets (refer note 16) (1) (1) (1)
Computer and IT costs (127) (88) (80)
Depreciation (refer note 13) (73) (74) (68)
Leasehold property and improvements (8) (9) (11)
Computer equipment (57) (56) (51)
Furniture fittings, office equipment and other assets (8) (9) (6)
External auditors’ remuneration (31) (26) (24)
Audit service – fees for audit (23) (22) (21)
Non-audit service (8) (4) (3)
Insurance costs (94) (86) (64)
Operating lease charges (223) (183) (156)
Premises – actual charges (173) (174) ( 192)
Premises – accounting for contractual escalations (48) (8) 37
Equipment (2) (1) (1)
Staff costs* (2 ,316) (1 ,942) (1 ,697)
Salaries, wages and other benefits (2 ,279) (1 ,913) (1 ,668)
Termination benefits (7) (5) (9)
Retirement benefit contributions – defined contribution plans (30) (24) (20)
Other operating expenses (481) (407) (363)
Total operating expenses (3 ,352) (2 ,812) (2 ,460)
* Staff costs include executive directors’ and non-executive directors’
remuneration. Refer to note 43 for a detailed analysis.
Total operating expenses exclude non-trading and capital items
which are disclosed in note 5.
Amortisation of intangible assets arising from business combinationPurchased and developed computer software (refer note 14) (19) (19) (19)
Intangible assets (refer note 16) (125) (125) (125)
(144) (144) (144)
180
Rm 2014 2013 2012
5 NON-TRADING AND CAPITAL ITEMSNon-trading:
Professional indemnity insurance cell captive result 64 24 37
Amortisation of intangible assets arising from business
combination (144) (144) (144)
Corporate costs relating to debt restructure (60) – –
Other non-trading items 32 7 –
Capital items:
Goodwill impairment losses – – (1)
(108) (113) (108)
6 INVESTMENT INCOMEGeneral operations:
Interest income 62 46 38
Investment and dividend income 171 83 123
Total investment income 233 129 161
Investment income is derived from the following categories of
financial assets:
Loans receivable 62 46 38
Financial assets designated at fair value 171 83 123
233 129 161
7 FINANCE COSTSFinance costs derived from financial liabilities classified and
carried at amortised costs:
Interest on term debt issued (740) (763) (742)
Amortisation of debt raising fees capitalised to borrowings (14) (13) (13)
Other interest (29) (14) (5)
(783) (790) (760)
Finance cost derived from financial liabilities designated as fair
value through profit or loss:
Fair value adjustment on put and call option (60) (58) (56)
(843) (848) (816)
181
Rm 2014 2013 2012
8 INCOME TAX EXPENSESouth African income taxCurrent tax (298) (183) (174)
Current year (235) (183) (170)
Prior years (63) – (4)
Deferred tax 7 107 45
Current year 58 107 41
Prior years (51) – 4
Foreign income taxCurrent tax (35) (23) (39)
Current year (35) (25) (40)
Prior years – 2 1
Deferred tax 4 12 (4)
Current year 2 7 (3)
Prior years – – (1)
Change in rate 2 5 –
Foreign withholding tax (3) (5) (12)
Tax attributable to policyholders (162) (100) (123)
Deferred tax – current year (76) (67) (4)
Current tax – current year (86) (33) (119)
South African secondary tax on companies – – (9)
Secondary tax – current year – – (18)
Secondary tax – prior year overprovision – – 9
(487) (192) (316)
No material capital gains tax was incurred by the group in the current or previous years, except in
respect of discontinued operations which is included in the results of discontinued operations.
Tax settlementDuring the year ended 31 March 2014, the group received information requests from the South African
Revenue Service (SARS) focused on the acquisition in 2007 of Alexander Forbes Limited by the Private
Equity Consortium and a reorganisation of the group’s businesses. The information requests related
mainly to the interest expenditure incurred in respect of debt raised for the reorganisation.
The group believes that its reorganisation with debt funding was a common and legitimate type of
transaction and was implemented in accordance with legal and tax advice.
However, subsequent to the year-end, and subsequent to the issuing of the annual financial statements
for the group on 9 June 2014, at the initiative of the group and in order to bring finality to this matter,
Alexander Forbes has reached an agreement with SARS towards a full and final settlement of the matter
and, specifically, to settle the tax issue relating to the deduction of interest claimed over the years since
the transaction up to and including the financial year ended 31 March 2014. Refer to notes 37.3 and 44.
The conclusion of the settlement has resulted in an additional assessment for cash taxes payable by the
group in an amount of R60 million and the waiver of assessed losses carried forward, which include
assessed losses, in respect of which an amount of R66 million of deferred tax assets that were previously
raised and held on the balance sheets of various subsidiaries of the group. The preparation of the report
of historical financial information in accordance with IFRS requires the group to adjust the amounts
recognised in its consolidated financial statements for events that provide evidence of the tax contingency
that existed at 31 March 2014. The above settlements have therefore been recorded in this report of
historical financial information for the year ended 31 March 2014.
182
Rm 2014 2013 2012
8 INCOME TAX EXPENSE (continued)The standard South African income tax rate for companies is
reconciled to the group’s actual tax rate as follows:
South African income tax rate for companies 28.0% 28.0% 28.0%
Adjusted for the effects of:
Foreign withholding tax 1.0% 5.0% 4.0%
South African secondary tax on companies 0.0% 0.0% 5.9%
Policyholder tax 50.1% 106.4% 40.6%
Unutilised tax losses (net of prior year assessment loss utilised)* 25.8% 14.3% 16.9%
Exempt income net of disallowed expenditure (15.5%) (47.1%) 12.5%
Foreign tax rates (2.3%) 2.6% 4.4%
Prior year under provision (net of prior year over provision) 35.5% (2.0%) 2.1%
Impairment charges and other capital gains and losses with no
material tax effects 0.0% 0.0% (0.2%)
Non-deductible finance cost 28.2% 102.8% 15.3%
Change in rate (0.6%) (5.7%) 0.0%
Effective tax rate per income statement 150.3% 204.3% 129.5%
* Unused tax losses for the group amounted to R895 million (2013: R792)
(2012: 630) million) available for set-off against future taxable income
9 PROFIT ATTRIBUTABLE TO NON-CONTROLLING INTERESTProfit attributable to non-controlling interest 110 83 77
The profits attributable to non-controlling interest results from non-controlling interest in Lane Clark
& Peacock (in the United Kingdom, Belgium and Switzerland) and in Media Insurance Services (the UK
direct marketing entity) and non-controlling interests in certain operations within AfriNet. The profit
attributable to non-controlling interest in Lane Clark & Peacock (Switzerland) and Media Insurance
Services represent the non-controlling share of profit until the date of disposal. Details of non-wholly
owned subsidiaries are provided in Annexure A to these financial statements. Refer to note 48 for more
detail on non-controlling interest.
10. EARNINGS PER SHARE
10.1 Basic earnings/(loss) per share
Basic earnings/(loss) per share is calculated by dividing the profit/(loss) for the period attributable
to ordinary equity holders of the parent by the weighted average number of ordinary shares in
issue during the year.
10.2 Headline earnings/(loss) per ordinary share
Headline earnings/(loss) per ordinary share is calculated by excluding all impairment charges,
and capital gains and losses, from the profit/(loss) attributable to equity holders and dividing the
resultant headline loss by the weighted average number of ordinary shares in issue during the year.
Headline earnings are defined in Circular 2/2013 issued by The South African Institute of Chartered
Accountants.
On 31 March 2014, the company issued additional shares as part of the debt restructure detailed in
note 27. Consequently, the weighted average number of shares remains at 345 million (including
treasury shares) for earnings per share purposes.
183
10 EARNINGS PER SHARE (continued)
2014 2013 2012
10.3 Number of sharesWeighted average number of shares (millions) 377 377 377
Treasury shares (millions) (32) (32) (32)
Weighted average number of shares in issue (millions) 345 345 345
Actual number of shares in issue (millions) 1 ,251 377 377
Treasury shares (millions) (96) (32) (32)
1 ,155 345 345
10.4 Calculation of headline loss (Rm)Profit / (loss) attributable to equity holders 269 (191) (136)
Adjusted for:
(Profit) / loss on disposal of subsidiaries (564) 112 6
Impairment of subsidiary and other – – 3
Goodwill impairment 114 55 1
Capital items on discontinued operations – – 4
Headline loss (181) (24) (122)
Earnings per share from total operationsBasic earnings / (loss) per share (cents) 78 (55) (39)
Headline loss per share (cents) (52) (7) (35)
10.5 Calculation of earnings from continuing operations (Rm)Loss attributable to equity holders (163) (98) (216)
Less: Profit attributable to minority interest (102) (79) (68)
Loss from continuing operations attributable to equity
holders (265) (177) (284)
Adjusted for:
Goodwill impairment – – 1
Headline loss from continuing operations (265) (177) (283)
Basic loss per share from continuing operations (cents) (77) (51) (82)
Headline loss per share from continuing operations (cents) (77) (51) (82)
10.6 Calculation of earnings from discontinued operations (Rm)(Loss) / profit attributable to equity holders 542 (10) 157
Less: Profit to minority shareholders (8) (4) (9)
Profit from continuing operations attributable to equity
holders 534 (14) 148
Adjust for:
Loss on disposal of subsidiary (564) 112 9
Goodwill impairment 114 55 –
Capital items of discontinued operations – – 4
Headline earnings from discontinued operations 84 153 161
Basic earnings / (loss) per share from discontinued
operations 155 (4) 43
Headline earnings per share from discontinued operations 24 44 47
184
11 FINANCIAL ASSETS HELD UNDER MULTI-MANAGER INVESTMENT CONTRACTS The policyholder assets held by the group’s multi-manager investment subsidiaries in South Africa, Namibia and in the United Kingdom, until it was transferred to held for sale are analysed below. These policyholder assets are directly matched by linked obligations to policyholders.
Financial assets held in collective investment schemes managed by the group’s multi-manager investment subsidiaries are also included in the consolidated statement of financial position of the group where such collective investment schemes are deemed to be controlled by the group. These financial assets are directly matched to linked obligations to unitholders.
11.1 Movement in multi-manager and unit trust investment contracts assets
Rm 2014 2013 2012
A reconciliation between financial assets held under
multi-manager and unit trust investment contracts:
Opening balance 222 ,790 209 ,994 183 ,483
Movement during the year*
Premium inflow 39 ,229 37 ,160 39 ,144
Withdrawals (37 ,226) (32 ,458) (29 ,559)
Investment returns after tax 31 ,654 37 ,726 19 ,617
Effect of movements in exchange rates – 2 ,808 1 ,171
Reclassification of disposal groups held for sale – (29 ,645) –
Other (2 ,700) (2 ,795) (3 ,862)
Closing balance 253 ,747 222 ,790 209 ,994
* This amount is offset by a corresponding movement in Financial liabilities held under multi-manager investment
contracts’ (refer note 25).
11.2 Analysis of multi-manager and unit trust investment contract assetsAn analysis of the aggregate financial assets of multi-manager and unit trust investment
contracts is set out below:
Rm 2014 2013 2012
Financial assets designated as fair value through profit
or loss Equity securities – listed 121 ,055 101 ,063 88 ,215
Equity securities – unlisted 119 199 185
Preference shares – listed 601 710 680
Collective investment schemes** 45 ,214 36 ,058 52 ,172
Debt securities – listed 24 ,143 24 ,486 19 ,447
Debt securities – government stock 12 ,125 11 ,634 9 ,839
Debentures – listed 2 ,773 299 3 ,427
Debentures – unlisted – 65 45
Policy of insurance** 21 ,869 20 ,318 2 ,103
Derivative financial instruments 8 1 ,163 71
Money market investments 17 ,643 14 ,837 18 ,826
Cash and cash equivalents
Cash 8 ,197 11 ,958 14 ,984
Total financial assets held under multi-manager investment contracts 253 ,747 222 ,790 209 ,994
A reconciliation of the assets held under multi-manager investment contracts with the linked liabilities under such contracts is as follows:
Total financial assets held under multi-manager investment contracts 253 ,747 222 ,790 209 ,994
Adjusted for:
Tax on policyholder assets included in deferred tax liability of the group (140) (64) (31)
Adjusted total financial assets held for policyholders under multi-manager investment contracts matched with the linked liability under such contracts* 253 ,607 222 ,726 209 ,963
* Financial assets disclosure on maturity and currency is not provided as these multi-manager and unit trust investment
contract assets are directly matched to linked obligations.
** The assets underlying these investments similarly consist of largely listed equity securities, debt securities, and money
market investments.
185
12 FINANCIAL ASSETS OF CELL-CAPTIVE AND OTHER INSURANCE FACILITIESAll financial assets held by the insurance operations of Alexander Forbes Insurance Namibia as well
as Guardrisk Insurance and Guardrisk Life in South Africa, Namibia and Mauritius and Euroguard
Insurance in Gibraltar, until the date of transfer to held for sale are included in Financial assets of cell-
captive and other insurance facilities. An analysis of the financial assets attributable to policyholders
and cell shareholders’ interests in the cell-captive insurance companies is provided below. These financial
assets are directly matched to linked obligations to the policyholders and cell shareholders of the cell-
captive insurance companies. The promoter cell or shareholders’ interests in the other financial assets
of the cell-captive insurance companies are included in the relevant line items of the group statement of
financial position.
Rm 2014 2013 2012
Financial assets designated as ‘fair value through profit or loss’
Equity securities – unlisted 153 511 458
Preference shares – unlisted – 177 319
Collective investment schemes – 437 399
Debt securities – listed – 760 23
Debt securities – unlisted – – 777
Receivables 4 1 ,067 808
Money market 113 6 ,216 5 ,220
Cash and cash equivalents
Cash 1 1 ,294 750
Reinsurance assets
Reinsurers’ share of unearned premium provision 43 426 346
Reinsurers’ share of outstanding claims provision – 410 322
Reinsurers’ share of IBNR provision 1 76 62
Total financial assets attributable to policyholders and cell
shareholders’ interests in cell captive insurance companies* 315 11 ,374 9 ,484
* Financial assets disclosure on maturity and currency is not provided as these cell captive insurance facility assets are directly
matched to linked obligations.
13 PROPERTY AND EQUIPMENT
Rm
Leasehold improve-
ments Computer
equipment
Furniture and
fittings, office
equipment and other
assets Total
2014Carrying valueCost 113 232 152 497 Accumulated depreciation and accumulated
impairment losses (20) (77) (65) (162)
Carrying value at 31 March 2014 93 155 87 335
CostBalance at 1 April 2013 63 262 131 456
Additions to enhance existing operations 77 79 24 180
Disposals (53) (73) (8) (134)
Transfer to disposal group held for sale (4) (63) (17) (84)
Foreign subsidiaries exchange differences 30 27 22 79
Balance at 31 March 2014 113 232 152 497
186
Rm
Leasehold improve-
ments Computer
equipment
Furniture and
fittings, office
equipment and other
assets Total
2014 Accumulated depreciation and accumulated impairment lossesBalance at 1 April 2013 (43) (120) (54) (217)Depreciation charge for the year (9) (60) (8) (77)
Continuing operations (8) (57) (8) (73)Operations discontinued and disposed of during
the year (1) (3) – (4)
Disposals 52 71 6 129 Transfer to disposal group held 4 55 13 72 Foreign subsidiaries exchange differences (24) (23) (22) (69)
Balance at 31 March 2014 (20) (77) (65) (162)
2013Carrying valueCost 63 262 131 456
Accumulated depreciation and accumulated
impairment losses (43) (120) (54) (217)
Carrying value at 31 March 2013 20 142 77 239
CostBalance at 1 April 2012 71 201 136 408
Additions to enhance existing operations 13 106 53 172
Disposals (14) (41) (43) (98)
Disposal as a result of business combinations (15) (12) (25) (52)
Transfer to disposal group held for sale (2) – – (3)
Foreign subsidiaries exchange differences 10 9 10 29
Balance at 31 March 2013 63 262 131 456
Accumulated depreciation and accumulated impairment lossesBalance at 1 April 2012 (48) (101) (94) (243)
Depreciation charge for the year (11) (61) (14) (86)
Continuing operations (9) (56) (9) (74)
Operations discontinued and disposed of during
the year (2) (5) (5) (12)
Disposals 12 41 42 95
Disposal as a result of business combinations 11 8 18 37
Foreign subsidiaries exchange differences (7) (7) (6) (20)
Balance at 31 March 2013 (43) (120) (54) (217)
13 PROPERTY AND EQUIPMENT (continued)
187
Rm
Leasehold improve-
ments Computer
equipment
Furniture and
fittings, office
equipment and other
assets Total
2012Carrying valueCost 71 201 136 408
Accumulated depreciation and accumulated
impairment losses (48) (101) (94) (243)
Carrying value at 31 March 2012 23 100 42 165
CostBalance at 1 April 2011 84 228 200 512
Additions to enhance existing operations 5 60 6 71
Disposals (2) (26) (4) (32)
Disposal as a result of business combinations (16) (57) (66) (139)
Foreign subsidiaries exchange differences – (4) – (4)
Balance at 31 March 2012 71 201 136 408
Accumulated depreciation and accumulated impairment lossesBalance at 1 April 2011 (44) (126) (141) (311)
Depreciation charge for the year (14) (54) (11) (79)
Continuing operations (11) (51) (6) (68)
Operations discontinued and disposed of during
the year (3) (3) (5) (11)
Disposals 2 26 4 32
Disposal as a result of business combinations* 8 53 54 115
Foreign subsidiaries exchange differences – – – –
Balance at 31 March 2012 (48) (101) (94) (243)
Furniture and fittings, office equipment and other assets include freehold land and buildings owned by
the group, which have a carrying value of R14 million (2013: R15 million; 2012: R11 million).
A register of freehold land and buildings is available for inspection by authorised representatives at the
registered office of the company.
Rm 2014 2013 2012
Included in property and equipment are assets
capitalised as part of a finance lease. The net book
value of these assets are as follows:
Computer equipment 33 36 –
Cost 38 38 –
Accumulated depreciation (5) (2) –
Furniture and fittings 37 42 –
Cost 45 45 –
Accumulated depreciation (8) (3) –
Refer to note 31 ‘Finance lease liability’ for more information on the lease arrangement.
13 PROPERTY AND EQUIPMENT (continued)
188
Rm 2014 2013 2012
14 PURCHASED AND DEVELOPED COMPUTER SOFTWARECarrying valueCost 238 323 328
Accumulated amortisation and accumulated impairment losses (158) (194) (162)
Balance at 31 March 80 129 166
CostOpening balance 323 328 281
Movement during the year:
Additions to enhance existing operations 28 17 50
Disposals (17) – (3)
Disposals as a result of business combinations – (32) –
Transfer to assets relating to disposal groups held for sale (119) (2) –
Foreign subsidiaries exchange differences 23 12 –
Closing balance 238 323 328
Accumulated amortisation and accumulated impairment lossesOpening balance (194) (162) (130)
Movement during the year:
Amortisation charge for the year* (44) (17) (16)
Amortisation charge arising from continued operations (6) (5) (7)
Amortisation charge arising from discontinued operations (38) (12) (9)
Amortisation charge arising from business combination (note 4) (19) (19) (19)
Disposals 16 – 3
Disposals as a result of business combinations – 11 –
Transfer of assets relating to disposal groups held for sale 98 –
Foreign subsidiaries exchange differences (15) (7) –
Closing balance (158) (194) (162)
* The amortisation charge for 2014 includes amortisation of R9 million relating to operations classified as discontinued in the current
year and R3 million relating to operations discontinued in the prior year resulting in the amortisation charge being reclassified to
profit or loss from discontinued operations.
189
Rm 2014 2013 2012
15 GOODWILL15.1 Carrying value 3 ,985 4 ,490 4 ,652
15.2 Reconciliation of movement in carrying valueOpening balance 4 ,490 4 ,652 5 ,258
Movement during the year:
Disposal of subsidiary (599) (107) (506)
Impairment relating to subsidiary discontinued and
disposed of during the year – (17) (1)
Reclassification as discontinued operation – (38) (110)
Foreign currency exchange movement 94 – –
Acquisitions – – 11
Closing balance 3 ,985 4 ,490 4 ,652
15.3 Analysis of goodwill balances per cash-generating unitSA Risk and Insurance Services
Personal Services 445 445 445
Guardrisk Allied Products and Services – 84 84
Alexander Forbes Compensation Technologies 95 95 95
Guardrisk Insurance – 300 300
SA Financial Services
Financial Services 1 ,126 1 ,126 1 ,131
AF Life 317 317 317
SA Investment Solutions 1 ,392 1 ,392 1 ,392
AfriNet 83 83 85
International Financial Services
Lane Clark & Peacock 527 564 564
Financial Services – 84 208
Direct Marketing – – 31
3 ,985 4 ,490 4 ,652
During the year, the group classified the operations of Guardrisk group, the Swiss operations of
Lane, Clark & Peacock and Trustee Services as held for sale. As a result, the carrying value of
Goodwill associated with these businesses was reclassified to assets held for sale at the date of
discontinuance. Subsequently, Guardrisk and the Swiss operations of LCP Libera have been disposed
of by the group. Refer to note 23 for further detail.
15.4 Valuation of goodwill
Goodwill is allocated to cash-generating units (CGUs) in accordance with the group’s accounting
policies. This represents the lowest level at which goodwill is monitored for internal management
purposes and in all cases is at or below the company’s operating segment. The goodwill balances are
subject to an annual impairment review as required by IAS 36.
Each CGU goodwill balance is tested for a recoverable amount as determined primarily based on
value-in-use calculations, with the exception of LCP which was tested based on the fair value less
cost to sell. These calculations use cash flow projections based on financial budgets approved by
the board of directors for the forthcoming year and forecasts for up to three years which are based
on assumptions of the business, industry and economic growth. Cash flows beyond this period are
extrapolated using terminal growth rates, which do not exceed the expected long-term economic
growth rate for the geographic segment.
The fair value of LCP was established through a valuation obtained from an independent expert.
The valuation was prepared referencing preceding market transactions and the price multiples of
similar enterprises currently trading on the open market.
Key-assumptions used include:
South Africa African
Discount rates (before specific segment risk) – 2014 12.6 12.6
Discount rates (before specific segment risk) – 2013 12.7 12.7
Discount rates (before specific segment risk) – 2012 14.9 14.9
Terminal growth rates – 2014 5.5 5.9
Terminal growth rates – 2013 5.5 5.9
Terminal growth rates – 2012 5.5 5.6
190
15 GOODWILL15.4 Valuation of goodwill (continued)
Sensitivity analysis
A sensitivity analysis had been performed on each of the base case assumptions used for assessing
the goodwill with other variables held constant. Consideration of sensitivities to key assumptions
can evolve from one financial year to the next.
The board has considered the surplus value in use or fair value and concluded that, in all cases
except as noted below, there are no reasonably possible changes in key assumption that may give
rise to the carrying amount of goodwill exceeding the value in use or fair value.
For the Alexander Forbes Compensation Technologies CGU’s it is reasonably possible that a change
in the assumptions used could give rise to the carrying value of the goodwill exceeding the value
in use. The following sensitivities are therefore presented, which are calculated leaving all other
variables constant:
• Decrease in the compound annual growth rate in trading result.
• Decrease in the terminal growth rate.
• Increase in the pre-tax discount rate.
AFCT
Surplus value in use (Rm) 37
Decrease in CAGR 35%
Decrease in terminal growth rate 47%
Increase in discount rate 14%
15.5 Allocation of goodwill balances to cash-generating unitsFactors which were not considered separable from the business of Alexander Forbes, and which
contributed to the cost of the acquisition of Alexander Forbes Limited by the company and
resulted in the recognition of goodwill, include the following:
• Assembled workforce, including specific technical expertise and training expertise.
• Distribution channels.
• Training and recruitment programmes.
• Customer service capability and service support.
• Effective marketing programmes and product cross-selling opportunities.
• Leading market position.
• Finance-raising capabilities.
191
Rm 2014 2013 2012
16 INTANGIBLE ASSETSIntangible assets comprise values attributed to contractual
customer relationships and market-related intangible assets.
All intangible assets are non-current in nature.
16.1 Carrying valueCost 1 ,744 2 ,048 2 ,189
Accumulated amortisation and accumulated
impairment losses (858) (837) (752)
Balance at 31 March 886 1 ,211 1 ,437
16.2 Analysis of intangible assetsCustomer lists 636 929 1 ,116
Trade names 250 282 321
886 1 ,211 1 ,437
16.3 Reconciliation of movement in carrying valueOpening balance 1 ,211 1 ,437 1 ,728
Movement during the year:
Amortisation charged for the year* (3) (3) (4)
Continuing operations (1) (1) (1)
Operations discontinued during the year (2) (2) (3)
Amortisation charge arising from IFRS 3 Business
Combinations (note 4)* (125) (147) (130)
Continuing operations (125) (125) (125)
Operations discontinued during the year – (22) (5)
Transfer to assets relating to disposal groups held for sale (221) (22) (25)
Impairment on disposal – (52) (131)
Foreign subsidiaries exchange differences 24 (2) (1)
Closing balance 886 1 ,211 1 ,437
17 JOINT VENTURESThe group classified its interest in Alexander Forbes UK Direct Limited, an unlisted joint arrangement, as
discontinued at 31 March 2013. This results in the group’s share of assets and liabilities being reclassified
to Assets and liabilities of disposal groups held for sale and the results of its operations being reported as
part of discontinued operations in the income statement.
During the current year, the group disposed of its financial interest in the joint venture. Refer to note 23
Assets and liabilities of disposal groups classified as held for sale for further detail.
192
Rm 2014 2013 2012
18 INVESTMENT IN ASSOCIATES18.1 Equity accounted carrying value
Cost 3 3 3
Share of cumulative post-acquisition reserves 3 1 –
6 4 3
18.2 Reconciliation of movement in equity accounted carrying valueOpening balance 4 3 8
Movement during the year:
Reclassification to discontinued operations – – (5)
Dividends received from associates – – (1)
Share of profits of associates 2 1 1
Closing balance 6 4 3
At 31 March 2014, the group had a financial interest in one unlisted associate, Alexander Forbes
Insurance Brokers Kenya (Kenya Insurance Brokers). The company operates as a short-term
insurance broker exclusively in its country of incorporation, the details of which are provided in
note 47 to these financial statements.
19 FINANCIAL ASSETS19.1 Total financial assets
Non-current financial assets 122 1 ,710 930
Current financial assets 287 354 279
409 2 ,064 1 ,209
19.2 Analysis of financial assetsFinancial assets classified as held to maturity:
Bonds – 14 –
Financial assets classified as available-for-sale 1 3 18
Equity securities – listed – – 18
Unit trusts 1 3 –
Financial assets designated as fair value through profit
or loss 316 1 ,882 1 ,018
Preference shares 34 44 44
Derivative securities – 64 –
Collective investment schemes 243 183 197
Bonds 39 1 ,591 777
Financial assets classified as loans and receivables 92 165 173
Premium finance receivables – 79 93
Equity release housing loans 42 44 49
Loans to participants of the employee share purchase
trusts 8 6 12
Shareholder’s loan 14 14 14
Other loans 28 22 5
409 2 ,064 1 ,209
193
Rm 2014 2013 2012
20 INSURANCE RECEIVABLESInsurance brokerage income receivable and other
insurance balances 146 106 70
Reinsurance brokerage income receivables 37 99 54
Receivables from short-term insurance contracts 243 449 436
Premium debtors 4 64 84
Reinsurers’ share of unearned premium provision 24 74 81
Reinsurers’ share of outstanding claims provision 189 283 242
Reinsurers’ share of IBNR provision 26 28 29
Receivable from long-term insurance contracts 371 398 316
Premium debtors 37 41 36
Reinsurers’ share of policyholder liability (group life) 306 333 258
Policyholder asset under long-term insurance contract
(individual life) 28 24 22
Other insurance-related receivables 17 21 20
814 1 ,073 896
A reconciliation of the receivables from short-term and long-term insurance contracts with the payables
from such contracts is provided in note 34 to these financial statements.
21 TRADE AND OTHER RECEIVABLESFinancial assets:
Trade receivables 359 362 424
Other receivables 158 265 216
517 627 640
Non-financial assets:
Accrued income and prepayments 39 48 43
Accrued and not billed balances 314 255 241
Pre-paid taxation 3 5 20
873 935 944
Included in trade and other receivables are provisions of trade receivables of R3 million (2013: R15 million).
194
Rm 2014 2013 2012
22 CASH AND CASH EQUIVALENTS22.1 Total cash and cash equivalents
Cash and bank balances 3 ,318 3 ,047 2 ,531
Bank overdrafts under cash management arrangements – – 2
Short-term deposits 589 579 529
3 ,907 3 ,626 3 ,062
22.2 Analysis of cash resourcesTotal cash and cash equivalents 3 ,907 3 ,626 3 ,062
Less: ‘Fiduciary’ cash balances linked to:
Insurance-related payables and policyholder and
securitisation payables included in other payables (1, 456) (1 ,466) (1 ,176)
Capital adequacy and regulatory requirements (1 ,293) (953) (808)
Cash held against current payables of insurance and
other regulated entities (62) (249) (130)
Restricted cash balances held within group insurance
facilities (342) (187) (149)
Available cash resources 754 771 799
22.3 Cash and cash equivalents included in policyholder and cell owner assets are as follows:Multi-manager and unit trust investment contracts 8 ,197 11 ,958 14 ,984
Cell-captive insurance facilities 1 1 ,294 750
8 ,198 13 ,252 15 ,734
23 ASSETS AND LIABILITIES OF DISPOSAL GROUP CLASSIFIED AS HELD FOR SALE AND DISCONTINUED OPERATIONS
As part of the group’s strategic refocusing of its operations, certain entities have been discontinued and
disposed of over the past number of years. In terms of IFRS, when an operation is discontinued, the assets
and liabilities of these entities are reclassified to Assets and liabilities of disposal groups classified as held
for sale at the date of discontinuance. The results of operations of the discontinued entity are reported
separately in the income statement with the prior year also being restated to take this into effect.
23.1 Net profit of business units discontinued up to effective date of disposalDuring the year, the group discontinued and disposed of the Guardrisk group of companies,
Euroguard in the UK and the Swiss operations of Lane, Clarke & Peacock. Further, the group
concluded the disposals of the operations of Media Insurance Services, Investment Solutions UK, the
Afri Net Risk Services operations of Mozambique and Nigeria that were classified as discontinued
at 31 March 2013.
The group also discontinued the operations of Trustee Services in the UK and LCP Europe, both of
which formed part of the International division previously, following the Board’s decision to dispose
of these entities.
The results of these operations are reported as discontinued in the income statement and the
comparatives have been restated accordingly. For a breakdown of the profit or loss on disposal of
subsidiaries, refer to note 23.2 Disposal of subsidiaries, associates and operations.
195
23 ASSETS AND LIABILITIES OF DISPOSAL GROUP CLASSIFIED AS HELD FOR SALE AND DISCONTINUED OPERATIONS (continued)
23.1 Net profit of business units discontinued up to effective date of disposal (continued)
Rm 2014 2013 2012
Fee and commission income 452 1 ,035 1 ,323
Direct expenses attributable to fee and commission income (116) (118) (102)
Net income from insurance operations 281 77 266
Income from operations 617 994 1 ,487
Operating expenses (460) (768) (1 ,167)
Profit from operations before non-trading and capital items 157 226 320
Non-trading and capital items (122) (80) (37)
Operating profit 35 146 283
Investment income – 2 4
Finance costs – (4) (70)
Share of net profit of associates (net of income tax) 3 – 4
Profit before tax 38 144 221
Income tax expense (60) (42) (58)
(Loss)/profit for the year from discontinued operations (22) 102 163
Profit/(loss) on disposals (note 23.2) 564 (112) (6)
Total profit/(loss) from discontinued operations 542 (10) 157
23.2 Disposal of subsidiaries, associates and businesses
During the current year, the group disposed of its interest in the Guardrisk group, Euroguard
Insurance, LCP Libera (the Swiss operations of LCP), Media Insurance Services, Investment
Solutions UK and the AfriNet Risk Services operations in Mozambique and Nigeria. Significant
disposals in 2013 include Alexander Forbes Consultants and Actuaries, part of the Alexander Forbes
International operations, as well as some of the AfriNet entities namely, Alexander Forbes Zambia,
Tanzania, Uganda, Malawi and Kenya Health Care. The South Africa Risk Services business was
sold to Marsh in January 2012.
Rm Guardrisk Other 2014 2013 2012
Carrying value of net assets sold (862) (410) (1 ,272) (434) (159)
Foreign currency translation
reserve of disposed entities 13 (95) (82) (30) –
Tax expense relating to disposal (11) – (11) 14 –
(860) (505) (1 ,365) (450) (159)
Net proceeds on disposal 1 ,514 415 1 ,929 338 153
Profit/(loss) on disposal of
subsidiaries 654 (90) 564 (112) (6)
Net consideration received in cash 1 ,514 415 1 ,929 338 153
Cash and cash equivalents
disposed of (440) (253) (693) (59) (306)
Net cash inflow 1 ,074 162 1 ,236 279 (153)
196
23 ASSETS AND LIABILITIES OF DISPOSAL GROUP CLASSIFIED AS HELD FOR SALE AND DISCONTINUED OPERATIONS (continued)
23.3 Assets and liabilities of disposal group classified as held for sale
At 31 March 2014, the operations of Swaziland Employee Benefits, Tibiyo, Trustee Services and
LCP Europe remain as discontinued while the group pursues various disposal opportunities. The
assets and liabilities of these operations are classified as Assets and liabilities of disposal groups
classified as held for sale. The table below provides an analysis of the components of assets and
liabilities of disposal groups classified as held for sale. The comparative March 2013 disclosure
consists of the assets and liabilities of the operations classified as held for sale at that date, being
the Afri Net Risk Services operations of Tibiyo, Mozambique and Nigeria as well as the operations of
Swaziland Employee Benefits, Media Insurance Services and Investment Solutions UK. Goodwill of
R84 million and intangible assets of R30 million relating to Trustee Services were classified as held
for sale during the year and subsequently impaired. Certain Africa Risk Services businesses were
held for sale at 31 March 2012.
Rm 2014 2013 2012
Financial assets held under multi-manager
investment contracts – 29 ,645 –
Long-term assets 27 28 24
Goodwill 21 46 110
Deferred tax asset – 1 –
Financial assets – 12 –
Trade and other receivables 9 108 106
Other current assets 10 1 4
Cash and cash equivalents 24 97 44
Total assets 91 29 ,938 288
Financial liabilities held under multi-manager
investment contracts – 29 ,645 –
Provisions – non-current – 3 3
Deferred income – – 8
Insurance-related payables 6 59 88
Trade and other payables 29 35 32
Total liabilities 35 29 ,742 131
24 EQUITY HOLDERS’ FUNDS
24.1 Total equity holders’ funds
Share capital at no par value (note 24.2) 5 ,819 – –
Ordinary share capital at par (note 24.2) – 4 4
Preference share capital (note 24.3) – 3 3
Share premium (note 24.4) – 3 ,254 3 ,254
Treasury shares (405) (21) (29)
Non-distributable reserves 102 (8) (173)
Cash flow hedge reserve (note 24.5) – (19) (51)
Other reserves (note 24.6) 102 11 (122)
Accumulated loss (889) (1 ,162) (967)
4 ,627 2 ,070 2 ,092
197
2014 2013 2012
Number of shares
Share capital
at no parvalue
Number of shares
Share capital at par
Share premium
Number of shares
Share capital at par
Share premium
m Rm m Rm Rm m Rm Rm
24 EQUITY HOLDERS’ FUNDS (continued)24.2 Analysis of
share capitalAuthorised
Ordinary shares
each 2 500 – 700 7 – 700 7 –
Non-convertible
redeemable ‘A’
preference
shares 600 – 600 6 – 600 6 –
Non-convertible
redeemable ‘B’
preference
shares 45 – 45 * – 45 * –
Issued
Ordinary shares 1 ,251 5 ,819 377 4 561 377 4 561
Non-convertible
redeemable ‘A’
preference
shares – – 319 3 2 ,693 319 3 2 ,693
Non-convertible
redeemable ‘B’
preference
shares 21 * 21 * – 21 * –
1 ,272 5 ,819 717 7 3 ,254 717 7 3 ,254
* The issued non-convertible redeemable ‘B’ preference share of 1 cent each amounted to R211 610 at year-end. These shares
are redeemable at the company’s option for an amount of R179 million.
** As part of the debt restructure, the group redeemed the ‘A’ preference shares at their face value.
2014 2013 2012
Number of shares
Share capital
at no parvalue
Number of shares
Share capital at par
Share premium
Number of shares
Share capital at par
Share premium
m Rm m Rm Rm m Rm Rm
Opening balance 377 4 377 4 561 377 4 561
Conversion to
no par value
shares – 561 – – – – – –
Redemption of
Pikco
Preference
shares 45 271 – – – – – –
Issue of shares
relating to
settlement of
high yield term
loan 380 2 ,287 – – – – – –
Redemption of
‘A’ preference
shares 449 2 ,696 – – – – – –
Closing balance 1 ,251 5 ,819 377 4 561 377 4 561
198
Rm 2014 2013 2012
24 EQUITY HOLDERS’ FUNDS (continued)24.4 Treasury shares
Opening balance (21) (29) (37)
Movement during the year:
Allocated to beneficiaries (1) 8 8
Increase in Treasury shares as a result of the consolidation
of the SPV funding entities (383) – –
Closing balance (405) (21) (29)
On 31 March 2014 the company provided guarantees to a
local bank in order to obtain funding for the Management
Share Trust and the BEE consortium to follow their rights
in terms of debt restructuring. As a result these funding
vehicles are consolidated into the group financial results.
The investment in AFEH directly related to the funding
provided is classified as treasury shares in terms of IFRS.
24.5 Cash flow hedge reserveOpening balance (19) (51) (83)
Movement during the year:
Raised/(released) during the year from
Interest rate swap (1) (13) (39)
Less: Amounts recycled to income statement to match
income statement effect of hedged item 20 45 71
Closing balance – (19) (51)
Interest rate swapPrior to its redemption, the senior preference shares in
Alexander Forbes Acquisition Proprietary Limited (“AF
Acquisition”) bear interest at a variable interest rate linked
to the prime overdraft lending rate in South Africa (“prime
rate”), thus exposing the group to interest rate risk, an
interest rate hedge was entered into with the senior lenders
(Rand Merchant Bank (a division of FirstRand Bank
Limited), Nedbank Limited and Investec Bank Limited) to
protect AF Acquisition against adverse interest rate risk on
the expected dividend payments.
The hedge instrument expired in the current year and all
amounts relating to the hedge have been settled. Further,
as explained in note 27 Borrowings, the senior preference
shares have been fully redeemed at 31 March 2014 resulting
in the AF Acquisition not requiring to extend the hedge term.
The details of the hedged item are disclosed in note 27.5.
24.6 Other reserves
Available-for-sale financial assets reserve 5 5 5
Foreign currency translation reserve 372 6 (124)
Redemption reserve (271) – –
Other reserves (4) – (3)
102 11 (122)
Redemption reserveThe redemption reserve arose in the current year due to the redemption of the Pikco Preference
Shares. The Pikco Preference Shares were classified as equity instruments of the group, therefore the
difference between the redemption proceeds and the original carrying value of the Pikco Preference
Shares has been recorded within equity (Redemption reserve). The redemption was settled via the
issue of ordinary shares. Refer to note 24.2.
199
Rm 2014 2013 2012
25 FINANCIAL LIABILITIES HELD UNDER MULTI-MANAGER INVESTMENT CONTRACTS25.1 Movement of liabilities under multi-manager and unit
trust investment contractsOpening balance 222 ,790 209 ,994 183 ,452
Movement during the year:*
Premium inflows 39 ,229 37 ,283 29 ,270
Withdrawals (37 ,226) (32 ,486) (24 ,326)
Investment return net of taxation 23 ,469 29 ,742 16 ,255
Effect of movements in exchange rates – 2 ,837 3 ,109
Reclassification of disposal groups classified as held for
sale – (29 ,645) –
Other 5 ,485 5 ,065 2 ,234
Closing balance 253 ,747 222 ,790 209 ,994
* This amount is offset by a corresponding movement in ‘Financial assets
held under multi-manager investment contracts’ (refer note 11).
25.2 Discounted maturity analysis of liabilities under multi-manager and unit trust investment contractsDue within one year 118 – –
Due between one and five years – 94 629
Due after five years – – –
Open ended 253 ,629 222 ,696 209 ,365
253 ,747 222 ,790 209 ,994
These policyholder liabilities arise from multi-manager and
unit trust investment contracts issued by the group’s multi-
manager investment subsidiaries in South Africa, Namibia
and the United Kingdom. The policyholder liabilities are
directly matched to the linked policyholder assets.
These are financial liabilities designated as fair value
through profit or loss.
Financial liabilities linked to investment contracts 253 ,629 222 ,696 209 ,365
Financial liabilities linked to investment contracts – current 118 – –
Financial liabilities linked to investment contracts
– non-current – 94 629
253 ,747 222 ,790 209 ,994
200
26 LIABILITIES OF CELL-CAPTIVE AND OTHER INSURANCE FACILITIES
Under IFRS, all liabilities of Alexander Forbes Insurance Namibia as well as Guardrisk Insurance and
Guardrisk Life in South Africa, and Mauritius and Euroguard Insurance in Gibraltar, until the date
of transfer to held for sale are included in Liabilities of cell-captive and other insurance facilities. An
analysis of the policyholders’ and cell owners’ interests in the liabilities of these cell-captive insurance
companies is provided below:
Rm 2014 2013 2012
Short-term insurance technical liabilities 140 5 ,463 4 ,655
Gross unearned premium provision 140 3 ,187 2 ,981
Gross outstanding claims provision – 1 ,577 1 ,196
Gross IBNR provision – 699 478
Long-term insurance technical liabilities
– Policyholder liability 151 1 ,979 1 ,682
Insurance liabilities of cell captive insurance facilities 291 7 ,442 6 ,337
Other liabilities attributable to policyholders and cell-owners 24 3 ,932 3 ,147
Cell-owners’ interest* 16 2 ,924 2 ,432
Payables* 8 1 ,130 886
Taxation receivable – (122) (171)
315 11 ,374 9 ,484
* These are designated as financial liabilities at fair value through profit or loss.
27 BORROWINGS
27.1 Analysis of borrowings
On 31 March 2014 the Alexander Forbes group undertook a capital restructure. The capital
restructuring was aimed at refinancing certain term debt facilities and redeeming and replacing
substantially all remaining debt instruments and preference share instruments in the capital
structure of the group with ordinary equity. A single senior debt layer remains which may, over
time, be reduced by reapplying internal cash flows to meet regulatory capital requirements as and
when they become effective.
The rationale for the capital restructuring of the group was to:
• optimise and simplify the capital structure of the group;
• ensure compliance with regulatory changes to be brought about by the Interim Measures which
are expected to be implemented during this calendar year;
• align Alexander Forbes Equity Holdings Proprietary Limited’s (“EquityCo”) shareholder interests
in the group capital structure; and
• facilitate the realisation by EquityCo shareholders in due course.
Prior to the capital restructure the senior Preference Shares were redeemed in full. All related
security obligations were released by the preference shareholders.
The capital restructuring steps which impacted on the borrowings of the group include the
following:
• The issue of 380 million new ordinary shares to shareholders of AF Equity Holdings, the
proceeds of which were used to settle the high yield term loan and the put and call option
• A bridge loan finance facility in addition to cash generated from operations and proceeds from
the disposal of subsidiaries were used to settle the PIK debentures.
• A new term loan facility obtained from a local bank was used to refinance the bridge loan facility
above.
201
Rm 2014 2013 2012
27 BORROWINGS (continued)
The final result of the debt restructure is shown below:
27.1 Analysis of borrowings (continued)Term loan (note 27.4) 1 ,250 – –
Senior preference shares (note 27.5) – 1 ,460 1 ,715
The High Yield term loan (note 27.6) – 1 ,735 1 ,862
Put and call option – at fair value (note 27.7) – 304 247
The Pay-in-Kind (PIK) debentures (note 27.8) – 1 ,898 1 ,613
SPV Preference shares 386 – –
Total interest bearing borrowings 1 ,636 5 ,397 5 ,437
Equity holders’ loan 16 12 11
1 ,652 5 ,409 5 ,448
27.2 Reconciliation of movement in borrowings
Senior pref
shares
High Yield term loan
Put and call
option
PIK Deben-
ture
New Term loan
SPV Pref.
Shares Other2014 Total
2013 Total
2012 Total
Opening balance 1 ,460 1 ,735 304 1 ,898 – – 12 5 ,409 5 ,448 5 ,828
Movements for
the year:
Interest accrued 90 292 – 337 – – – 719 717 736
Interest paid (129) (482) – (1 ,485) – – – (2 ,096) (575) (566)
Redemptions paid (1 ,429) – – – – – – (1 ,429) (252) (268)
Borrowings repaid – (1 ,552) (364) (750) – – (2 ,666) – (350)
Borrowings raised – – – – 1 ,250 386 4 1 640 1 –
Fair value movement – – 60 – – – – 60 57 55
Movement in
capitalised costs 8 7 – – – – – 15 13 13
Closing balance – – – – 1 ,250 386 16 1 ,652 5 ,409 5 ,448
Rm 2014 2013 2012
27.3 Discounted maturity analysis of borrowingsPayable on demand 16 12 11
Due within one year – 836 253
Due between one and five years 1 ,636 4 ,561 3 ,571
Due after five years – – 1 ,613
1 ,652 5 ,409 5 ,448
27.4 Term loan facility
On 31 March 2014, a subsidiary company, Alexander Forbes Acquisition Proprietary Limited
(“AF Acquisition”), obtained a term loan facility (“term loan”) amounting to R1 ,250 million from
one of the major banks. The term loan bears interest at three months’ JIBAR plus 2.1% per annum
compounded quarterly. The interest is payable quarterly while the capital is repayable in three
years together with any unpaid interest on 31 March 2017.
If AF Acquisition fails to pay any principal amount or interest amount payable by it on its due date,
interest shall accrue on the loan and any accrued and unpaid interest from the due date up to the
date of actual payment at a rate which is equal to the Interest Rate (JIBAR plus 2.1%) which would
otherwise be applicable plus 2.0%, for so long as such payment remains outstanding and has not
been remedied after any applicable grace period (if any).
The term loan may be repaid at any time, in whole or in part, which would include the capital plus
any accrued and unpaid interest to the repayment date.
The term loan is subject to certain mandatory repayment events. For instance, the loan would be
repaid if AF Acquisition or any other member of the group disposes of any of its assets or business
(whether pursuant to a single transaction or a series of transactions) which, when aggregated with
all other assets disposed of by members of the group since the signature date, directly or indirectly
contribute more than 30% of the consolidated EBITDA or assets of the group for the 12-month
period up to and as at the date of disposal.
202
27 BORROWINGS (continued)
27.4 Term loan facility (continued)
In addition, all amounts outstanding on the term loan, together with accrued and unpaid interest,
shall become immediately due and payable in the event of a sale of all or substantially all of the
assets or business of the group or if a change of control occurs. AF Acquisition must repay the term
loan if the lender becomes aware that it is unlawful in any applicable jurisdiction for such lender to
perform its obligations under a term finance document.
27.5 Senior debt preference shares
A subsidiary company, Alexander Forbes Acquisition Proprietary Limited (“AF Acquisition”), had
issued preference shares in equal proportion to three South African banks. The preference shares
paid semi-annual dividends at a dividend rate of 93.5% of the South African prime rate.
During the year, cash generated from operations and proceeds on the disposal of subsidiaries were
used to redeem the senior preference shares in full as follows:
• R136 million redemption of shares on 31 May 2013.
• R425 million redemption of shares on 30 November 2013.
• R869 million redeemed on 4 March 2014.
• R8 million capitalised debt origination costs were written off.
Prior to the settlement of the preference shares, AF Acquisition was subject to certain undertakings,
guarantees and commitments as part of the security structure. Following the redemption of the
senior preference shares, any related undertakings, guarantees and commitments on the preference
shares ceased to exist.
27.6 High Yield term loan
A subsidiary company, Alexander Forbes Funding Proprietary Limited (“AF Funding”) had issued
the High Yield term loan (“term loan”) amounting to R1 487 million to a consortium of investors
consisting mainly of shareholders. This term loan bore interest at a fixed rate of 16.8%.
The term loan had a maturity date of 18 September 2015. During the year, the term loan was repaid
in full as part of the debt restructure as follows:
• R110 million payment for accrued interest on 18 June 2013.
• R406 million accrued interest on 31 March 2014.
• R1 487 million capital repaid on 31 March 2014.
• R30 million capitalised debt origination costs were repaid on 31 March 2014.
Prior to the settlement of the High Yield term loan, AF Funding was subject to certain undertakings,
guarantees and commitments as part of the security structure. Following the repayment of the
loan, any related undertakings, guarantees and commitments on the loan ceased to exist.
27.7 Put and call agreement
Following the settlement of the High Yield term loan, additional amounts payable on the term
loan in terms of a put and call option agreement were settled in full. Under the put and call option
agreement, AF Funding had issued preference shares to a security agent on behalf of the term loan
lenders. As part of the debt restructure the AF Funding Preference Shares which were subject to the
put and call option were purchased from the HY Lenders by AF Equity Holdings, these preference
shares were called and settled with the proceeds raised by an additional issue of ordinary shares to
AF Equity Holdings shareholders.
Prior to the settlement of the put and call liability, AF Funding was subject to certain undertakings,
guarantees and commitments as part of the security structure. Following the settlement of the
put and call liability, any related undertakings, guarantees and commitments on the put and call
liability ceased to exist.
27.8 Pay-in-Kind (“PIK”) debentures
A subsidiary company, Alexander Forbes PIK Funding Proprietary Limited (“AF PIK”), had issued
100 ,000 ,000 unsecured debentures for a principal amount of R7.50 each. The debentures bore
interest at 17% per annum compounded semi-annually on 31 May and 30 November each year.
Unpaid interest is capitalised annually. The interest accrued for the year together with the capital
amount was redeemable on the 10th anniversary from the date of issue, namely on 26 July 2017.
203
27 BORROWINGS (continued)
27.9 Pay-in-Kind (“PIK”) debentures (continued)
As part of the debt restructure during the year, AF PIK settled the PIK debentures in full.
• R337 million of accrued interest on 31 March 2014; and
• R1 ,898 million of capital redeemed on 31 March 2014.
Prior to the settlement of the PIK debentures, AF PIK was subject to certain undertakings,
guarantees and commitments as part of the security structure. Following the redemption of the
PIK debentures, any related undertakings, guarantees and commitments on the PIK debentures
ceased to exist
27.10 Financial covenants
The new term loan provides that the Net Debt to EBITDA ratio in respect of the immediately
preceding rolling 12-month period shall not at any time exceed 2:1 (Debt Cover Ratio).
Prior to the debt restructure on 31 March 2014, the group was subject to various financial covenants
including maintenance and distribution covenants. As part of the settlement of all debt balances
these covenants were set aside and there is no remaining obligation to the previous debt providers.
27.11 SPV Preference shares
AF BEE Funding SPV Proprietary Limited and AF MST Funding SPV Proprietary Limited
In order to facilitate participation in the capital restructure, two special purpose vehicles (“SPVs”)
were established to follow the rights on behalf of the Management Share Trust and the BEE
consortium. The SPVs issued preference shares to a major bank and used the funds received to
purchase ordinary shares in AFEH. Certain guarantees were provided by a subsidiary of AFEH which
results in the SPVs being consolidated and the shares purchased being treated as treasury shares.
The Alexander Forbes BEE Funding SPV issued preference shares to a major bank for an aggregate
subscription price of R158 million. Further, the Alexander Forbes MST Funding issued preference
shares to a major bank for an aggregate subscription price of R228 million.
The preference shares pay quarterly dividends at a dividend rate of 75% of the South African prime
rate with the first payment made on 31 May 2014.
The preference shares are redeemable on 31 March 2017. However the SPVs are entitled to make
voluntary early redemption either out of: (i) internally generated cash flows or (ii) direct or indirect
proceeds of refinance. The preference shares would become redeemable should either of the SPV
companies realise its assets.
The preference share facility is subject to certain early redemption events and certain mandatory
redemption events customary for such financing, the occurrence of which would require the
redemption of all of the preference shares. These include but are not limited the following:
• Failure to make payment by the SPVs or AF Acquisition.
• Breach of certain undertakings by the SPVs or AF Acquisition.
• Breach of the debt cover ratio which at any time should not exceed 2:1.
• The SPVs, AF Acquisition, AFEH or material subsidiary of AFEH group become insolvent.
• Assets of the SPVs, AF Acquisition, AFEH or material subsidiary of AFEH group are attached
and such attachment is not lifted within 30 days.
• Disposal of assets by the SPVs, AF Acquisition, AFEH or material subsidiary of AFEH group
that is not a permitted disposal and is not for the purposes of settling the Preference shares.
The preference shares are also subject to certain undertakings that, without the prior consent of
the major bank and subject to certain customary and other agreed exceptions, limit the ability of
the SPVs to, among other things:
• Enter into amalgamations, mergers, consolidation or corporate transactions.
• Incur any financial indebtedness, except in the ordinary course of business and for special
permitted purposes.
• Give any guarantee or security interest, except for permitted guarantees and security interests.
• Issue additional equity instruments, except for the permitted share issues or grant any loans
other than permitted loans.
• Purchase or redeem its equity instruments or otherwise reduce or alter its share capital.
• Make any distributions except for permitted distributions.
The preference shares are guaranteed by AF Acquisition Proprietary Limited.
204
Rm 2014 2013 2012
28 EMPLOYEE BENEFITS28.1 Total employee benefits
Present value of defined benefit pension fund obligation –
South Africa (note 28.2) – – –
Defined benefit pension fund obligation – LCP Libera
(Switzerland) (note 28.3) – – –
Post-retirement medical benefit obligation – South Africa
(note 28.4) 114 129 119
Provision for leave pay (note 28.5) 54 52 51
168 181 170
Substantially all employees are covered by defined contribution retirement fund arrangements in
the major territories in which the group operates. The group also has a defined benefit pension fund
as disclosed below (which is closed to new entrants).
Provisions for pension obligations are established for benefits payable in the form of retirement,
disability and surviving dependant pensions. The defined contribution and defined benefit pension
funds in South Africa are both governed by the Pension Funds Act 24, 1956.
28.2 Defined benefit pension fund obligation – South Africa
The closed defined benefit pension fund provides a pension of 2% of final pensionable salary for
each year of pensionable service plus 0.5% of final pensionable salary for each year of pensionable
service in excess of 25 years. The fund was closed to new members on 31 December 1992.
The pension fund is funded with the assets of the fund being held independently of the group’s
assets in a separate trustee-administered fund.
The fund is valued by a statutory actuary on a tri-annual basis, with a full actuarial assessment
being completed on 31 March 2014. The actuary is of the opinion that the fund is in a sound
financial position. For accounting reporting, the projected unit credit method is used to value the
liability.
The membership of the fund as at the last actuarial valuation at 31 March 2014 comprised 12 active
members and 72 pensioners.
A portion of fund assets are invested with our subsidiary, Investment Solutions, and the total value
is R179 million (2013: R168 million). Another portion of the fund assets is invested with a financial
institution with a credit rating of AA per FITCH Ratings Limited. These assets are secured by South
African government bonds, as such Alexander Forbes pension fund will be entitled to the proceeds
of the bonds should the financial institution default.
Rm 2014 2013 2012
Present value of benefit obligation (147) (157) (158)
Fair value of the plan assets 193 184 193
46 27 35
Impact of asset ceiling (46) (27) (35)
Total – – –
205
28 EMPLOYEE BENEFITS (continued)
28.2 Defined benefit pension fund obligation – South Africa (continued)
The movement in the defined benefit obligation for the years under review are as follows:
Rm
Present value of
obligation
Fair value of plan assets Total
Impact of asset
ceiling Total
At 1 April 2011 (restated) (117) 175 58 (58) –
Current service costs (2) (2) – (2)
Interest expense (11) 16 5 – 5
Remeasurements (35) 4 (31) – (31)
Change in economic
assumptions (33)
Other (2)
Contributions – 2 2 – 2
Payment from plans
Benefits paid 4 (4) – – –
Amounts settled 4 – 4 – 4
Adjustment to the asset ceiling – – – 22 22
At 31 March 2012 (restated) (157) 193 36 (36) –
At 1 April 2012 (restated) (157) 193 36 (36) –
Current service costs (1) (1) – (1)
Interest expense (11) 13 2 – 2
Remeasurements (21) 13 (8) – (8)
Change in economic
assumptions (20)
Other (1)
Contributions – 1 1 – 1
Payment from plans
Benefits paid 12 (12) – –
Amounts settled 21 (24) (3) – (3)
Adjustment to the asset ceiling 9 9
At 31 March 2013 (restated) (157) 184 27 (27) –
Current service costs (2) (2) – (2)Interest expense (11) 13 2 – 2 Remeasurements 15 3 18 – 18
Change in economic
assumptions 17
Other (2)
Contributions – 1 1 – 1 Payment from plans
Benefits paid 8 (8) – – – Amounts settled – – – – –
Adjustment to the asset ceiling (19) (19)
At 31 March 2014 (147) 193 46 (46) –
Rm 2014 2013 2012
The principal actuarial assumptions applied are
as follows:
Discount rate 8.70% 8.50% 8.50%
Inflation rate 6.40% 6.00% 6.00%
Salary increase rate 7.40% 7.00% 7.00%
Pension increase allowance 6.40% 6.00% 6.00%
206
28 EMPLOYEE BENEFITS (continued)
28.2 Defined benefit pension fund obligation – South Africa (continued)
The sensitivity of the defined benefit obligation to changes in the principal actuarial assumptions
above is as follows:
Change in assumption
Increase in assumption
Decrease in assumption
Discount rate 1% (9.80)% 12.60%
Inflation rate 1% 12.50% (9.90)%
The mortality rates are assumed as follows:
Pre-retirement: SA85-90 (Light) table
Post-retirement: PA(90) ultimate table rated down 2 years plus 1% improvement p.a. from
28 February 2004
The components of plan assets are as follows:
2014 2013 2012
Cash 8.26% 6.94% 6.94%
Equity
Listed equities 21.89% 20.86% 20.86%
Unlisted equities 0.04% 0.05% 0.05%
Bonds 53.33% 58.21% 58.21%
Property 2.00% 1.58% 1.58%
International
Equity 10.65% 9.74% 9.74%
Bonds 0.26% 0.74% 0.74%
Cash 2.30% 0.71% 0.71%
Property 0.07% 0.13% 0.13%
Other 0.33% 0.33% 0.33%
Other 0.87% 0.71% 0.71%
100% 100% 100%
28.3 Defined benefit pension fund obligation – LCP Libera (Switzerland)The employees of LCP Libera (Switzerland) contribute to a defined contribution pension fund
which provides a minimum pension fund obligation based on the Pensionskasse ATAG Treuhand
(“PK ATAG”). There are 80 active members in this fund.
The pension fund is funded with the assets of the fund being held independently of the group’s
assets in a separate trustee-administered fund. At 31 March 2014 and 31 March 2013, all pension
fund assets were invested in money market instruments.
The fund is valued by a statutory actuary on a tri-annual basis, with the last full actuarial assessment
being completed on 3 May 2012. For accounting reporting, the projected unit credit method is used
to value the liability. This is based on an actuarial projection of the statutory valuation updated to
31 March 2012 taking into account market conditions and the fund’s experience to date.
During the current year the LCP Libera subsidiary w as disposed and as such the obligation in the
group no longer exists.
207
28 EMPLOYEE BENEFITS (continued)
28.3 Defined benefit pension fund obligation – LCP Libera (Switzerland) (continued)
CHF m 2014 2013 2012
The latest actuarial valuation reflected the following:
Defined benefit obligation – 35 30
Fair market value of fund assets – (35) (29)
Funded status deficit/(surplus) – – 1
Less: Unrecognised actuarial deficit – – (1)
Amount recognised in the statement of
financial position – – –
A reconciliation of the movement in the pension fund
obligation is as follows:
Opening asset – – –
Movement during the year:
Charge per income statement – 1 1
Contribution paid* – (1) (1)
Closing asset – – –
* Expected contributions to be paid for the 2014 financial year are CHF1.5 million.
28.4 Post-retirement medical benefit obligation – South AfricaIn South Africa, certain employees, who joined the group before 1 March 1997, are entitled to a post-
retirement medical aid subsidy. At 31 March 2014, this applies to a total of 368 people (2013: 371)
and comprises 97 active employees (2013: 87) and 272 pensioners (2013: 275). Employees who
joined the group after 1 March 1997 are not eligible for post-retirement medical aid subsidies.
Employees employed before 1 March 2009 are eligible for a death in service subsidy. If a member
eligible for a death in service subsidy dies in service, their dependants are eligible to receive a
50% subsidy of medical scheme contributions subject to the fixed rand amount as for the post-
retirement subsidy.
The obligation is valued every year by actuaries using the projected unit credit method. The date
of the last actuarial valuation was 31 March 2014. The post-retirement medical obligation is partly
funded through a cell-captive insurance arrangement with a subsidiary company of the group, the
assets of the insurance cell totalled R71 million at 31 March 2014 (2013: R71 million).
The cell-captive insurance policy is consolidated in the group’s results and the related asset which
backs this post-employment liability is reflected in cash and cash equivalents.
The post-retirement medical aid subsidy paid to pensioners is subject to a maximum rand amount.
This rand amount increases with inflation (CPI) each year. In order to compensate for the rand
amount increase of the subsidy being different to medical aid inflation, the group established a
hardship fund in 2004 to provide assistance to specifically identified pensioners in financial need.
208
28 EMPLOYEE BENEFITS (continued)
28.4 Post-retirement medical benefit obligation – South Africa (continued)
Rm 2014 2013 2012
The latest actuarial valuation reflected the following:
Medical benefit obligation 99 115 106
Hardship fund liability 15 14 13
Recognised liability in the statement of financial position 114 129 119
A reconciliation of the movement in the post-retirement
medical benefit obligation in South Africa is as follows:
Opening balance 115 106 96
Current service costs 2 3 2
Interest expense 9 9 9
Remeasurements (5) 4 5
Change in economic assumptions (7) 8 8
Other 2 (4) (3)
Benefits paid (7) (7) (6)
Transferred to trade and other payables (15) – –
Closing balance 99 115 106
The principal actuarial assumptions applied are as follows:
Discount rate 8.90% 7.90% 8.50%
Inflation (CPIX) rate 6.50% 6.00% 6.00%
Retirement age 60/65 yrs 60/65 yrs 60/65 yrs
Mortality rates are assumed as follows:
Pre-retirement: SA85-90 (Light) ultimate table
Post-retirement: PA (90) ultimate table rated down 2 years plus 1% improvement per annum
(from a base year of 2006)
The sensitivity of the defined benefit obligation to changes
in the principal actuarial assumptions above are as follows:
Change in assumption
Incre as e in assumption
Decrease in assumption
Discount rate 1.0% (10.4 % ) 12.8 %
Inflation (CPIX) rate 1.0% 12.7 % (10.5 %)
Rm 2014 2013 2012
28.5 Provision for leave payOpening balance 50 51 62
Movement during the year:
Increase in provision 24 35 34
Decrease in provision (14) (35) (43)
Transferred to held for sale (7) – –
Disposal as a result of business combinations – (2) (1)
Foreign subsidiaries exchange differences 1 1 (1)
Closing balance 54 50 51
The group’s policy is that leave days are forfeited at the end of each annual leave cycle, unless a
carry forward of leave days is specifically authorised or provided for in an employment agreement.
The timing of the use of the leave pay provision depends on employees’ leave plans and resignations
from employment during the year.
209
Rm 2014 2013 2012
29 DEFERRED TAXATION29.1 Net deferred tax liability balance
Deferred tax assets (note 29.3) 117 164 110
Deferred tax liabilities (note 29.4) (432) (450) (491)
(315) (286) (381)
29.2 Reconciliation of movement in the net deferred tax liability balance Opening balance (286) (381) (429)
Movement during the year:
Credit per income statement (67) 89 35
Charge to income statement relating to operations
discontinued and disposed of in the current year 25 (9) –
Degrouping tax charge resulting from the sale of business – 9 15
Transfer to asset groups held for sale 13 – –
Change in rate 2 5 –
Foreign subsidiaries exchange differences (2) 1 (2)
Closing balance (315) (286) (381)
29.3 Analysis of deferred tax assetsRetirement benefit obligations 15 13 26
Deferred income 3 4 27
Calculated tax losses 38 60 61
Provisions 39 94 43
Operating lease liabilities 20 7 –
Other items 2 (14) (47)
Total deferred tax assets 117 164 110
29.4 Analysis of deferred tax liabilitiesWork-in-progress (29) (30) (34)
Deferred tax on policyholder assets (140) (64) (31)
Accelerated tax allowances, provisions and other items (5) (1) (5)
Deferred tax recognised in terms of IFRS 3 Business
Combinations* (258) (355) (421)
Total deferred tax liabilities (432) (450) (491)
* This amount represents the deferred tax balance raised on intangible assets recognised at the time of the private
equity transaction.
210
30 PROVISIONS
30.1 Analysis and reconciliation of movement in provisions
Proposed client
settlements
Provisions for errors
and omission
claims Other Total
Balance at 31 March 2013 106 154 24 284 Movement during the year:
Increase in provision 4 (26) 5 (17)Decrease in provision and payments made (11) (6) (6) (23)Foreign subsidiaries exchange differences – 37 3 40
Balance at 31 March 2014 99 159 26 284
Balance at 31 March 2012 95 125 45 265
Movement during the year:
Reclassification – – – –
Increase in provision 30 30 19 79
Interest accrued – – – –
Decrease in provision and payments made (19) (18) (41) (78)
Foreign subsidiaries exchange differences – 17 1 18
Balance at 31 March 2013 106 154 24 284
Balance at 31 March 2011 54 188 150 392
Movement during the year:
Reclassification 50 – (50) –
Increase in provision 8 – – 8
Interest accrued 5 – – 5
Decrease in provision and payments made (22) (68) (55) (145)
Foreign subsidiaries exchange differences – 5 – 5
Balance at 31 March 2012 95 125 45 265
The provision for proposed client settlements is current in nature while all other provisions are
considered to be non-current.
Uncertainties affecting the timing and amount of the settlement of provisions are discussed in the
relevant note below.
30.2 Provision for client settlements and other legal claims
In the past, the group voluntarily appointed independent legal advisors to conduct a full review of
past and current business practices across all of the South African operations. The results of the
review were fully disclosed and published on the group’s website. Following this review in 2006, the
provision for proposed client settlements for historical business practices, including the practice
referred to as ‘bulking’, was made. Interest accrues on this provision at the prime lending rate less
4% up to the date of settlement payments.
To date, the group has made substantial progress in relation to the client settlement process, with
the vast majority of all retirement funds who received offers having accepted the settlement offer.
The settlement offers are made in full and final settlement of the matter, however, a contingent
liability remains in respect of any clients who have not accepted the settlement offer. Refer to
note 37.2 Contingencies.
30.3 Provision for errors and omissions claims
The group’s errors and omissions risk is insured in the London market (the market policy), with
a limit of R1.9 billion for each and every claim or loss in the annual aggregate in excess of the
aggregate deductible of R90 million.
Upon exhaustion of the aggregate deductible of R90 million, a residual deductible of R100 ,000 each
and every claim or loss shall apply, but R30 ,000 each and every claimant deductible in respect of
investment and investment-related business activities regulated by the Financial Services Authority
in the UK.
211
30 PROVISIONS (continued)
0.3 Provision for errors and omissions claims (continued)
The aggregate deductible of R90 million (subject to a deductible of R1.5 million (Africa operations)
or £100 ,000 (UK)) each and every claim or loss in the annual aggregate is insured with a third
party cell-captive insurer, Mannequin Insurance PCC Limited (“the Mannequin policy”). The limit of
the Mannequin policy is equal to the limit of the aggregate deductible of the market policy.
The market policy covers all subsidiary and associate companies, except for Lane Clark & Peacock.
The Mannequin policy excludes associates and non-wholly-owned operations, with some exceptions.
Such operations are required to insure their own risk up to a limit of R15 million, after which they
are included in the market policy up to an additional limit of R110 million, providing them total
cover of R125 million. Lane Clark & Peacock effect their own cover.
The group has arranged a separate errors and omissions run-off cover for the Financial Services
operations in the UK sold to JLT (to comply with contractual obligations in the sale purchase
agreement) with a limit of £55 million any one claim or loss in the aggregate, with the excess layers
on the group programme providing further cover up to R1.2 billion. This is in respect of claims
notified post-completion of the sale of the operations for which the group retains responsibility.
The group has an equity investment in a cell in Mannequin Insurance PCC Limited, which entitles
the group to the underwriting profits earned by this insurance cell. The group is required to
maintain the insurance cell and ensure it is adequately capitalised. Additional capital is required to
be paid in the event that underwriting losses are incurred by the insurance cell.
The assets, liabilities, income statement and cash flow effects attributable to the group’s investment
in the Mannequin Insurance cell are included in the consolidated financial statements of the group.
The effect is to eliminate the premium payments to the cell-captive insurer on consolidation and
to recognise the assets, liabilities, cash flows and net operating results of the insurance cell in the
consolidated financial statements of the group. The insurance premiums charged to the various
group operations continue to be allocated to the relevant businesses in determining the trading
results of operations reflected in the segmental profit analysis.
27.4 Other provisions
Other provisions include the following:
• Provision for clawback of commissions received by the group. This provision is based on historical
client lapse experience. However, it may not be representative of future client lapse experience
which will affect the quantum of commission required to be repaid to insurers.
• Provision for contractual obligations in relation to premises leases entered into in the United
Kingdom, which require the relevant buildings to be refurbished at the end of the lease term.
The nature of the actual expenditure and quantum thereof will only be determined at the end of
the lease term.
• Provision for onerous premises leases. This provision is based on management’s best estimate
but conditions may change regarding the likelihood, timing and commercial terms of sub-lease
arrangements in respect of unoccupied office space.
212
31 FINANCE LEASE LIABILITY
Future minimum
lease payments Interest
Present value of
minimum lease
payments at
31 March 2014
Present value of
minimum lease
payments at
31 March 2013
Present value of
minimum lease
payments at
31 March 2012
Not later than one year 7 – 7 6 –
Later than one year but not later than
five years 34 (3) 31 29 –
Later than five years 67 (15) 52 58 –
108 (18) 90 93 –
In 2010, the group entered into a lease agreement for a head office building which took effect on
1 October 2012. The lease is for a period of 12 years. This head office building comes fully furnished with
items of furniture and fixtures including IT equipment. The items of furniture, fixtures and equipment
will be used for a majority of their economic lives and consequently have been classified as finance leases.
The minimum lease payments were therefore split between: (i) land and building (operating lease
component) and (ii) furniture and fixtures including IT equipment (finance lease component) based on
their relative fair values.
Rm 2014 2013 2012
32 OPERATING LEASE LIABILITY
Premises lease deferral: Accelerated recognition of lease costs
resulting from straight-lining of lease expenses (with no
recognition of time value of money) in terms of IAS 17 119 40 29
The significant leases to which this deferral relates are 115 West Street, Sandton (commenced October 2013),
Alexander Forbes Place, 61 Katherine Street, Sandton (ended September 2012), and Alexander Forbes
Place, 90 Rivonia Road, Sandton (ended September 2012). The escalation clause is 7.5% per annum for
115 West Street, Sandton.
33 DEFERRED INCOME
Cell-captive operations: Underwriting agency income – income
deferred to cover future servicing costs, together with a
reasonable margin thereon – 49 41
Financial Services: Commission income on insurance and
investment products – income deferred to cover future servicing
costs, together with a reasonable margin thereon 25 23 25
Multi-manager Investment and Financial Services: Structured product fees spread evenly over the expected period
of the contract – – 3
25 72 69
213
Rm 2014 2013 2012
34 INSURANCE PAYABLES34.1 Total insurance payables
Insurance payables from broking activities 23 60 84
Reinsurance creditors 283 261 218
Claims float held for insurance operations 24 20 18
Payables from short-term insurance contracts 316 604 556
Gross unearned premium provision 45 112 122
Gross outstanding claims provision 232 436 377
Gross IBNR provision 39 56 57
Payables from long-term insurance contracts
Policyholder liability under long-term insurance contracts
(group life) 360 1 ,985 1 ,085
Payables from umbrella retirement fund activities* 1 ,264 1 ,055 732
2 ,270 3 ,985 2 ,693
* A substantial portion of the payables from umbrella fund activities
results from a timing difference between the receipt of funds from new
clients at year-end and the investment of these funds with the group’s
multi-manager investment subsidiary subsequent to year-end.
34.2 Policyholder liability under long-term insurance contractsThe policyholder liability arises from group life business
written by a long-term insurance subsidiary of the group.
The net liability position comprises:
Gross policyholder liability (refer note 34.1 above) 360 1 ,985 1 ,085
Less: Reinsurance assets relating to the policyholder
liability (refer note 20) (306) (333) (258)
Net liability to policyholders 54 1 ,652 827
A reconciliation of the movement in the net policyholder
liability is as follows:
Opening balance 1 ,652 827 235
Movement during the year:
Net increase in claims experience 63 825 592
Transfer to assets and liabilities of disposal groups
held for sale (1 ,661) – –
Closing balance 54 1 ,652 827
34.3 Net payables from short-term insurance contractsThe net payables from short-term insurance contracts arise
from short-term insurance business written by the short-
term insurance subsidiaries of the group. The net payables
position comprises:
Payables from short-term insurance contracts
(refer note 34.1 above) 316 604 556
Less: Receivables from short-term insurance contracts
(refer note 20) (243) (449) (436)
Net payables from short-term insurance contracts 73 155 120
A reconciliation of the movement in the net payables
is as follows:
Opening balance 155 120 109
Movement during the year:
Net claims incurred (82) 35 11
Closing balance 73 155 120
214
Rm 2014 2013 2012
35 TRADE AND OTHER PAYABLESFinancial liabilities:
Trade payables 429 449 291
Accrued expenses 217 166 178
Other payables 307 268 306
953 883 775
Non-financial liabilities:
Employee-based accruals 471 379 350
Taxation payable 167 91 203
1 ,591 1 ,353 1 ,328
36 COMMITMENTS36.1 Operating lease commitments
Premises
Furniture and
fittings, office
equipment and other
assets2014
Total2013
Total2012
Total
The future minimum lease payments
under non-cancellable operating
leases are as follows:
Due within one year 155 9 164 189 218
Due between one to five years 814 1 815 748 656
Due after five years 1 ,501 – 1 ,501 1 ,587 1 ,405
2 ,470 10 2 ,480 2 ,524 2 ,279
Rm 2014 2013 2012
36.2 Capital commitmentsCommitments in respect of capital
expenditure approved by directors:
Contracted for – – –
Not contracted for 4 4 5
4 4 5
The funds to meet these commitments will be provided from internal cash resources generated by
operations.
36.3 Revolving credit facilityAlexander Forbes International Ltd (“AFIL”) and AF Acquisition, the direct holding company of
Alexander Forbes Limited, entered into a revolving credit facility agreement with FirstRand Group
for a maximum aggregate amount of R200 million.
This rand-denominated facility to AF Acquisition bears interest at the South African prime rate
of interest. The revolving credit facility is available for drawing until July 2014 and drawings
are permitted as and when required during the availability period, upon satisfaction of certain
conditions.
Under the revolving credit facility, a commitment fee is payable to the lender in respect of each
calendar quarter until the final payment date. The commitment fee is calculated as 0.9% of the
average amount available for draw-down during the quarter, calculated daily and payable in arrears
on 31 May and 30 November each calendar year.
The outstanding balance on the revolving credit facility is obliged to be repaid upon a ‘mandatory
redemption event’ or ‘early redemption event’, both as defined in the preference share agreement.
The repayment must occur within 30 days of demand of such repayment.
This facility ranks pari passu with senior debt preference shares issued by AF Acquisition as set out
in the Inter-creditor agreement (defined below).
215
36 COMMITMENTS (continued)36.4 Inter-creditor agreement
Subsequent to the debt restructure detailed in note 27 Borrowings, the inter-creditor agreement
ceased to exist.
36.5 Guarantors under the high-yield term loan agreementSubsequent to the debt restructure detailed in note 27 Borrowings, all guarantees under the
high-yield loan agreement ceased to exist.
37 CONTINGENCIES37.1 Overview
In the conduct of its ordinary course of business, the group is exposed to various actual and
potential claims, lawsuits and other proceedings relating to alleged errors and omissions, or non-
compliance with laws and regulations. The directors are satisfied, based on present information and
the assessed probability of claims eventuating, that the group has adequate insurance programmes
and provisions in place to meet such claims. However, like all businesses of this type, the risk exists
that significant adverse developments in past claims, or a significant increase in the frequency
or severity of future claims for errors and omissions, could have a material effect on the group’s
reported results.
The structure of the group’s professional indemnity insurance programme is explained in note 30.3
to these financial statements.
37.2 Client settlements arising from historical business practices‘’Bulking’’ is the term used to describe the practice of aggregating, on a notional basis, the total
value of administered bank current accounts to negotiate better interest rates with the banks on
behalf of clients. In response to identifying that there was inadequate disclosure to clients of fees
historically received in respect of such bulking arrangements implemented by a subsidiary, it made
settlement offers to such affected clients. In addition, as part of the commitment to meet the highest
standards of governance and integrity, Alexander Forbes appointed independent legal advis ors and
auditors to conduct a full review of the past and current business practices across all of the South
African operations of the group during 2006. The results of this review were fully disclosed to the
Regulator and published on the group’s website. As a result of the bulking matter and the
comprehensive business practice review, the group made provision for amounts in respect of
proposed client settlements relating to bulking and issues identified during the wider business
practice review. Interest accrues on these settlement amounts up to the date of payment. As of the
date of these financial statements, most clients and past clients have accepted these settlement
offers and the necessary payments have been made. The group continues to make progress with
settlement payments to remaining clients which now mainly consist of closed and liquidated funds.
Although provisions made are considered to be adequate, a contingent liability remains in
this regard.
37.3 SARS information request in respect of the interest deduction relating to the 2007 company reorganisationThe group’s annual financial statements authorised for issue on 9 June 2014 disclosed a tax
contingency relating to information requests from SARS focused on the 2007 acquisition of the
businesses by a consortium of private equity investors. Subsequent to the issuing of the annual
financial statements for the group, at the initiative of the group and in order to bring finality to this
matter, Alexander Forbes has reached an agreement with SARS towards a full and final settlement
of the matter and, specifically, to settle the tax issue relating to the deduction of interest claimed
over the years since the transaction up to and including the financial year ended 31 March 2014.
The conclusion of the settlement resulted in an additional assessment for cash taxes payable by
the group in an amount of R60 million and the waiver of assessed losses carried forward which
include assessed losses in respect of which an amount of R66 million of deferred tax assets w ere
previously raised and held on the balance sheets of various subsidiaries of the group. Also refer to
notes 8 and 44.
The agreement will be implemented as soon as practicably possible.
216
Rm 2014 2013 2012
38 CASH GENERATED FROM OPERATIONSProfit before taxation from continuing operations 324 94 100
Items disclosed separately:
Net interest expense 610 719 655
Non-cash items:
Depreciation of property and equipment 73 74 68
Amortisation of intangible assets 191 163 160
Movement in operating lease liability 79 11 -
Movement in deferred income and expenses 60 3 (14)
Capital gains – – 1
Income statement charge for retirement benefit obligations – 4 11
Interest income on financial assets – 3 –
Non-cash movement in borrowings – – (11)
Movement in provisions (33) 1 (138)
Foreign exchange movements on inter-company loans included
in FCTR 31 32 –
Movement in other non-cash items (4) (3) (2)
1 ,331 1 ,101 830
39 INTEREST PAIDFinance costs per income statement (843) (848) (816)
Non cash finance costs 814 255 249
Capitalised interest on borrowings paid (refer to note 27) (2 ,096) – –
Finance costs paid (2 ,125) (593) (567)
40 MOVEMENT IN WORKING CAPITAL AND INSURANCE BALANCESMovement in working capital balances
Trade and other receivables (33) (143) (34)
Trade and other payables 197 142 128
Movement in insurance balances
Insurance receivables (17) (178) (228)
Insurance payables 354 1292 862
Non-cash movement in insurance payables relating to fair value
adjustment on financial assets – (813) –
501 300 728
41 CASH FLOWS FROM POLICYHOLDER INVESTMENT CONTRACTSPremium inflows 39 ,229 37 ,283 29 ,270
Investments made net of disinvestments (5 ,764) (7 ,823) (8 ,430)
Transfer to assets held for sale* (1 ,301) – –
Movement in cell-captive insurance facilities 8 544 263
Investment withdrawals (37 ,226) (32 ,486) (24 ,326)
(5 ,054) (2 ,482) (3 ,223)
* Subsequent to the transfer to assets held for sale, the Guardrisk group of companies was disposed as detailed in note 42 Disposal
of subsidiaries.
217
Rm 2014 2013 2012
42 TAXATION PAIDTaxation payable at beginning of year (91) (203) (66)
Prepaid tax at beginning of year 5 20 9
Charge in income statement (422) (244) (344)
Charge to income statement for operations discontinued and
disposed of in the year included in discontinued operations (71) (78) (21)
Adjusted for:
Tax attributable to policyholders (2) – 1
Deferred tax charge per income statements – – (39)
Reclassification of disposal groups held for sale 29 5 –
Sale of business – discontinued operations – (13) 19
Foreign subsidiaries exchange differences 2 1 2
Tax payable in UK partnership (1) – 14
Prepaid taxation at end of year (3) (5) (20)
Taxation payable at end of year 167 91 203
(387) (426) (242)
43. RELATED PARTY DISCLOSURE
List of related party relationships
43.1 Major shareholders
The private equity consortium investors together have a 53.6% interest in the company. However,
no single member of the consortium or any other shareholder has an effective equity interest of
more than 19% in the company.
43.2 Subsidiaries, joint ventures and associates
Details of subsidiaries, joint ventures and associates, which are considered material to the group
and in respect of which the group has a continuing interest, are provided in Annexure 8 to the
Pre- listing Statement.
43.3 Post-employment benefit plans
Details of retirement benefit plans are provided in note 28 Employee benefits.
43.4 Directors
Details of the directors of the company are provided in Annexure 6 of the Pre-listing Statement.
43.5 Prescribed officers
The group has defined the Group Chief Executive, the Group Chief Financial Officer and the
Managing Directors of the major operating segments as prescribed officers of the group as defined
by the new Companies Act 2008.
43.6 Key management personnel
Key management personnel are defined as the prescribed officers and the Board of Directors of the
Company.
43.7 Transactions with shareholders
Details of the change in shareholding as a result of the debt restructure undertaken on 31 March 2014
are detailed in Annexure A to these financial statements.
A portion of the fees paid to non-executive directors during the year of R1.6 million (2013:
R1.5 million) is paid to the shareholder company that the non-executive directors represent.
43.8 Transactions with subsidiaries and joint ventures
There have been no material transactions with joint ventures during the year.
218
43 RELATED PARTY DISCLOSURE (continued)
43.9 Transactions with associates
Details of dividends received from associates are provided in note 18 ‘Investment in associates’.
43.10 Transactions with post-employment benefit plans
Contributions to retirement benefit plans amounted to R2 million (2013: R1 million) to the defined
benefit fund and R7 million (2013: R7 million) to the post-retirement medical obligation plan, as
detailed in note 28 Employee benefits. There are no amounts outstanding at year-end. Assets of the
retirement benefit plans are invested through Investment Solutions Limited, these assets amount to
R179 million (2013: R168 million).
The retirement benefit plans of the group are compulsory funds and as such key management are
participants in the fund. At 31 March 2014, the investments held through the retirement benefit
plans by key management are R28 million (2013: R22.2 million).
43.11 Transactions with directors
The remuneration of executive directors is determined and approved by the Remuneration
Committee. The remuneration of non-executive directors, in the form of fees, is proposed by the
Remuneration Committee and approved by shareholders at each annual general meeting.
The Remuneration Committee consists of a majority of non-executive directors. As a committee of
the board, the committee determines, agrees and develops the general policy on executive directors’
and senior management’s remuneration. The objective is to ensure that such remuneration is fair,
responsible and appropriate and that the conditions of employment and remuneration scales, are
market-related and at levels sufficient to attract, retain and motivate individuals of quality, taking
account of the fact that the group is an international business. The Remuneration Committee is also
mandated to determine the criteria necessary to measure the performance of the executive directors
in discharging their responsibilities. There are no management, consulting, technical or other fees,
nor any commission, paid to directors other than what is disclosed below.
Executive directors’ and chairman’s remuneration paid to current officeholders during the year
are detailed below. In addition bonuses amounting to R28.4 million (2013: R23.8 million) for the
current period under review were accrued and have not yet been paid.
219
43 RELATED PARTY DISCLOSURE (continued)
43.11 Transactions with directors (continued)
Executive directors and prescribed officers (R’000) Salary Bonus
Benefit and allowances
Retirement and medical
contri-butions Total
2014MS Moloko (Chairman) 2 ,240 2 ,250 47 317 4 ,854E Chr Kieswetter (Group Chief
Executive) 4 ,626 5 ,200 99 484 10 ,409DM Viljoen (Group Chief Financial
Officer) 3 ,126 3 ,600 69 504 7 ,299S Schoeman* (Managing Director) 1 ,893 1 ,801 42 326 4 ,062D Msibi* (Managing Director) 2 ,253 2 ,999 54 362 5 ,668P Edwards* (Managing Director) 2 ,348 2 ,000 45 419 4 ,812G Dhombo* (Managing Director) 1 ,902 1 ,722 38 200 3 ,862
Total for the year 18 ,388 19 ,572 394 2 ,612 40 ,966
* Prescribed officers
2013MS Moloko (Chairman) 2 ,068 2 ,001 48 299 4 ,416
E Chr Kieswetter (Group Chief
Executive) 3 ,704 4 ,700 657 457 9 ,518
DM Viljoen (Group Chief Financial
Officer) 2 ,858 3 ,500 71 471 6 ,900
S Schoeman* (Managing Director) 1 ,660 1 ,650 112 306 3 ,728
D Msibi* (Managing Director) 2 ,080 2 ,356 44 342 4 ,821
P Edwards* (Managing Director) 1 ,749 2 ,000 115 333 4 ,198
G Dhombo* (Managing Director) 1 ,656 1 ,650 142 188 3 ,636
Total for the year 15 ,775 17 ,857 1 ,189 2 ,396 37 ,217
* Prescribed officers
** A portion of the bonus amount reflected above does not represent cash payments as it includes a share
allocation in the Management Share Trust.
GBP Salary BonusLoss of
office
Retirement and
medical contri-
butions Total
2014G Stobart* (Managing Director) 227 ,492 260 ,000 – 51 ,660 539 ,152T Gusmao* (Managing Director) – – – – –
Total for the year (GBP) 227 ,492 260 ,000 – 51 ,660 539 ,152
Total for the year (R’000) 3 ,669 4 ,193 – 833 8 ,695
2013G Stobart* (Managing Director) 234 ,192 250 ,000 – 50 ,834 535 ,026
T Gusmao* (Managing Director) 97 ,201 220 ,000 113 ,169 33 ,920 464 ,290
Total for the year (GBP) 331 ,393 470 ,000 113 ,169 84 ,754 999 ,316
Total for the year (R’000) 4 ,507 6 ,392 1 ,539 1 ,153 13 ,591
220
43 RELATED PARTY DISCLOSURE (continued)
43.11 Transactions with directors (continued)
Shareholding in the group
The directors’ and prescribed officers’ indirect shareholding of Alexander Forbes Equity Holdings
Proprietary Limited is through the Alexander Forbes Management Trust and the Alexander Forbes
Management Co-Investment Trust (the trust), which was formed for senior executives of the
Alexander Forbes Group. Prior to the completion of the group debt restructuring, these trusts held
in aggregate shares amounting to 8.7% of the ordinary share capital of the company. As part of the
group debt restructuring on 31 March 2014, a special purpose vehicle, AF MST Funding SPV
Proprietary Limited, was formed for the benefit of management and holds ordinary shares in the
company. Following the completion of the debt restructuring, these trusts, together with the newly
formed special purpose vehicle, now hold in aggregate shares amounting to 5.7% of the ordinary
share capital of the company. Participants in the trust do not directly own shares in the company.
However, the trusts hold shares in the company for the benefit of the participants. Each participant
made a contribution of capital to the trust. The original value at which the points were allocated
from the trust was R1.00 each. The most recent value at which points were allocated as at 31 March
2014 was R2.46 each.
Executive directors and prescribed officers’ participation in the Alexander Forbes Group Management Share Trust Scheme
Points Points Points Points Points
31 March2012
Acquired in 2013
31 March2013
Acquired in 2014
31 March2014
MS Moloko (Chairman) 1 ,801 ,034 – 1 ,801 ,034 – 1 ,801 ,034
E Chr Kieswetter (Group Chief
Executive) 4 ,310 ,494 – 4 ,310 ,494 2 ,406 ,651 6 ,717 ,145
DM Viljoen (Group Chief Financial
Officer) 2 ,260 ,870 – 2 ,260 ,870 938 ,000 3 ,198 ,870
G Dhombo* (Managing Director) 960 ,870 – 960 ,870 400 ,000 1 ,360 ,870
P Edwards* (Managing Director) 817 ,391 – 817 ,391 500 ,000 1 ,317 ,391
S Schoeman* (Managing Director) 960 ,870 – 960 ,870 – 960 ,870
T Gusmao* (Managing Director) 1 ,434 ,783 (634 ,783) 800 ,000 – 800 ,000
G Stobart* (Managing Director) 1 ,934 ,783 – 1 ,934 ,783 840 ,000 2 ,774 ,783
D Msibi* (Managing Director) 1 ,500 ,000 – 1 ,500 ,000 – 1 ,500 ,000
15 ,981 ,095 (634 ,783) 15 ,346 ,312 5 ,084 ,651 20 ,430 ,963
* Prescribed officers
Investments in the High Yield Term Loan
In 2009 certain key management were afforded the opportunity to invest in the high yield term
loan and related instruments in line with their shareholding through the Management Trust. Key
management has invested R2.05 million directly into the loan and the relevant assets associated,
on the same terms and conditions as the rights offer applicable to all shareholders at the time. In
addition, those members who did not follow their rights are beneficiaries of the HY Investment Trust.
The HY Investment Trust was incorporated for management for the purposes of this transaction
and the right to invest in the high yield term loan and related assets were sold to RMB. The payment
for these rights by RMB will be determined at the settlement date of the high yield term loan and
related instruments and will depend on the return on investment achieved by RMB.
The high yield term loan was settled as part of the debt restructure on 31 March 2014 and as a
result those members of management who had invested directly in the high yield term loan, were
settled in full. RMB also received settlement of the high yield term loan and as a result of the
return on investment achieved, made a payment to the HY Investment Trust. In addition the HY
Investment Trust sold their PIK Preference Shares to the MST Funding SPV. The proceeds by the
HY Investment Trust received from RMB and the PIK Preference share sale were distributed to the
beneficiaries of the HY Investment Trust.
221
43 RELATED PARTY DISCLOSURE (continued)
43.11 Transactions with directors (continued)
Long-term Incentive Plan (LTIP)
A Long-term Incentive Plan (LTIP) was established during the previous financial year aimed at
improving retention of key staff and management and first awards were made in January 2012.
The benefit is linked to compound growth rate hurdles achieved in the value of shareholders’ equity
at the time of exit by the current private equity investors from 1 April 2011. The date of exit is
uncertain and the scheme has no value below a compound growth rate of 12%. This incentive, if any
value is achieved, is payable in two tranches being 50% at the time of exit and 50% 18 months later
if the participant remains in employment. The value reflected for each below is the probability based
estimated present value of the LTIP at year-end. The LTIP had no value at 31 March 2014 (2013: nil)
Subsequent to year-end, a new LTIP scheme was approved that will replace the scheme described
above. The new scheme has similar terms to the current scheme but has recalibrated performance
measures following the various disposals resulting from the strategic refocus as well as the capital
restructure of the group. The scheme will also contain a 50% pure retention component aimed at
ensuring retention of key individuals during and after the anticipated exit by the private equity
shareholders with the balance being based on future performance criteria.
A separate Long-Term Incentive Scheme was established for Investment Solutions amongst key staff
and management. D Msibi participates in this scheme which is based on a participation of profit
growth above a compound growth rate of 10% per annum. The incentive payment so determined,
if any, is paid in three equal tranches over the ensuing three years if the participant remains
in employment.
R’000 2014 2013 2012
MS Moloko (Chairman) – – 60
E Chr Kieswetter (Group Chief Executive) – – 182
DM Viljoen (Group Chief Financial Officer) – – 101
S Schoeman* (Managing Director) – – 52
D Msibi* (Managing Director) 395 201 205
P Edwards* (Managing Director) – – 55
G Dhombo* (Managing Director) – – 52
T Gusmao* (Managing Director) – – 54
G Stobart* (Managing Director) – – 83
395 201 844
* Prescribed officers
Non-executive directors’ fees and remunerationNon-executive directors are paid by other companies in the Alexander Forbes Group and independent
non-executive directors are paid fees by the company and other companies within the Alexander
Forbes Group.
Independent non-executive directors R’000 Salary Bonus
Retirement and
medical contrib-
utions Other* Total
2014B Petersen – – – 852 852D Konar – – – 1 ,552 1 ,552M Collier – – – 1 ,067 1 ,067H Meyer – – – 516 516
Total for the year – – – 3 ,987 3 ,987
2013B Petersen – – – 794 794
D Konar – – – 824 824
M Collier – – – 1 ,151 1 ,151
H Meyer – – – 482 482
Total for the year – – – 3 ,251 3 ,251
* Other refers to directors’ fees paid. Directors’ fees consist of a combination of standard fees plus additional fees for
committee or sub-committee membership over and above the standard working programme.
222
43 RELATED PARTY DISCLOSURE (continued)
43.11 Transactions with directors (continued)
Non-executive directors’ fees and remuneration (continued)
Non-executive directors (shareholder company represented) R’000 Salary Bonus
Retirement and
medical contribu-
tions Other* Total
2014N Kolbe (Actis AF Holdings
Limited) – – – 324 324
J Masondo (Shanduka Advisors
Proprietary Limited) – – – 324 324
D Ngobeni (Shanduka Advisors
Proprietary Limited) – – – 324 324
A Roux (Ethos Capital v GP (SA)
Limited) – – – 324 324
JA van Wyk (Actis AF Holdings
Limited) – – – 324 324
Total for the year – – – 1 ,620 1 ,620
Non-executive directors’ fees and remuneration
Non-executive directors (shareholder company represented) R’000 Salary Bonus
Retirement and
medical contribu–
tions Other* Total
2013N Kolbe (Actis AF Holdings
Limited) – – – 307 307
J Masondo (Shanduka Advisors
Proprietary Limited) – – – 307 307
MC Ramaphosa (Shanduka
Advisors Proprietary Limited) – – – 307 307
A Roux (Ethos Capital v GP (SA)
Limited) – – – 307 307
JA van Wyk (Actis AF Holdings
Limited) – – – 307 307
Total for the year – – – 1 ,535 1 ,535
* Other refers to directors’ fees paid.
2014 2013 2012
43.12 Transactions with key management
Short-term employee benefits (salary, bonus and
other benefits) 53 53 49
Post-employment benefits 3 2 3
56 55 52
Transactions with group companiesMembers of key management have personal investments in Investment Solutions amounting to
R60 million (2013: R13 million). Certain members also insure their personal assets through
Alexander Forbes Insurance. These transactions are all concluded at market rates on an arm’s
length basis.
223
44 SUBSEQUENT EVENTS
SARS information request in respect of the interest deduction relating to the 2007 company reorganisation
As discussed in note 37.3, during the year ended 31 March 2014, the group received information
requests from SARS focused on the acquisition in 2007 of Alexander Forbes Limited by the Private Equity
Consortium and a reorganisation of the group’s businesses. The information requests related mainly to
the interest expenditure incurred in respect of debt raised for the reorganisation. The group believes
that its reorganisation with debt funding was a common and legitimate type of transaction and was
implemented in accordance with legal and tax advice.
Subsequent to the year-end, and subsequent to the issuing of the Annual Financial Statements for the
group on 9 June 2014, at the initiative of the group and in order to bring finality to this matter, Alexander
Forbes has reached an agreement with SARS towards a full and final settlement of the matter and,
specifically, to settle the tax issue relating to the deduction of interest claimed over the years since the
transaction up to and including the financial year ended 31 March 2014.
The conclusion of the settlement resulted in an additional assessment for cash taxes payable by the group
in an amount of R60 million and the waiver of assessed losses carried forward which include assessed
losses in respect of which an amount of R66 million of deferred tax assets were previously raised and
held on the balance sheets of various subsidiaries of the group. The preparation of the report of historical
financial information of the group in accordance with IFRS requires the group to adjust the amounts
recognised in its consolidated financial statements for events that provide further evidence of the tax
contingency that existed at 31 March 2014. The above settlements have therefore been recorded in the
results of the group for the year ended 31 March 2014. Refer to note 8.
The effects of the adjustments arising from these settlements, which were reached between the date of
finalising the annual financial statements of the group and this report on historical financial information,
are outlined in note 50.3.
Other than the tax settlement noted above, there are no other events which require notification.
45 INSURANCE RISK
45.1 Overview
The group issues contracts that transfer insurance risk or financial risk or both. Insurance
contracts are those that transfer significant insurance risk, being the possibility of having to pay
benefits on the occurrence of an insured event that are at least 10% more than the benefits payable
if the insured event did not occur. Such insurance contracts are issued by the group’s insurance
subsidiary companies namely, Guardrisk Insurance, Guardrisk Life, Guardrisk International
Limited, Guardrisk Life International Limited, Euroguard Insurance, Alexander Forbes Insurance
and Alexander Forbes Life, as detailed below. These insurance companies are authorised and
regulated by the Financial Services Board (FSB) in South Africa and Namibia, the Financial Services
Authority (FSA) in Gibraltar and the FSA in the United Kingdom.
The group also issues contracts which are classified as investment contracts. These contracts transfer
financial risk with no significant insurance risk. Financial risk is defined as the risk of a possible
future change in one or more of a specified interest rate, financial instrument price, commodity
price, foreign exchange rate, index of process or rates or credit index or other variable. The group’s
multi-manager investment subsidiaries operate under long-term insurance licences and they too
are authorised and regulated by the FSB in South Africa and Namibia and the FSA in the United
Kingdom. These licences are issued in order for the multi-manager to issue only linked investment
policies and thus these businesses do not assume any insurance risk. For accounting purposes, the
contracts issued to policyholders are classified as investment contracts. The assets arising from
these investment contracts are directly matched by linked obligations to the policyholders and the
assets and linked obligations are separately reflected in the group statement of financial position
as ‘Financial assets held under multi-manager investment contracts’ and ‘Financial liabilities held
under multi-manager investment contracts’, respectively.
224
45. INSURANCE RISK (continued)
45.1 Overview (continued)
Five of the group’s insurance subsidiaries namely, Guardrisk Insurance, Guardrisk Life, Guardrisk
International Limited, Guardrisk Life International Limited and Euroguard Insurance, provide cell-
captive insurance facilities for clients. These facilities are classified as special purpose entities,
mainly as a result of the cell shareholder’s rights to obtain the majority of the future economic
benefits of the cell’s insurance activities. The recognition of transactions relating to these facilities
in the financial statements depends on the nature of the cell-captive insurance arrangement. The
insurance companies participate with some of the cell shareholders in the underwriting risks of
the business written in the cells. The assets and liabilities relating to these risk-taking activities
are included in the relevant line items in the group financial statements and are included in the
insurance-related liabilities shown below. Surplus funds in the cells are invested in investment
portfolios and are separately reflected in the group statement of financial position as ‘Financial
assets of cell-captive insurance facilities’ with a corresponding liability reflected as ‘Liabilities of
cell-captive insurance facilities’.
The remaining two insurance subsidiaries, namely Alexander Forbes Insurance and Alexander
Forbes Life, transact conventional short-term and long-term insurance business under limited risk-
taking mandates.
The names of the insurance subsidiaries and the nature of their respective insurance operations are
detailed below.
Name of subsidiary company(and country of incorporation) Nature of insurance operations
Alexander Forbes Insurance Company
Namibia Limited
Personal lines short-term insurance, cell
captive and contingency short-term insurance
as well as motor-related short-term insurance
products.
Alexander Forbes Insurance Company Limited
(South Africa) and Alexander Forbes Life
Limited (South Africa)
Cell-captive short-term insurance, Personal
lines short-term insurance, Long-term
insurance.
Rm 2014 2013 2012
45.2 Insurance contract liabilities of insurance subsidiaries included in the statement of financial position (by nature of liability)Net unearned premium provision from short-term
insurance contracts 21 38 41
Gross unearned premium provision 45 112 122
Less: Reinsurers’ share of unearned premium provision (24) (74) (81)
Net outstanding claims provision from short-term
insurance contracts 43 153 135
Gross outstanding claims provision 232 436 377
Less: Reinsurers’ share of outstanding claims provision (189) (283) (242)
Net IBNR provision from short-term insurance contracts 13 28 29
Gross IBNR provision 39 56 58
Less: Reinsurers’ share of IBNR provision (26) (28) (29)
Policyholder liability under long-term insurance contracts
(group life) 54 1 ,652 828
Gross policyholder liability 360 1 ,985 1 ,086
Less: Reinsurers’ share of policyholder liability (306) (333) (258)
Policyholder asset under long-term insurance contracts
(individual life) (28) (24) (22)
Net liabilities under insurance contracts 103 1 ,847 1 ,011
225
45 INSURANCE RISK (continued)
45.3 General management of insurance risk
In addition to the management of insurance risk by each subsidiary (as detailed in the sections
below), the group has the following insurance risk management controls:
Risk committees
The Risk Committee of Guardrisk comprises four members, a non-executive chairman, with risk
management expertise, and three executive directors. The committee is constituted to assist and
support the board with regard to its risk management responsibilities, together with the other board
sub-committees including the Audit, Investment and Remuneration Committees. The committee
deals with specialised risks related to insurance business being conducted by the company.
Individuals with specialised industry and product knowledge are invited to the committee and are
also being co-opted on an ongoing basis. Furthermore, the committee is specifically responsible for
the following: governance, enterprise-wide risk, compliance, information technology, reinsurance
market security and Treating Customers Fairly.
Audit committees
There are audit committees for each business division within the group. These audit committees
report to the group Audit Committee and to the operational boards of directors. The relevant business
audit committee deals with the insurance subsidiary that reports into that business operation. These
committees serve to satisfy the group and operational boards of directors that adequate internal and
financial controls are in place and that material risks are managed appropriately. More specifically,
these committees are responsible for reviewing the financial statements and accounting policies,
the effectiveness of the management information and systems of internal control, compliance with
statutory and regulatory requirements, interim and final reports, the effectiveness of the internal
audit function, external audit plans and findings on their respective reports. These committees
report directly to the relevant board of directors and comprise three non-executive directors,
including a chairman. The committee meetings are attended by the external and internal auditors
and are held at least quarterly.
Statutory actuaries
The statutory actuaries of the long-term insurance subsidiaries report annually on the capital
adequacy and the financial soundness at the year-end date and for the foreseeable future. All
new premium rates or premium rates where changes are required are reviewed by the statutory
actuaries and dividends are approved prior to payment to ensure that the insurance subsidiaries
remain financially sound thereafter.
Capital adequacy requirements
A minimum level of solvency is required to be held within each insurance subsidiary to meet the
regulatory capital adequacy requirements. For the long-term insurance subsidiaries, the capital
adequacy requirement (“CAR”) is calculated to determine whether the excess of assets over
liabilities is sufficient to provide for the possibility of actual future experience departing from the
assumptions made in calculating the policyholder liabilities and against fluctuations in the value of
assets. CAR statutory returns are submitted to the Registrar of Long-Term Insurance on a quarterly
basis and valuations are performed by the statutory actuary on an annual basis. As at 31 March
2014, the CAR held by the long-term insurance company Alexander Forbes Life Limited amounted
to R172 million (2013: R139 million; 2012: R120 million). On a times cover to shareholders funds,
the long-term insurance subsidiary Alexander Forbes Life Limited is covered 1.6 7 times (2013:
1.78 times; 2012 1.63 times) Capital adequacy risk is the risk that there are insufficient reserves
to provide for variations in actual future experience that is worse than assumed in the financial
soundness valuation. The insurance subsidiary must maintain shareholders’ funds that will be
sufficient to meet obligations in the event of substantial deviations from the main assumptions
affecting the subsidiary’s business.
Capital adequacy risk is the risk that there are insufficient reserves to provide for variations in
actual future experience that is worse than assumed in the financial soundness valuation. The
insurance subsidiary must maintain shareholders’ funds that will be sufficient to meet obligations
in the event of substantial deviations from the main assumptions affecting the subsidiary’s business.
226
45 INSURANCE RISK (continued)
45.3 General management of insurance risk (continued)
Capital adequacy requirements (continued)
The short term insurance subsidiary companies were required, in terms of the provisions of
the Short-Term Insurance Act, 53 of 1998, to maintain a solvency margin of 15% of net written
premium, as defined by the Act. The capital requirements were calculated in accordance with the
Board Notice 27 of 2010; as required by the Short-Term Insurance Act, No 53 of 1998. In accordance
with the Act and with effect from 1 January 2012, Board Notice 169 of 2011 replaced Board Notice
27 of 2010. As a consequence there is no longer a requirement to maintain a solvency margin of 15%
of net written premium; instead a solvency capital reserve has been established in accordance with
the Act and the requirements of Board Notice 169 of 2011. Alexander Forbes Insurance Company,
for statutory purposes, the solvency capital reserve required as per the Act is R95 million (2013:
R71 million); and the company reserves as at the reporting date is R128 million (2013: R91 million).
Concentration risk
The group is not exposed to any significant concentration risk as the insurance contracts issued
by the group’s insurance subsidiaries are adequately spread across the major classes of insurance
risks. In addition, each insurance subsidiary company is cognisant of concentration risk for their
individual entity and each insurance product and takes steps to mitigate this risk, including
purchasing reinsurance protection.
Reinsurance
Reinsurance is used to manage the level of underwriting risk accepted by the group. Reinsurance
vetting procedures are in place and reinsurance programmes are assessed on a regular basis to
ensure appropriateness of the cover obtained, including the individual cessions and accumulations
per reinsurer. The financial condition of reinsurers (identified by their credit rating) is considered
when placing reinsurance cover and evaluated on an ongoing basis. The individual insurance
subsidiaries limit the level of reinsurance credit risk accepted by placing limits on their exposures
to a single counterparty. The individual insurance subsidiaries hold catastrophe reinsurance to
mitigate the risk of a single event causing multiple accumulation of claims. The group has a Risk
Committee which evaluates, approves and monitors both insurance and reinsurance markets that
the group operates in and reports back to the relevant operational boards with recommendations.
Enterprise wide risk management
The group has implemented an enterprise wide risk management programme whereby the objective
is to entrench risk management into the day-to-day business activities and whereby the insurance
subsidiary understands the risk events that may prevent it from achieving its objective; has identified
the risk mitigating controls in place and has assessed their efficiency; and has formulated a plan
wherever additional action is required.
Terms and conditions of insurance contracts
Personal lines insurance is provided to the general public in their individual capacities. The duration
of this insurance is typically monthly but in some cases, annually. The classes of risk underwritten
by the subsidiary include property, casualty, personal accident and motor.
Risks that arise from insurance contracts
This business activity relates to the assumption of the risk of loss from events involving persons
and such. As such, the subsidiary is exposed to uncertainty surrounding the timing, severity and
frequency of claims under insurance contracts. As insurance events are random, actual experience
may vary from what was estimated using established statistical techniques.
The majority of the subsidiary’s insurance contracts are ‘short-tail’, meaning that any claim is settled
within one year after the loss date. The subsidiary’s ‘long-tail’ exposures are limited to personal
accident, third party motor and public liability. Claims in respect of long-tail business comprise less
than 0.1% of an average year’s claims cost and are not considered to be a major risk to the group.
There is no significant concentration of risk as the subsidiary’s risks are adequately spread
geographically, as well as across the major classes of insurance risk.
227
45 INSURANCE RISK (continued)
45.3 General management of insurance risk (continued)
Risks that arise from insurance contracts (continued)
The subsidiary calculates its exposure to catastrophe risk by studying the spread of risk nationwide
in rand terms and identifying the concentration per certain territories in the event of a natural
catastrophe. The subsidiary’s concentration exposure for its personal lines book is considered
to be in the Johannesburg area and the event has been identified as a possible earthquake. This
assessment is done annually at renewal of the catastrophe programme and reinsurance protection is
purchased on a non-proportional basis accordingly, thereby limiting the exposure to the subsidiary.
The current net exposure is R4.0 million (2013: R4.0 million; 2012: R2.5 million).
Mitigation of insurance risks
Insurance risk is managed by centralised control of pricing and acceptance criteria, underwriting
limits, reinsurance and continual monitoring of emerging issues.
There is proportional reinsurance in place for between 75% and 90% of the property and motor
personal lines insurance book. Hence the net retention on book is no more than 25% and 10%
respectively. There is also non-proportional reinsurance providing protection on a per risk
catastrophe basis, capping the net exposure in the event of a single large loss or loss occurrence
constituting a catastrophe at a gross amount of around R4 million.
45.4 Personal lines short-term insurance
The personal accident insurance book is a high volume low risk portfolio and is protected on a stop
loss basis whereby reinsurance protection is purchased to protect the subsidiary in the event of
adverse claims experience. The business is written on a monthly basis.
Exposures to individual policyholders and groups of policyholders are monitored as part of the
credit control process. The subsidiary is also protected by guarantees provided by the Intermediary
Guarantee Facility for the non-payment of premiums collected by intermediaries as provided
for in the Short-Term Insurance Act in South Africa. In addition most intermediaries are fellow
subsidiaries and are not considered to be a credit risk.
45.5 Long-term insurance
Terms and conditions of insurance contracts
The insurance contracts consist of annually renewable group life and individual life mortality and
morbidity contracts. Group business consists of insurance for retirement funds and other group
schemes and covers the contingencies of death and disability. Individual life business covers death,
disability and impairment contingencies. There are no surrender values or investment components
inherent in any of these policies.
Risks that arise from insurance contracts
These contracts insure events associated with human life (for example, death or survival) which are
re-priced on an annual basis. The group assurance business is subject to mortality and morbidity
risk. The risk is that future claims will exceed expectations, which could result from epidemics
such as AIDS and Avian Flu, as well as unexpected changes in lifestyles and living patterns. Since
the term of a group policy is typically one year and upfront costs are limited, the risk of non-
recoupment of expenses due to withdrawals is limited.
An individual assurance product was launched during the 2006 financial year. As at 31 March
2012, it remains a relatively immaterial part of the overall life insurance exposure. The product is
subject to mortality, morbidity, withdrawal and expense risk.
There is exposure to concentration risk on the group assurance business as there is not yet a
wide spread of group schemes and a single event could result in multiple claims. Catastrophe
reinsurance is in place to mitigate this risk. There is no significant concentration risk on the
individual assurance business due to the current low level of business transacted.
As of 31 March 2014, the group had exposure with the supporting actuarial reserves of approximately
R42.0 million (2013: R47.0 million; 2012: R37.5 million) in group assurance business. The individual
life business has no exposure and reflects a negative actuarial reserves asset of R28.2 million (2012:
R23.9 million; 2012: R22.5 million).
228
45 INSURANCE RISK (continued)
45.5 Long-term insurance (continued)
Mitigation of insurance risk
In respect of group insurance business, free cover limits are set on a per scheme basis and are
formula-driven, taking into account the number of lives and average sums assured. Sums assured
in excess of the free cover limit are medically tested. Policy terms and conditions allow for an
annual review of premium rates so allowing the management of premiums in line with emerging
claims experience. The annual premium reviews take all pertinent information from one year to the
next into account.
In respect of individual insurance business, the major risks are mortality, morbidity, withdrawal
and expense. Premiums on this business line are differentiated by age, gender and smoker status.
Stringent socio-economic qualification criteria apply. Future premium rates are also not guaranteed
and may be adjusted if mortality and morbidity experience worsens. Market pressures and delays in
implementing changes could, however, counter this mitigating effect. Withdrawal risk is mitigated
to some extent by commission clawback clauses in contracts with intermediaries. Expense risk
is mitigated through detailed analysis of costs in determining the expense assumptions in the
valuation, as well as ongoing expense management.
The insurance risks are also managed through reinsurance arrangements. The appropriate
reinsurance structures are assessed by conducting scenario analyses which project outcomes under
different reinsurance structures. The retention limits are then set in accordance with risk appetite.
The group insurance business has proportional reinsurance for 85% of the book. There is also non-
proportional reinsurance providing protection on a per risk and catastrophe basis, capping the net
exposure in the event of a single large loss or loss occurrence constituting a catastrophe.
Sensitivity analysis
The most critical assumption underlying the liabilities relating to group insurance is the rate of
recovery from illness or disability associated with claims in payment. The sensitivity to a recovery
rate 20% lower than assumed is less than R46 million (2013: R51 million; 2012: R41 million). The
sensitivity to assumptions on negative liabilities arising from the individual insurance contracts is
currently insignificant.
46 FINANCIAL RISK
Introduction
The group’s activities expose it to various financial risks arising from its financial assets and liabilities.
Financial risks comprise credit risk, liquidity risk and market risk. These risks are defined below:
Credit risk
Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation
thereby causing the group to incur a financial loss.
Liquidity risk
Liquidity risk is the risk that the group will not be able to raise funds to meet commitments associated
with a financial instrument.
Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate,
principally as a result of changes in market conditions. These market conditions include interest rates,
foreign currency exchange rates and other price conditions
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate
due to changes in market interest rates.
Currency risk
Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate
in rand due to changes in foreign exchange rates.
229
46 FINANCIAL RISK (continued)
Other price risk
Other price risk is the risk that the fair value or future cash flows of a financial instrument will
fluctuate because of changes in the market prices (other than those arising from interest rate risk and
currency risk).
The financial risks relating to the group’s activities can be split into various operations of the group that
reflect the risk profiles of these operations. The operations are: multi-manager investment operations,
conducted through the Investment Solutions subsidiary companies; cell-captive insurance facilities,
conducted through the subsidiary companies Guardrisk Insurance, Guardrisk International Limited PCC
Guardrisk Life and Euroguard Insurance; pension-backed lending operations; and general operations
conducted including the insurance broking and consulting operations; employee benefit consulting,
administration and management operations; and insurance operations conducted by the group’s short-
term personal lines insurer, Alexander Forbes Insurance, and the group’s long-term group life insurer,
Alexander Forbes Life. The nature of financial assets and liabilities of each operation is described below.
Multi-manager investment operations
The financial assets held under multi-manager investment operations are policyholders’ assets directly
matched by linked obligations to policyholders. Both the assets and the liabilities are classified at fair
value through profit or loss held for trading and are carried at fair value. No assets held under multi-
manager investment operations have been pledged as collateral.
Cell-captive insurance facilities
The financial assets of cell-captive insurance facilities are assets attributable to policyholders and cell
owners in the group’s cell-captive insurance companies and are directly matched by linked obligations to
policyholders and cell owners. Both the assets and the liabilities are classified at fair value through profit
or loss designated as such upon initial recognition and are carried at fair value. No assets of cell-captive
insurance facilities have been pledged as collateral.
Pension-backed lending operations
The financial assets arising from pension-backed lending operations comprised housing loans granted
to members of retirement funds which were secured by their retirement fund assets. The housing loans
were classified as loans and receivables. The funding of these housing loans was provided through
securitised funding which directly matches the assets provided and is classified as financial liabilities
held at amortised cost. This business was sold during the current financial year. The financial effect of
collateral relating to these operations is not considered significant.
General operations
The financial assets and liabilities arising from general operations result from the insurance broking
and consulting operations; employee benefit consulting, administration and management operations;
and insurance operations conducted by the group’s short-term personal lines insurer, Alexander Forbes
Insurance, and the group’s long-term group life insurer, Alexander Forbes Life.
230
46 FINANCIAL RISK (continued)
The following table reflects the financial assets of the group including their respective IAS 39 classifications:
Rm 2014 2013 2012
AssetsFinancial assets held under multi-manager investment contracts
– Fair value through profit or loss – Designated 245 ,550 210 ,832 195 ,010
– Loans and receivables 8 ,197 11 ,958 14 ,984
Financial assets of cell-captive insurance facilities
– Fair value through profit or loss – Designated 315 11 ,374 9 ,484
General operationsFinancial assets
– Available for sale 1 3 18
– Fair value through profit or loss – Designated 316 1 ,882 1 ,018
– Held to maturity – 14 –
– Loans and receivables 92 165 173
Trade and other receivables
– Loans and receivables 517 627 640
Cash and cash equivalents 3 ,907 3 ,626 3 ,062
Total financial assets 258 ,895 240 ,481 224 ,389
LiabilitiesFinancial liabilities held under multi-manager investment
contracts
– Fair value through profit or loss – Designated 253 ,747 222 ,790 209 ,994
Liabilities of cell captive insurance facilities
– Fair value through profit or loss – Designated 315 11 ,374 9 ,484
General operationsBorrowings
– Financial liabilities held at amortised cost 1 ,652 5 ,105 5 ,201
– Fair value through profit or loss – Designated – 304 247
Trade and other payables
– Financial liabilities held at amortised cost 953 883 775
Total financial liabilities 256 ,667 240 ,456 225 ,701
* There are no differences between the carrying amount and the amount contractually required at maturity.
46.1 Credit risk
46.1.1 Objectives, policies and process to manage credit risk
(i) Multi-manager investment operations
All asset managers are governed by strict investment mandates, specifically set out by
the group to meet the investment objectives of the respective policyholder portfolios
and where appropriate, specific minimum investment grading ratings. In addition,
investment mandates are subject to restrictions imposed by regulation 28 to the Pension
Funds Act 24, 1956.
(ii) Cell-captive insurance facilities
The risk is managed by a detailed assessment of potential cell owners’ creditworthiness
based on the ability to meet the responsibilities and obligations in terms of the
shareholders’ agreement. Impairment is assessed at each reporting date. Credit risk
is further managed by each cell being required to maintain a regulated level of capital
adequacy. This is monitored by management on a monthly basis.
The management of the cell-captive insurance facilities assets is performed by multiple
investment managers and placed with high credit-rated financial institutions. The
company has policies that limit the credit exposure to any one financial institution.
The group has established an Investment Strategy Committee which reviews all
investments on the basis of total asset security and minimised credit risk to the
group. Industry specialists as well as the group’s panels of investment managers are
invited to the quarterly meetings. Certain cells have reinsurance arrangements and
the creditworthiness of these reinsurers is managed as part of the insurance risk
programme.
231
46 FINANCIAL RISK (continued)
46.1 Credit risk (continued)
46.1.1 Objectives, policies and process to manage credit risk (continued)
(iii) Pension-backed lending operations
Credit risk on the housing loans was managed by ensuring that, on inception, all
home loans granted were for amounts not exceeding 80% of the lowest benefits which
the retirement fund member would receive from the retirement fund upon exit, net of
income tax. The loans were secured by the member’s retirement fund asset.
(iv) General operations
Financial assets
The financial assets designated as fair value through profit or loss are actively
managed by multiple investment managers and placed with high credit-rated financial
institutions. The group has established an investment strategy committee which
reviews all investments on the basis of total asset security and minimised credit risk to
the group. Industry specialists as well as the group’s panel of investment managers are
invited to the quarterly meetings.
Discounted debtors relate to injury on duty claims ceded from medical service providers.
The group credit risk is with the Compensation Commissioner for Occupational Injuries
On Duty. In addition, amounts not paid by the commissioner are reclaimed from the
medical service provider.
Credit risk on equity housing loans is managed through established lending criteria and
credit underwriting or insurance designed to minimise losses from ‘negative equity’.
Loans are extended nationally (categorised by the district municipality) and borrower
age bands range from 65 and above. In order to minimise the ‘negative equity’ risk,
certain thresholds pertaining to district municipalities and age bands are followed.
This business was sold during the current financial year.
Insurance-related receivables
The group has specific reinsurer mandates established by the various risk committees
which stipulate the minimum security rating required of a reinsurer for business to be
placed with them. The group monitors the financial condition of reinsurers and reviews
its reinsurance arrangement periodically. Various market security and underwriting
committees are in place to evaluate and approve recommendations. The committees’
decisions are supported by both local and international professional rating agencies.
The group also has reinsurance vetting procedures in place. These procedures include
limiting individual cessions and accumulations per reinsurer in accordance with their
rating. The financial condition of the reinsurers and intermediaries in relation to their
credit standing is evaluated each time they are rated by an external rating agency.
The group limits the level of credit risk it accepts by placing limits on its exposures to
a single counterparty. The exposure limits of each reinsurer vary depending on their
credit rating.
Receivables from insurance contracts, whether from intermediaries or policyholders,
are monitored as part of the credit process. The group is protected by guarantees issued
by the Intermediary Guarantee Facility for the non-payment of premiums, collected
by intermediaries as provided in the Short-term Insurance Act. Non-payment from
policyholders over the specified time period results in the cancellation of the insurance
cover and there is no material risk to the group.
Trade and other receivables
Trade and other receivables are managed through ongoing review and impaired if
objective evidence is established that the group will not collect all amounts due according
to the original terms of the receivable. The group has policies in place to ensure that
services are provided to customers with an appropriate credit history.
232
46 FINANCIAL RISK (continued)
46.1 Credit risk (continued)
46.1.1 Objectives, policies and process to manage credit risk (continued)
(iv) General operations (continued)
Cash and cash equivalents
The group has policies that limit the amount of credit exposure to any one financial
institution including the requirements by the Short-term and Long-term Insurance Act
for minimum levels of asset spreading that are applicable to the insurance subsidiary
companies. The financial institutions used in the current and prior financial year had
ratings, as determined by external credit rating agencies Fitch and Standard & Poor’s,
of between AA and BBB.
There have been no significant changes in the way in which credit risk is managed
since the prior year.
46.1.2 Exposure to credit risk
(i) Multi-manager investment operations
There is no direct significant credit risk to the group on these assets as they are directly
matched to policyholders’ liabilities, therefore any credit risk in respect of policyholder
assets is carried by the policyholder and not the group.
An analysis of financial assets held under multi-manager investment contracts
indicates that R28 376 million of the assets are with institutions rated between AAA and
A – (16.7%) of the assets, R20 724 million of the assets are with institutions rated
between BBB and B – (12.3%), and the remainder which include listed equity and
preference share securities are unrated.
(ii) General operations
Financial assets
These assets are carried at fair value with the carrying amount at each reporting date
representing the group’s maximum exposure to credit risk in relation to these assets.
No financial assets designated as fair value through profit or loss have been pledged as
collateral. These financial assets are held with reputable institutions and the credit risk
has been evaluated to be minimal.
Financial assets mainly comprise preference shares, premium finance receivables,
discounted debtors, loan notes and equity housing loans.
Rm 2014 2013 2012
Financial assets classified as held to maturity
– Bonds – 14 –
Financial assets classified as held for sale
– Equity securities – listed – – 18
– Unit trusts 1 3 –
Financial assets designated at fair value through
profit or loss
– Preference shares 34 44 44
– Derivative securities – 64 –
– Collective investment schemes 243 183 197
– Bonds 39 1 ,591 777
Financial assets classified as loans and receivables
– Premium finance receivables – 79 93
– Equity housing loans 42 44 49
– Other loans 50 42 31
409 2 ,064 1 ,209
233
46 FINANCIAL RISK (continued)
46.1 Credit risk (continued)
46.1.2 Exposure to credit risk (continued)
There is no concentration of credit risk on premium finance receivables and discounted
debtors as the receivables have been advanced to a large number of clients with no significant
concentration to a single client. The carrying amounts of these receivables approximate the
fair values at each reporting date and represent the group’s maximum exposure to credit
risk in relation to these assets.
Other loans are amounts owing by staff and shareholders; the credit risk is assessed against
the relationship with these parties.
Insurance-related receivables
Reinsurers are utilised in the group’s underwriting activities conducted in the insurance-
licensed subsidiary companies. Under the terms of the reinsurance agreements, reinsurers
agree to reimburse the ceded amount in the event that a claim is paid. However, the group
remains liable to its policyholders regardless of whether the reinsurer meets the obligations
it has assumed. Consequently, the group is exposed to credit risk. The carrying amounts of
insurance-related receivables reflected on the statement of financial position approximate
the fair values at reporting date and represent the group’s maximum exposure to credit
risk in relation to these assets. At reporting date, the group did not consider there to be a
significant concentration of credit risk to reinsurers or other receivables from insurance
contracts which had not been adequately provided for.
Trade and other receivables
The carrying amounts of these receivables reflected on the statement of financial position
approximate their fair value at reporting date and represent the group’s maximum exposure
to credit risk in relation to these assets. At reporting date, the group did not consider
there to be a significant concentration of credit risk to trade and other receivables which
had not been adequately provided for. Trade and other receivables comprise amounts due
spread across a large number of clients. The group’s top 20 clients overall represent only
approximately 5% of income from operations and no single client contributes more than
0.4% of the group’s income from operations.
Maximum exposure and age analysis of financial assets including those that are past due
but not impaired:
Current Past due Past due Past due
Rm0 – 30 days
30 – 60 days
60 – 90 days
90+ days Total
31 March 2014Trade receivables 253 54 12 40 359Other receivables 88 8 – 62 158
341 62 12 102 517
31 March 2013Trade receivables 259 75 13 15 362
Other receivables 148 28 2 87 265
407 103 15 102 627
31 March 2012Trade receivables 315 192 34 99 640
Accrued and not billed
balances 241 – – – 241
556 192 34 99 881
None of the trade receivables reflected above are impaired. The majority of the trade
receivables fall within 90 days.
234
46 FINANCIAL RISK (continued)
46.1 Credit risk (continued)
46.1.2 Exposure to credit risk (continued)
Cash and cash equivalents
Cash and cash equivalents balances and transactions are limited to high credit quality
institutions. At reporting date the group did not consider there to be a significant
concentration of credit risk to cash and cash equivalents balances other than cash balances
which are placed with one of the four large South African banking institutions as approved
by the operational board of directors.
The financial institutions used in the current and prior financial year had ratings, as
determined by external credit rating agencies Fitch and Standard & Poor’s, of between AA
and BBB.
During the current year, there have been no changes to the fair values of the financial assets
of general operations presented above due to changes in the credit risk associated with these
assets. There have been no significant changes in credit risk exposures since the prior year.
46.2 Liquidity risk
46.2.1 Objectives, policies and process to manage liquidity risk
(i) Multi-manager investment operations
The multi-manager investment operations are conducted through long-term insurance
subsidiary companies who issue insurance contracts to policyholders. These long-term
insurance companies are registered financial institutions and are required to hold
minimum solvency capital to, inter alia, reduce policyholder exposure to the group’s
liquidity risk. The regulator of insurance companies, the FSB in South Africa and the
FSA in the United Kingdom, are regulatory authorities that regularly review compliance
with these minimum capital requirements. Management monitors compliance with
these minimum capital requirements.
In addition, liquidity risk arising from unexpected lapses and withdrawals is limited
through policy terms and conditions that restrict claims to the value and timing at
which the assets are realised. The maturity analysis of these policyholders’ liabilities is
detailed in the note to these financial statements called ‘Financial liabilities held under
multi-manager investment contracts’ and these liabilities are mostly open-ended as per
note 25.2.
(ii) General operations
Liquidity risk management implies maintaining sufficient cash and ensuring the
availability of funding through an adequate amount of cash resources and credit
facilities. The group has a revolving credit facility of R200 million, which can be used
for general corporate working capital purposes. Monitoring of budgeted and projected
cash flows supports the fact that the group will generate sufficient cash flows from
operations to limit the impact of liquidity risk. The group has prescribed authority
mandates and borrowing limits. Compliance with debt covenants is monitored by the
group and divisional boards.
The group sets limits on the minimum proportion of maturing funds available to meet
claims arising from long-term insurance contracts and unexpected levels of demands.
Similarly the majority of the assets held to match short-term insurance contracts are
in money market instruments which are highly liquid. Net cash flows are monitored
closely to ensure claim payments under long-term and short-term insurance contracts
can be made when requested. Long-term and short-term insurance subsidiaries are
registered financial institutions and are required to hold minimum capital and reduce
policyholder exposure to the group’s liquidity risk. The regulatory authority in South
Africa regularly reviews compliance with these minimum capital requirements.
Management monitors compliance with these minimum capital requirements. Assets
linked to investments are realisable at short notice.
There have been no significant changes in the way in which liquidity risk is managed
since the prior year.
235
46 FINANCIAL RISK (continued)
46.2 Liquidity risk (continued)
46.2.2 Exposure to liquidity risk
(i) Multi-manager investment operations
Liquidity risk arises from unexpected lapses and withdrawals by policyholders. The
group is able in such cases to transfer ownership of the underlying assets within the
policy to the policyholder to extinguish its liability.
(ii) General operations
As detailed in note 27, the group undertook a debt restructure on 31 March 2014,
resulting in the group having a single layer of unsecured term debt. The group may
in time reduce the debt by the application of internal cash flow or refinance the debt on
maturity in 2017 in the market. The group believes the refinancing risk is mitigated by
the lower level of gearing subsequent to the restructure.
There have been no significant changes in liquidity risk exposures since the prior year.
Liquidity analysis for assets and liabilities at a group level
Contractual cash flows (undiscounted)
Rm0 – 1 year
1 – 3years
3 – 5years
>5 years
Undated/ Linked Total
2014 AssetsFinancial assets held under
multi-manager investment
contracts 118 – – – 253 ,629 253 ,747Financial assets of cell-
captive insurance facilities – – – – 315 315Financial assets 291 1 – 23 94 409Insurance receivables
Trade and other receivables 514 – – – 3 517Cash and cash equivalents 1 ,707 – – – 2 ,200 3 ,907
Total financial assets 2 ,630 1 – 23 256 ,241 258 ,895
Liabilities
Financial liabilities held
under multi-manager
investment contract* 118 – – – 253 ,629 253 ,747Liabilities of cell-captive
insurance facilities* – – – – 315 315Borrowings 123 1 ,886 – – 16 2 ,025 Insurance payable
Trade and other payables 939 – – – 16 955
Total financial liabilities 1 ,180 1 ,886 – – 253 ,976 257 ,042
2013AssetsFinancial assets held under
multi-manager investment
contracts 94 – – – 220 ,696 222 ,790Financial assets of cell-
captive insurance facilities – – – – 11 ,374 11 ,374Financial assets 310 – 1 ,591 66 97 2 ,064Trade and other receivables 623 – – – 4 627Cash and cash equivalents 2 ,205 – – – 1 ,421 3 ,626
Total financial assets 3 ,232 – 1 ,591 66 235 ,592 240 ,481
236
46 FINANCIAL RISK (continued)46.2 Liquidity risk (continued)
46.2.2 Exposure to liquidity risk (continued)Liquidity analysis for assets and liabilities at a group level
Contractual cash flows (undiscounted)
Rm 0–1 year 1–3 years 3–5 years >5 yearsUndated/
Linked Total
2013 LiabilitiesFinancial liabilities held
under multi-manager
investment contract* 2 ,294 – – – 220 ,496 222 ,790
Liabilities of cell-captive
insurance facilities* 2 ,621 – – – 8 ,753 11 ,374
Borrowings 1 ,217 6 ,242 3 ,844 – 12 11 ,315
Trade and other payables 875 – – – 8 883
Total financial liabilities 7 ,007 6 ,242 3 ,844 – 229 ,269 246 ,362
2012AssetsFinancial assets held under
multi-manager investment
contracts 1 ,784 – – – 208 ,210 209 ,994
Financial assets of cell-
captive insurance facilities 201 33 – – 9 ,250 9 ,484
Financial assets 1 ,160 – – – 49 1 ,209
Trade and other receivables 640 – – – – 640
Cash and cash equivalents 3 ,062 – – – – 3 ,062
Total financial assets 6 ,847 33 – – 217 ,509 224 ,389
LiabilitiesFinancial liabilities held
under multi-manager
investment contract* – 629 – – 209 ,365 209 ,994
Liabilities of cell-captive
insurance facilities* – – – – 9 ,484 9 ,484
Borrowings 1 ,265 1 ,903 3 ,082 3 ,844 12 10 ,106
Trade and other payables 775 – – – – 775
Total financial liabilities 2 ,040 2 ,532 3 ,082 3 ,844 218 ,861 230 ,359
* Although these financial liabilities are payable on demand they can be settled in cash or by delivery of the
underlying assets.
The directors of the company are confident that the future liquidity requirements of the
company will be met through the future cash flows generated.
46.3 Market risk
46.3.1 Objectives, policies and processes to manage market risk
(i) Multi-manager investment operations
The group has established an investment committee which, in conjunction with the
board of directors of the multi-manager investment subsidiary companies, is responsible
for setting investment strategies for the various investment portfolios and monitoring
compliance therewith.
Investment Solutions employs a multi-manager investment approach, focusing on
reducing risk through optimal and multiple layer diversifications. The structure
of investment portfolios is based on the contracts entered into and the risk profile
selected by the client. Within these parameters, investments are managed with the
aim of delivering superior returns, while limiting risk to acceptable levels, within the
framework of statutory requirements. Although Investment Solutions does not make
use of derivatives directly, the underlying managers may do so within strict mandate
controls to achieve a particular portfolio’s investment objective in the most effective
manner or to smooth or protect portfolio returns.
237
46 FINANCIAL RISK (continued)
46.3 Market risk (continued)
46.3.1 Objectives, policies and processes to manage market risk (continued)
(ii) General operations
Interest rate risk
The group does not hedge against the interest rate exposure of fee income derived
by the group and the board has accepted that changes in interest rates can result in
volatility in the group’s earnings. An increase or decrease in interest rates impacts on
the value of debt securities and cash balances included in assets from multi-manager
investment contracts.
The group’s debt restructure on 31 March 2014 resulted in it having a single layer of
debt with interest linked to the 3-month JIBAR.
Currency risk
The group does not hedge against this currency exposure to earnings and the board
has accepted that changes in exchange rates can result in volatility in the group’s
earnings when reported in rand.
Other price risk
The group monitors the risk associated with the fee income attributable to the equity
assets under management in the multi-manager investment operations. The exposure
to equity markets is monitored and specific advice is taken on the economic outlook
with regard to this fee income. The group does consider various derivative instruments
to protect this income stream.
There have been no significant changes in the way in which market risk is managed
since the prior year.
46.3.2 Exposure to market risk
(i) Multi-manager investment operations
Policyholders’ liabilities are linked to investments in equity securities, preference
shares, debt securities, collective investment schemes, mutual funds, cash and other
assets. These are valued at ruling market values and are therefore susceptible to daily
market fluctuations.
There is no direct significant market risk, either by interest rate, currency or other
price risk, to the group on financial assets held in respect of multi-manager investment
contracts as the effect of any changes in these market risks is directly attributable
to policyholder assets and policyholder assets are directly matched by policyholder
liabilities. There are assets held within the policyholder assets which are exposed to
currency risk arising from various currency exposures primarily with respect to
sterling, euro and the US dollar, but these are matched by policyholder liabilities.
Fee income earned by the group on assets from multi-manager investment operations is
based on assets which are exposed to fluctuations in interest rates, foreign currencies
and equity prices. The group does not hedge against the interest rate and currency
exposures and the board has accepted that changes in interest and exchange rates can
result in volatility in the group’s earnings.
(ii) General operations
Interest rate risk
The group’s income and operating cash flows are substantially independent of changes
in market interest rates, except for interest costs on provisions for client settlements
which are sensitive to short-term interest rates. This impact is offset by the effect of
short-term interest rate movements on interest earned on cash balances.
As detailed above, fee income derived by the group on assets from multi-manager
investment contracts will be impacted by any changes in value of such assets arising
from fluctuations in interest rates.
238
46 FINANCIAL RISK (continued)
46.3 Market risk (continued)
46.3.2 Exposure to market risk (continued)
(ii) General operations (continued)
In addition, a portion of fee income earned in the retail business in the Financial Services
operations in South Africa is affected by changes in interest rates as this income is
linked to assets managed by this business.
The group’s debt restructure on 31 March 2014 resulted in it having a single layer of
debt with interest linked to the 3 month JIBAR.
Currency risk
The group operates internationally and is exposed to foreign exchange risk arising
from various currency exposures. As reflected in segmental profit analysis contained
in these financial statements, the group derives a portion of its operating profit before
non-trading and capital items in foreign currencies. Approximately 19% (2013: 16%) of
the group’s trading results from operations is derived from its international operations,
primarily in the United Kingdom, and 5% (2012: 3%) from operations in Africa outside
of South Africa.
Fee income derived by the group on assets from multi-manager investment operations
will also be impacted by any changes in value of such assets arising from fluctuations
in foreign currency exchange rates.
In addition, a portion of fee income earned in the retail business in the Financial
Services operations in South Africa is impacted by changes in foreign currencies as
this income is linked to assets managed by this business.
Concentration risk
The group is not exposed to any significant concentration risk.
Other price risk
As detailed above, fee income derived by the group on assets from multi-manager
investment operations will be impacted by any changes in the value of such assets
arising from fluctuations in equity markets.
In addition, a portion of fee income earned in the retail business in the Financial
Services operations in South Africa is impacted by changes in equity markets as this
income is linked to assets managed by this business.
46.4 Fair value hierarchy
A number of the group’s accounting policies and disclosures for financial assets and liabilities
require the determination of fair value. Fair value measurement is influenced by current market
conditions and is subject to the financial risks noted above.
A summary of the financial assets and liabilities measured at fair value for the group, split per
financial instrument, is presented in the introduction to this note and shown in summary below:
Rm Fair value Book value* 2014 2013 2012
AssetsFinancial assets held under
multi-manager investment
contracts 253 ,747 – 253 ,747 222 ,790 209 ,994
Financial assets of cell-captive
insurance facilities 315 – 315 11 ,374 9 ,484
General operationsFinancial assets 317 92 409 2 ,064 1 ,209
Trade and other receivables – 517 517 627 640
Cash and cash equivalents – 3 ,907 3 ,907 3 ,626 3 ,062
Total financial assets 254 ,379 4 ,516 258 ,895 240 ,481 224 ,389
239
46 FINANCIAL RISK (continued)
46.4 Fair value hierarchy (continued)
Rm Fair value Book value* 2014 2013 2012
LiabilitiesFinancial liabilities held under
multi-manager investment
contracts 253 ,747 – 253 ,747 222 ,790 209 ,994
Liabilities of cell-captive insurance
facilities 315 – 315 11 ,374 9 ,484
General operationsBorrowings – 1 ,652 1 ,652 5 ,409 5 ,448
Trade and other payables – 953 953 883 775
Total financial liabilities 254 ,062 2 ,605 256 ,667 240 ,456 225 ,701
* For financial assets and financial liabilities not measured at fair value the book values have been disclosed which
approximates the fair value.
46.4.1 Valuation methods and assumptions for valuation techniques
At 31 March 2014, financial assets classified as Level 1 comprise approximately 74% (201 3:
73%; 2012: 88%) of financial assets measured at fair value on a recurring basis. Fair value
measurements classified as Level 1 include exchange-traded prices of fixed maturities,
equity securities and derivative contracts.
At 31 March 2014, financial assets classified as Level 2 comprise approximately 25% (2013:
26%; 2012: 11%) of financial assets measured at fair value on a recurring basis. They
primarily include government and agency securities and certain corporate debt securities,
such as private fixed maturities. As market quotes generally are not readily available or
accessible for these securities, their fair value measures are determined utilising relevant
information generated by market transactions involving comparable securities. They are
often based on model pricing techniques that effectively discount prospective cash flows
to present value using appropriate sector-adjusted credit spreads commensurate with
the security’s duration, also taking into consideration issuer-specific credit quality and
liquidity. These valuation methodologies have been studied and evaluated by the group and
the resulting prices determined to be representative of exit values.
Observable inputs generally used to measure the fair value of securities classified as Level 2
include benchmark yields, reported secondary trades, broker-dealer quotes, issuer spreads,
benchmark securities, bids, offers and reference data. Additional observable inputs are used
when available, and as may be appropriate.
As disclosed in note 11.2, the net fair value of derivative positions is approximately
R8 million at 31 March 2014 (2013: R1 ,163 million). All of these derivative contracts are
traded in the over-the-counter (OTC) derivative market and are classified in Levels 1 and 2.
The fair values of derivative assets and liabilities traded in the OTC market are determined
using quantitative models that require use of the contractual terms of the derivative
instruments and multiple market inputs, including interest rates, prices and indices to
generate continuous yield or pricing curves and volatility factors, which are then applied
to value the positions. The predominance of market inputs is actively quoted and can be
validated through external sources or reliably interpolated if less observable.
The credit risk of the counterparty and of the group is considered in determining the fair
values of all OTC derivative asset and liability positions, respectively, after taking into
account the effects of master netting agreements and collateral arrangements. In each
reporting period, the group values its derivative positions using the standard swap curve
and evaluates whether to adjust the embedded credit spread to reflect change in counterparty
or its own credit standing.
At 31 March 2014, investments classified as Level 3 comprise approximately 1% (2013:
2%) of financial assets measured at fair value on a recurring basis. They primarily include
listed and unlisted equity securities and collective investment schemes whose traded prices
are not considered liquid enough to justify Level 2 observation. Determinations to classify
fair value measures within Level 3 of the valuation hierarchy are generally based on the
significance of the unobservable factors to the overall fair value measurement. The group
applies various due-diligence procedures, as considered appropriate, to validate these non-
binding broker quotes for reasonableness, based on its understanding of the markets,
including use of internally-developed assumptions about inputs a market participant would
use to price the security.
240
46 FINANCIAL RISK (continued)
46.4 Fair value hierarchy (continued)
46.4.1 Valuation methods and assumptions for valuation techniques (continued)
The group issues a significant number of investment contracts that are designated at fair
value through profit or loss. These investment contracts are not quoted in active markets,
and their fair values are determined by using valuation techniques. Such techniques (for
example, valuation models) are validated and periodically reviewed by qualified personnel
independent of the area that created them. All models are validated before they are used
and calibrated to ensure that outputs reflect actual experience and comparable market
prices. A variety of factors are considered in the group’s valuation techniques, including
time value, credit risk (both own and counterparty), embedded derivatives (such as unit-
linking features), volatility factors (including contract holder behaviour), servicing costs
and activity in similar instruments. Since significant inputs are based on unobservable
inputs, these investment contract liabilities are classified as Level 2 instruments in the fair
value hierarchy.
At 31 March 2014, investments classified at Level 3 primarily included suspended listed
equities, community property company assets and infrastructure and development assets,
which comprise approximately 99% of Level 3 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
Distribution discount model, cost,
mark to market, price earnings
multiple and liquidation value
Debt
Discounted cash flow model
Equity
Interest rates and exchange traded
prices
Debt
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.
46.4.2 Financial assets and liabilities at fair value
Financial assets and liabilities measured at fair value at 31 March 2014
Fair value levelsTotal
fair valueRm Level 1 Level 2 Level 3
2014Financial assets held under multi-manager investment contractsEquity securities – listed 119 ,078 1 ,977 – 121 ,055Equity securities – unlisted – – 119 119Preference shares – listed 601 – – 601Collective investment schemes 45 ,172 42 – 45 ,214Debt securities – listed – 24 ,143 – 24 ,143Debt securities – government stock 12 ,125 – – 12 ,125Debentures – listed 2 ,773 – – 2 ,773Policy of insurance – 20 ,299 1 ,570 ,21 ,869Derivative financial instruments – 8 – 8Cash and cash equivalents 8 ,197 – – 8 ,197Money market instruments – listed 60 17 ,583 – 17 ,643
188 ,006 64 ,058 1 ,689 253 ,747
241
46 FINANCIAL RISK (continued)
46.4 Fair value hierarchy (continued)
46.4.2 Financial assets and liabilities at fair value (continued)
Fair value levels Total fair value
Rm Level 1 Level 2 Level 3
2014 Financial assets of cell-captive insurance facilitiesEquity securities – unlisted – – 153 153Receivables – 48 – 48Money market investments 113 – – 113Cash and cash equivalents 1 – – 1
114 48 153 315
General operationsFinancial assets:
Preference shares – listed 34 – – 34Bonds – 39 – 39Collective investment schemes – 244 – 244
34 283 – 317
Total financial assets measured at
fair value 188 ,154 64 ,383 1 ,842 254 ,379
Fair value levels Total fair value
Rm Level 1 Level 2 Level 3
2013 Financial assets held under multi-manager investment contractsEquity securities – listed 101 ,063 – – 101 ,063
Equity securities – unlisted – – 199 199
Preference shares – listed 710 – – 710
Collective investment schemes 36 ,058 – 36 ,058
Debt securities – listed 28 24 ,458 – 24 ,486
Debt securities – government stock 11 ,634 – – 11 ,634
Debentures – listed 299 – – 299
Debentures – unlisted – 65 – 65
Derivative financial instruments 19 1 ,144 – 1 ,163
Unit linked investment contracts 1 ,439 17 ,229 1 ,650 20 ,318
Cash and cash equivalents 11 ,958 – – 11 ,958
Money market instruments – listed 258 14 ,579 – 14 ,837
163 ,466 57 ,475 1 ,849 222 ,790
Financial assets of cell-captive insurance facilitiesEquity securities – unlisted – – 511 511
Receivables 30 150 1 ,799 1 ,979
Preference shares – unlisted – – 177 177
Collective investment schemes – – 437 437
Debt securities – listed 760 – – 760
Money market investments 5 ,506 710 – 6 ,216
Cash and cash equivalents 1 ,294 – – 1 ,294
7 ,590 860 2 ,924 11 ,374
242
46 FINANCIAL RISK (continued)
46.4 Fair value hierarchy (continued)
46.4.2 Financial assets and liabilities at fair value (continued)
Fair value levels Total fair value
Rm Level 1 Level 2 Level 3
2013General operationsFinancial assets:
Derivative securities 64 – – 64
Preference shares – listed 44 – – 44
Bonds – 1 ,591 – 1 ,591
Collective investment schemes 11 175 – 186
119 1 ,766 – 1 ,885
Total financial assets measured at
fair value 171 ,175 60 ,101 4 ,773 236 ,049
Fair value levels Total fair value
Rm Level 1 Level 2 Level 3
2012Financial assets held under multi-manager investment contractsEquity securities – listed 88 ,215 – – 88 ,215
Equity securities – unlisted – – 185 185
Preference shares – listed 680 – – 680
Collective investment schemes 45 ,877 5 ,231 1 ,064 52 ,172
Debt securities – listed 19 ,447 – – 19 ,447
Debt securities – government stock 9 ,839 – – 9 ,839
Debentures – listed 3 ,427 – – 3 ,427
Debentures – unlisted – 45 – 45
Derivative financial instruments 14 57 – 71
Unit linked investment contracts 1 ,109 994 – 2 ,103
Cash and cash equivalents 14 ,984 – – 14 ,984
Money market instruments – listed 1 ,528 17 ,298 – 18 ,826
185 ,120 23 ,625 1 ,249 209 ,994
Financial assets of cell-captive insurance facilitiesEquity securities – unlisted 387 71 – 458
Receivables 19 1 ,519 – 1 ,538
Preference shares – unlisted 72 247 – 319
Collective investment schemes 399 – – 399
Debt securities – listed 23 – – 23
Debt securities – unlisted – 777 – 777
Money market investments – 5 ,220 – 5 ,220
Cash and cash equivalents – 750 – 750
900 8 ,584 – 9 ,484
General operationsFinancial assets:
Equity securities – listed 18 – – 18
Preference shares – listed 44 – – 44
Bonds 777 – – 777
Collective investment schemes 197 – – 197
1 ,036 – – 1 ,036
Total financial assets measured at fair
value 187 ,056 32 ,209 1 ,249 220 ,514
243
46 FINANCIAL RISK (continued)46.4 Fair value hierarchy (continued)
46.4.2 Financial assets and liabilities at fair value
Fair value levels Total fair value
Rm Level 1 Level 2 Level 3
2014 Financial liabilities measured at fair valueFinancial liabilities held under multi-
manager investment contracts – 253 ,747 – 253 ,747Liabilities of cell-captive insurance
facilities – 315 – 315Borrowings at fair value
Total financial liabilities measured at
fair value – 254 ,062 – 254 ,062
2013Financial liabilities measured at fair valueFinancial liabilities held under multi-
manager investment contracts – 222 ,790 – 222 ,790
Liabilities of cell-captive insurance
facilities – – 11 ,374 11 ,374
Borrowings at fair value – 304 – 304
Total financial liabilities measured at
fair value – 223 ,094 11 ,374 234 ,468
2012Financial liabilities measured at fair valueFinancial liabilities held under multi-
manager investment contracts – 209 ,994 – 209 ,994
Liabilities of cell-captive insurance
facilities – – 9 ,484 9 ,484
Borrowings at fair value – 247 – 247
Total financial liabilities measured at
fair value – 210 ,241 9 ,484 219 ,725
46.4.3 Changes in Level 3 instrumentsFinancial assets
Rm
Financial assets under multi-
manager assets
Financial assets of
cell insurance facilities
General operations Total
Opening balance at 1 April 2013 1 ,849 2 ,924 – 4 ,773 Total gains and losses recognised in
profit or loss (69) 87 – 18 Fair value gains and losses 104 – – 104 Transfer from loans and receivables – (2 ,835) – (2 ,835) Purchases 207 – – 207 Sales (402) (23) – (425)
Closing balance at 31 March 2014 1 ,689 153 – 1 ,842
244
46 FINANCIAL RISK (continued)46.4 Fair value hierarchy (continued)
46.4.3 Changes in Level 3 instruments (continued)Financial assets
Rm
Financial assets under multi-
manager assets
Financial assets of
cell insurance facilities
General operations Total
Opening balance at 1 April 2012 1 ,249 – – 1 ,249
Total gains and losses recognised in
profit or loss –
Fair value gains and losses 178 – – 178
Transfer from loans and receivables 415 – – 415
Purchases 35 2 ,924 – 2 ,959
Sales (28) – – (28)
Closing balance at 31 March 2013 1 ,849 2 ,924 – 4 ,773
Financial assetsOpening balance at 1 April 2011 1 ,139 – 18 1 ,157
Total gains and losses recognised in
profit or loss
Fair value gains and losses (102) – – (102)
Transfer from loans and receivables 46 – – 46
Purchases 236 – – 236
Sales (70) – (18) (88)
Closing balance at 31 March 2012 1 ,249 – – 1 ,249
Financial liabilities2014Opening balance at 1 April 2013 – 11 ,374 – 11 ,374Transfer to level 2 – – – –Disposal of subsidiary – (11 ,374) – (11 ,374)
Closing balance at 31 March 2014 – – – –
2013Opening balance at 1 April 2012 – 9 ,484 – 9 ,484
Total gains and losses recognised in
profit or loss:
Fair value gains and losses – 374 – 374
Other movement in policy holder
liabilities – 3 ,284 – 3 ,284
Investments – (1 ,768) – (1 ,768)
Disposals – – – –
Closing balance at 31 March 2013 – 11 ,374 – 11 ,374
245
46 FINANCIAL RISK (continued)46.4 Fair value hierarchy (continued)
46.4.3 Changes in Level 3 instruments (continued)
Financial assets under multi-
manager assets
Financial assets of
cell insurance facilities
General operations Total
2012Opening balance at 1 April 2011 – 7 ,738 – 7 ,738
Total gains and losses recognised in
profit or loss:
Fair value gains and losses – 727 – 727
Other movement in policy holder
liabilities – 1 ,019 – 1 ,019
Investments – – – –
Disposals – – – –
Closing balance at 31 March 2012 – 9 ,484 – 9 ,484
The group’s profit or loss will not significantly be affected by favourable or unfavourable
changes in the Level 3 assets shown above. The financial assets and liabilities of multi-
manager investment contracts are linked and all movements in these assets will be met with
a converse movement in the liabilities associated. Similarly the cell owner insurance assets
and liabilities are also linked.
47 OPERATIONAL, LEGAL AND CAPITAL RISK
47.1 Operational risk
Operational risk is the risk of loss due to factors such as inadequate systems, management failure,
inadequate internal controls, fraud or human error. The group mitigates these risks through a risk
management framework, systems of internal controls, internal audit and compliance functions and
other measures such as back-up procedures, contingency planning and insurance.
47.2 Legal and regulatory risk
The group is exposed to various actual and potential claims, lawsuits and other proceedings relating
to alleged errors and omissions, or non-compliance with laws and regulations, in the conduct of
its ordinary course of business. The directors are satisfied, based on present information and the
assessed probability of claims eventually, that the group has adequate insurance programmes and
provisions in place to meet such claims. However, like all businesses of our type, the risk exists
that significant adverse developments in past claims, or a significant increase in the frequency
of severity of future claims for errors and omissions, could have a material effect on the group’s
reported results. Details of the structure of the group’s errors and omissions insurance programme
are provided in the relevant note to these financial statements.
47.3 Capital
The group’s objectives when managing capital are:
• To comply with capital requirements required for insurers as determined by legislation.
• To safeguard the group’s ability to continue as a going concern so that it can provide returns for
its shareholders and benefits for other stakeholders.
Regulated insurance and investment subsidiary companies
The capital adequacy requirement (CAR) is calculated to determine whether the excess of assets
over liabilities is sufficient to provide for the possibility of severely adverse future experience. The
calculation is as required by the Long-Term Insurance Act, 1998, in South Africa and calculated
in terms of the guidance notes issued by the Actuarial Society of South Africa (ASSA). The CAR
is determined with reference to the guidance issued by ASSA but is subject to a minimum of R10
million or 13 weeks, operating expenses in terms of directive 140.A.i(LT) of the Financial Services
Board or 0.3% of gross policyholder liabilities. The subsidiary companies are required to hold
sufficient equity and reserves to meet its CAR and can only distribute accumulated profits in excess
of CAR.
246
47 OPERATIONAL, LEGAL AND CAPITAL RISK (continued)
47.3 Capital (continued)
Regulated insurance and investment subsidiary companies (continued)
For Investment Solutions, all liabilities are directly related to asset values and no mortality or
similar risks are assumed, the only risk to be considered is operational risk. The CAR held at
reporting date was R456 million (2013: R321 million; 2012: R249 million), representing an excess
of assets over liabilities of 2.2 times (2013: 2.9 times: 2012: 2.95 times).
The CAR held by Alexander Forbes Life at reporting date was R172 million (2013: R139 million;
2012: R120 million), representing an excess of assets over liabilities of 1.6 7 times (2013: 1.78 times;
2012: 1.63 times).
For statutory purposes, the share capital of cell-captive insurance subsidiary companies consists of
ordinary shares and ‘A’ and ‘L’ shares.
The cell-captive insurance subsidiary companies submit quarterly and annual returns to the South
African Financial Services Board in terms of the Short-term Insurance Act, 53 of 1998 of South
Africa (the act). The companies are required at all times to maintain a statutory surplus asset ratio
as defined in the Act. The returns submitted to the Regulator showed that the companies have met
the minimum capital requirements throughout the year.
The implementation by the Financial Services Board of consolidated supervision, although
postponed from the original implementation date, is expected to become effective in January 2014.
The current capital structure of the group is being reviewed to ensure that it best meets the long-
term regulatory and operational requirements of the group. This review is likely to result in certain
components or features of the current group capital structure and certain debt instruments being
amended in order to meet the requirements of consolidated supervision.
General operations
When maintaining capital, the group’s objectives are to maintain a sufficient level of capital without
compromising the ability to operate effectively. This is achieved by using available cash balances to
fund working capital requirements and returning capital to shareholders and lenders as and when
excess cash is generated. When required, the group makes use of inter-group loans from its direct
or indirect holding company as a source of funds.
48 CONSOLIDATED AND UNCONSOLIDATED ENTITIES
48.1 Consolidated entities
Material subsidiaries, joint ventures and associates in which the group has a financial interest.
Entity Nature of businessYear-end
date
Economic interest
2014%
2013%
1. HOLDINGS COMPANIES ABOVE THE OPERATIONAL ALEXANDER FORBES LIMITED GROUP
Alexander Forbes Holdco Proprietary Limited Holding company 31 March 100 100
Alexander Forbes PIK Funding
Proprietary Limited
Holding company 31 March 100 100
Alexander Forbes Funding
Proprietary Limited
Holding company 31 March 100 100
Alexander Forbes Acquisition
Proprietary Limited
Holding company 31 March 100 100
2. OPERATIONAL COMPANIES WITHIN THE ALEXANDER FORBES LIMITED GROUP
Alexander Forbes Administration Services
Proprietary Limited
Risk services 31 March 100 100
Alexander Forbes Compensation Technologies
Proprietary Limited
Facilitation of injury
on duty and road
accident claims
31 March 100 100
Alexander Forbes Direct Proprietary Limited Risk services 31 March 100 100
Alexander Forbes Financial Planning
Consultants Proprietary Limited
Financial planning 31 March 100 100
247
Entity Nature of businessYear-end
date
Economic interest
2014%
2013%
Alexander Forbes Financial Services
Proprietary Limited
Financial services and
risk services
31 March 100 100
Alexander Forbes Group & Technology
Services Proprietary Limited
Technology services 31 March 100 100
Alexander Forbes Health Proprietary Limited Healthcare 31 March 100 100
Alexander Forbes Individual Client
Administration Services Proprietary Limited
Financial services
administration
31 March 100 100
Alexander Forbes Insurance Company Limited Short-term personal
lines insurer
31 March 100 100
Alexander Forbes Life Limited Long-term insurer 31 March 100 100
Alexander Forbes Retail Holdings
Proprietary Limited
Financial services 31 March 100 100
Caveo Fund Solutions Proprietary Limited Hedge fund
management company
31 March 50.01 50.01
Faranani Risks Solutions Proprietary Limited Risk services 31 March 100 100
Guardrisk Allied Products and Services
Proprietary Limited
Risk services 31 March – 100
Guardrisk Insurance Company Limited Short-term cell-captive
insurer
31 March – 100
Guardrisk Life Limited Long-term cell-captive
insurer
31 March – 100
Homeplan Financial Solutions
Proprietary Limited
Pension-backed
lending
31 March 100 100
Investment Solutions Limited Multi-manager
investment
31 March 100 100
Investment Solutions Administrative Services
Proprietary Limited
Administrative
services provider
31 March 100 100
Investment Solutions Unit Trust Limited Unit trust
management
31 March 100 100
Premium Payment Plan Proprietary Limited Premium financing 31 March 100 100
Seniors Finance Proprietary Limited Equity housing
finance
31 March 83 83
Superflex Limited Multi-manager
investment
31 March 100 100
Alexander Forbes AfriNet Investments
Proprietary Limited
Holding company for
African operations
31 March 100 100
REST OF AFRICA
Alexander Forbes Financial Services
(Botswana) Limited
Financial services
(Botswana)
31 March 67 67
Alexander Forbes Assets Consultants
Proprietary Limited
Financial services
(Botswana)
31 March 74 74
Alexander Forbes Financial Services
Uganda Limited
Financial services
(Uganda)
31 March 55 55
Alexander Forbes Financial Services
(East Africa) Proprietary Limited
Financial services
(Kenya)
31 December 60 60
Guardrisk International Limited PCC Cell-captive insurance
(Mauritius)
31 March – 100
248
Entity Nature of businessYear-end
date
Economic interest
2014%
2013%
Alexander Forbes Mozambique Lda* Risk services
(Mozambique)
31 December – 65
Guardrisk Namibia Insurance Company
Limited
Cell-captive insurance
(Namibia)
31 March 75 75
Guardrisk Life Namibia Limited Cell-captive life
assurance (Namibia)
31 March 75 75
Femi Johnson Company* Risk services (Nigeria) 31 March – 60
Alexander Forbes Financial Services Namibia
Proprietary Limited
Financial services and
risk services (Namibia)
31 March 70 70
Investment Solutions Namibia Limited Multi-manager
investment (Namibia)
31 March 70 70
Alexander Forbes Consulting Actuaries
Nigeria Limited
Financial services
(Nigeria)
31 March 78 78
Swaziland Employee Benefit Consultants
Proprietary Limited*
Financial services
(Swaziland)
31 March 50 50
Alexander Forbes Zimbabwe Holdings
Proprietary Limited
Risk services
(Zimbabwe)
31 March 60 60
ASSOCIATES
Alexander Forbes Insurance Brokers
Kenya Limited
Risk services (Kenya) 31 March 40 40
Tibiyo Insurance Brokers
Proprietary Limited*
Risk services
(Swaziland)
31 March 41.25 41.25
* These entities are held for sale.
UNITED KINGDOM/EUROPE
Alexander Forbes International Limited Ultimate holding
company for
international Group
31 March 100 100
Alexander Forbes Channel Islands Limited Financial services 31 March 100 100
Alexander Forbes Group Jersey Limited Holding company in
Jersey
31 March 100 100
Alexander Forbes Services Limited Group service
company
31 March 100 100
Alexander Forbes Financial Services
Holdings Limited
Holding company in
the United Kingdom
31 March 100 100
Alexander Forbes Trustee Services Limited Corporate trustee
services
31 March 100 100
Euroguard Insurance Company PCC Limited Short-term cell-captive
insurer (Gibraltar)
31 March – 100
Investment Solutions (Jersey) Limited* Multi-manager
investment
31 March 100 100
Lane Clark & Peacock LLP Financial services 31 March 100 60
Lane Clark & Peacock Netherlands BV Financial services 31 March 100 48
Lane Clark & Peacock Ireland Limited Financial services 31 March 100 48
Lane Clark & Peacock Belgium CVBA* Financial services
(Belgium)
31 March 100 54
LCP Libera AG Financial services
(Switzerland)
30 June – 56
Media Insurance Services Limited Direct marketing
entity in run-off
31 March – 80
249
48 CONSOLIDATED AND UNCONSOLIDATED ENTITIES (continued)
48.1 Consolidated entities (continued)
Material subsidiaries, joint ventures and associates in which the group has a financial interest.
Entity Nature of businessYear-end
date
Economic interest
2014%
2013%
Alexander Forbes UK Direct Limited direct
marketing insurance
intermediary
31 March – 40
Investment Solutions Group Limited Holding company 31 March – 100
Investment Solutions Limited Multi-manager
investment
31 March – 100
Investment Solutions Fund Managers Limited Fund manager 31 March – 100
Investment Solutions Investment
Administration Services
Limited service
company
31 March – 100
JOINT VENTURES:Alexander Forbes UK Direct Limited Direct marketing 31 March – 40
LCP Asalis AG Financial services
(Switzerland)
31 March – 95
* These entities are held for sale
48.2 Consolidated structured entities
The group consolidates the following special purpose vehicles:
– Management Share Trust.
– MST Funding SPV (Pty) Ltd.
– BEE Funding SPV (Pty) Ltd.
These entities are consolidated due to the group having exposure to variability of returns in these
entities and the power to direct the relevant activities that affect this exposure.
Management Share Trust (“MST”)
The group formed the MST in 2007 with the intention of providing certain members of management
an opportunity to invest in the group. The group provides financial assistance in the form of a loan
account to the trust. The loan is interest bearing and does not have a fixed term of repayment.
MST SPV (Pty) Ltd and BEE SPV (Pty) Ltd
As part of the debt restructure undertaken by the group on 31 March 2014, the MST and Alexander
Forbes Management Co-Investment Trust (“the Co-Investment Trust”) obtained the right to invest
in additional ordinary shares of AFEH in order not to dilute its existing investment. MST SPV was
formed, the shareholders of which are the MST and the Co-Investment Trust.
Also as part of the debt restructure, Golden Falls obtained the right to invest in additional ordinary
shares of AFEH. This right was given to the shareholders of Golden Falls, being the Alexander
Forbes Community Trust and the Alexander Forbes Staff Share Trust. As a result, BEE SPV was
formed, the shareholders of which are the Alexander Forbes Community Trust and the Alexander
Forbes Staff Share Trust.
The purpose of the SPVs was to create ring-fenced companies to raise funding in the form of
preference shares for the investment in the ordinary shares of AFEH.
Alexander Forbes Acquisitions (Pty) Ltd (“AF Acquisitions”) provided a guarantee to RMB in respect
of the preference shares issued by the MST SPV and the BEE SPV. Further information on the
funding arrangement is provided in note 27 Borrowings.
The structures result in the ordinary shareholders participating in any increase of the fair value
of the AFEH shares on an exit event above the carrying value of the loan (capital plus accrued
interest). However, if the fair value of the AFEH shares on an exit event is below the carrying
value of the loan, the deficit does not result in a loss for the ordinary shareholders because AF
Acquisitions settles the deficit via the guarantee. This transaction therefore falls within the scope
of IFRS 2 and as such requires that the company recognises the expense between the fair value of
the effective call option and any consideration paid by the participants.
250
48 CONSOLIDATED AND UNCONSOLIDATED ENTITIES (continued)
48.2 Consolidated structured entities
Consideration was given to the fair value of the option based on the following:
• The transaction at year-end was performed at fair value.
• The expected term of the loan is less than 90 days.
• The indicative value of the equity security is significantly higher than the loan balance.
• The cost of the funding was not onerous or did not imply significant risk.
A valuation performed for the instrument indicated that the expense was not material and therefore
no expense has been recognised at year-end.
48.3 Unconsolidated structured entities
While the group consolidates certain structured entities, other structured entities are not
consolidated due to the group not having an exposure to variability in returns and the power to
govern the activities that affect this exposure. The unconsolidated structured entities in which the
group has an interest are:
– Alexander Forbes Staff Share Trust.
– Certain Collective Investment Schemes of which the group is the Fund Manager and has
an investment.
Alexander Forbes Staff Share Trust (“the Staff Share Trust”)
The Staff Share Trust was formed to provide a vehicle for employee investment in the ordinary
shares of AFEH. While the trust is not consolidated, the group has invested in preference shares
of R34 million issued by the trust, which is included in Financial Assets on the Statement of
Financial Position. All rights granted by the Staff Share Trust are fully vested in the hands of the
beneficiaries. The group does not intend to provide any financial assistance to the trust nor are
there any contractual obligations to provide financial assistance to the Trust.
Unconsolidated Collective Investment Schemes
The group manages six collective investment schemes as fund manager which are not consolidated.
It also invests certain policyholder assets with these trusts. The value of these investments at
31 March 2014 is R526 million (8.4% of the total assets in the schemes), included in Financial assets
of multi-manager investment contracts on the Statement of Financial Position. The group provides
no financial assistance to the schemes nor is there any contractual obligation to provide assistance
to the scheme.
251
49 SUBSIDIARIES WITH MATERIAL NON-CONTROLLING INTEREST
The group consolidates certain entities with material subsidiaries. The summarised financial information
of these entities are disclosed below.
The information represents 100% of the entity’s results and has not been adjusted for the non controlling
interest share. Inter-company transactions and balances have not been eliminated.
Alexander Forbes Insurance Company
Namibia Limited
Alexander Forbes Financial Services
Botswana LCP LLPRm 2014 2013 2014 2013 2014 2013
Balance sheet informationTotal assets 348 282 29 26 781 445
Total liabilities (335) (271) (6) (5) (437) (234)
Total net assets 13 11 23 21 344 211
Summarised income statementRevenue 68 62 79 65 1 ,299 974
Profit before tax 11 7 34 29 253 156
Tax expense (5) (3) (8) (6) – –
Profit after tax 6 4 26 23 253 156
Other comprehensive
income – – – – – –
Total comprehensive income 6 4 26 23 253 156
Total comprehensive
income allocated to
non-controlling interest – – 10 7 101 63
Dividends paid to
non-controlling interest (1) – (25) (21) 59 60
Summarised cash flowsCash from operating
activities 9 7 19 17 735 478
Cash from investing
activities – – – 1 (98) 12
Cash from financing
activities – – (18) (15) (537) (456)
Net increase in cash and
cash equivalents 9 7 1 3 100 10
Exchange rate differences – – – – 1 (1)
Cash and cash equivalents
at beginning of the year 129 122 13 10 96 87
Cash and cash equivalents
at year-end 138 129 14 13 197 96
Significant restrictions
LCP LLP is governed by a partnership agreement which places limitations on the distributions of profits
to partners to two specific dates in the year.
252
50 ADJUSTMENTS TO PREVIOUSLY REPORTED HISTORICAL FINANCIAL INFORMATION
In connection with the preparation of this report on historical financial information, the group has
made certain adjustments to its previously reported historical financial information. These relate to
the adoption of new accounting standards, the presentation of discontinued operations and subsequent
events occurring between the date of authorisation of the group’s annual financial statements and the
date of this report on historical financial information:
50.1 New accounting standards
The following tables summarise the material impact on the group’s financial position and
comprehensive income resulting from the adoption of IFRS 10 Consolidated Financial Statements,
and IAS 19 revised Employee Benefits and the subsequent events adjustment as disclosed in note 44
The restatement arising on discontinuance of operations has not been set out below.
The adoption of IFRS 10 resulted in the consolidation of the management share trust due to the
revised definition of control.
The adoption of the revised IAS 19 resulted in actuarial gains/losses being recognised immediately
in other comprehensive income, rather than being deferred and recognised using the corridor
approach over the lives of eligible employees.
Impact on 31 March 2013 Group Statement of Financial Position
Rm
As previously
reported
Defined benefit
obligation
Consolidation of
Management Share Trust Restated
AssetsPolicyholder and cell captive assets 234 ,164 – – 234 ,164
Other assets 9 ,374 – – 9 ,374
Trade and other receivables 961 – (26) 935
Cash and cash equivalents 3 ,624 – 2 3 ,626
Assets and disposal group classified as held
for sale 29 ,938 – – 29 ,938
Total assets 278 ,061 – (24) 278 ,037
Equity and liabilities
Share capital 3 ,261 – – 3 ,261
Treasury shares – – (21) (21)
Accumulated loss (1 ,132) (24) (6) (1 ,162)
Other reserves (8) – – (8)
Equity holders' funds 2 ,121 (24) (27) 2 ,070
Non-controlling interest 194 – – 194
Total equity 2 ,315 (24) (27) 2 ,264Policyholder and cell captive liabilities 234 ,164 – – 234 ,164
Other liabilities 10 ,333 – – 10 ,333
Employee benefits 157 24 – 181
Trade and other payables 1 ,350 – 3 1 ,353
Liabilities of disposal group classified as held
for sale 29 ,742 – – 29 ,742
Total liabilities 275 ,746 24 3 275 ,773
Total equity and liabilities 278 ,061 – (24) 278 ,037
253
50 ADJUSTMENTS TO PREVIOUSLY REPORTED HISTORICAL FINANCIAL INFORMATION (continued) 50.1 New accounting standards (continued)
Impact on 31 March 2013 Group Income Statement
Rm
As previously
reported*
Defined benefit
obligation Restated
Continuing operationsOperating profit 812 – 812
Investment income 137 (8) 129
Finance costs (848) – (848)
Share of net profit of associates (net of income tax) 1 – 1
Profit before tax 102 (8) 94
Income tax expense (192) – (192)
Loss for the year from continuing operations (90) (8) (98)
Discontinued operationsLoss on discontinued operations (10) – (10)
Loss for the year (100) (8) (108)
Loss attributable to:
Equity holders (183) (8) (191)
Non-controlling interest 83 – 83
(100) (8) (108)
* Restated for the effects of discontinued operations.
Note: The consolidation of the management share trust did not require the restatement of the
group income statement.
Impact on 31 March 2013 Statement of Comprehensive Income
Rm
As previously
reported*
Defined benefit
obligation Restated
Loss for the period (100) (8) (108)
Foreign currency translation differences of foreign
operations 90 – 90
Foreign currency translation reserve of disposed
operations – 30 30
Changes in fair value of cash flow hedges (13) – (13)
Portion of fair value hedge transferred to profit or loss 45 – 45
Other 3 – 3
Other comprehensive income for the period (net of income tax) that will be reclassified to profit or loss 155 – 155
Actuarial losses on valuation of employee benefits – (4) (4)
Other comprehensive income for the period (net of income tax) that will not be reclassified to profit or loss – (4) (4)
Total comprehensive income for the period 55 (12) 43
254
50 ADJUSTMENTS TO PREVIOUSLY REPORTED HISTORICAL FINANCIAL INFORMATION (continued)
50.1 New accounting standards (continued)
Impact on 31 March 2012 Group Statement of Financial Position
Rm
As previously
reported
Defined benefit
obligation
Consolidation of
Management Share Trust Restated
AssetsPolicyholder and cell captive assets 219 ,478 – – 219 ,478
Other assets 8 ,638 – – 8 ,638
Trade and other receivables 944 – (31) 913
Cash and cash equivalents 3 ,053 – 9 3 ,062
Assets and disposal groups classified as
held for sale 288 – – 288
Total assets 232 ,401 – (22) 232 ,379
Equity and liabilities
Share capital 3 261 – – 3 ,261
Treasury shares – – (29) (29)
Accumulated loss (949) (12) (6) (967)
Other reserves (173) – – (173)
Equity holders' funds 2 ,139 (12) (35) 2 ,092
Non-controlling interest 185 – – 185
Total equity 2 ,324 (12) (35) 2 ,277
Policyholder and cell captive liabilities 219 ,478 – – 219 ,478
Other liabilities 8 ,995 – – 8 ,995
Employee benefits 158 12 – 170
Trade and other payables 1 ,315 – 13 1 ,328
Liabilities of disposal group classified as
held for sale 131 – – 131
Total liabilities 230 ,077 12 13 230 ,102
Total equity and liabilities 232 ,401 – (22) 232 ,379
255
50 ADJUSTMENTS TO PREVIOUSLY REPORTED HISTORICAL FINANCIAL INFORMATION (continued)
50.1 New accounting standards (continued)
Impact on 31 March 2012 Group Income Statement
Rm
As previously
reported*
Defined benefit
obligation Restated
Continuing operationsOperating profit 754 – 754
Investment income 168 (7) 161
Finance costs (816) – (816)
Share of net profit of associates (net of
income tax) 1 – 1
Profit before tax 107 (7) 100
Income tax expense (316) – (316)
Loss for the year from continuing operations (209) (7) (216)
Discontinued operationsProfit on discontinued operations 157 – 157
Loss for the year (52) (7) (59)
(Loss)/profit attributable to:
Equity holders (129) (7) (136)
Non-controlling interest 77 – 77
(52) (7) (59)
* Restated for the effects of discontinued operations.
Note: The consolidation of the management share trust did not require the restatement of the
group income statement.
Impact on 31 March 2012 Statement of Comprehensive Income
Rm
As previously
reported
Defined benefit
obligation Restated
Loss for the period (52) (7) (59)
Foreign currency translation differences of foreign
operations 89 – 89
Foreign currency translation reserve of
disposed operations – – –
Changes in fair value of cash flow hedges (39) – (39)
Portion of fair value hedge transferred to profit or loss 71 – 71
Other – – –
Other comprehensive income for the period (net of income tax) that will be reclassified to profit or loss 121 – 121
Actuarial losses on valuation of employee benefits – (5) (5)
Other comprehensive income for the period (net of income tax) that will not be reclassified to profit or loss – (5) (5)
Total comprehensive income for the period 69 (12) 57
50.2 Discontinued operations
During the year ended 31 March 2014, the group discontinued and disposed of the Guardrisk group
of companies, Euroguard in the UK and the Swiss operations of Lane, Clarke & Peacock. Further,
the group concluded the disposals of the operations of Media Insurance Services, Investment
Solutions UK, the Afri Net Risk Services operations of Mozambique and Nigeria that were classified
as discontinued at 31 March 2013. The group also discontinued the operations of Trustee Services
in the UK and LCP Europe, both of which formed part of the International division previously
following the board’s decision to dispose of these entities.
256
50 ADJUSTMENTS TO PREVIOUSLY REPORTED HISTORICAL FINANCIAL INFORMATION (continued)
50.2 Discontinued operations (continued)
The results of these operations are reported as discontinued in the income statement and the
comparatives for the years ended 31 March 2013 and 2012 have been re-presented accordingly.
Refer to note 23.1 for the results from discontinued operations.
50.3 Subsequent events
The annual financial statements for the year ended 31 March 2014 disclosed a tax contingency
relation to information requests received from SARS. Subsequent to the issuing of the annual
financial statements for the group on 9 June 2014, at the initiative of the group and in order to
bring finality to this matter, following recent discussions with SARS, Alexander Forbes has reached
an agreement with SARS towards a full and final settlement of the matter and, specifically, to settle
the tax issue relating to the deduction of interest claimed over the years since the transaction up to
and including the financial year ended 31 March 2014.
The preparation of this report of historical financial information of the group in accordance with
IFRS requires the group to adjust the amounts recognised in its consolidated financial statements
for events that provide further evidence of the tax contingency that existed at 31 March 2014.
Since the settlement agreement with SARS w as initiated by the group and reached subsequent to
the finalisation of the annual financial statements for the group on 9 June 2014, but before the
date of authorisation of this report on historical financial statements, the above settlements have
been reflected in the results for the year ended 31 March 2014 as set out in this report on historical
financial information. Refer to notes 8 and 44.
Impact on 31 March 2014 Group Statement of Financial Position
Rm
As previously
reported
Tax settlement adjustment Restated
AssetsPolicyholder and cell captive assets 254 ,062 – 254 ,062
Deferred tax asset 183 (66) 117
Other assets 6 ,515 – 6 ,515
Trade and other receivables 873 – 873
Cash and cash equivalents 3 ,907 – 3 ,907
Assets and disposal group classified as held for sale 91 – 91
Total assets 265 ,631 (66) 265 ,565
Equity and liabilities
Share capital 5 ,819 – 3 ,261
Treasury shares (405) – (405)
Accumulated loss (763) (126) (889)
Other reserves 102 – 102
Equity holders’ funds 4 ,753 (126) 4 ,627
Non-controlling interest 210 – 210
Total equity 4 ,963 (126) 4 ,837
Policyholder and cell captive liabilities 254 ,062 – 234 ,164
Other liabilities 4 ,872 – 4 ,872
Employee benefits 168 – 168
Trade and other payables 1 ,531 60 1 ,591
Liabilities of disposal group classified as held for sale 35 – 35
Total liabilities 260 ,668 60 260 ,728
Total equity and liabilities 265 ,631 (66) 265 ,565
257
50 ADJUSTMENTS TO PREVIOUSLY REPORTED HISTORICAL FINANCIAL INFORMATION (continued)Impact on 31 March 2014 Group Income Statement
Rm
As previously
reported
Tax settlement adjustment Restated
Continuing operationsOperating profit 932 – 932Investment income 233 – 233Finance costs (843) – (843)Share of net profit of associates (net of income tax) 2 – 2
Profit before tax 324 – 324Income tax expense (361) (126) (487)
Loss for the year from continuing operations (37) (126) (163)
Discontinued operationsProfit on discontinued operations 542 – 542
Profit/(loss) for the year 505 (126) 379
Profit/(loss) attributable to:
Equity holders 395 (126) 269Non-controlling interest 110 – 110
505 (126) 379
Impact on 31 March 2013 Statement of Comprehensive Income
Rm
As previously
reported
Tax settlement adjustment Restated
Loss for the period 505 (126) 379
Foreign currency translation differences of foreign operations 329 – 329
Foreign currency translation reserve of disposed operations
recycled to profit or loss 82 – 82
Changes in fair value of cash flow hedges (1) – (1)
Portion of cash flow hedge recycled to profit or loss 20 – 20
Other (5) – (5)
Other comprehensive income that will be reclassified to profit or loss 425 – 425
Actuarial gain on employee benefits 4 – 4
Other comprehensive income that will not be reclassified to profit or loss 4 – 4
Total comprehensive income / (loss) for the year 934 (126) 808
Total comprehensive income / (loss) attributable to:
Equity holders 780 (126) 654
Non-controlling interest 154 – 154
Total comprehensive income for the year 934 (126) 808
258
Annexure 3
INDEPENDENT REPORTING ACCOUNTANT’S REPORT ON THE HISTORICAL FINANCIAL INFORMATION OF THE GROUP
The Board of DirectorsAlexander Forbes Group Holdings Limited115 West StreetSandown2146
Dear Sirs
Independent Reporting Accountant’s Audit Report on the Historical Financial Information
Introduction
Alexander Forbes Group Holdings Limited (the “Company”) is issuing a Pre-listing statement (the “Pre-listing statement”) regarding the Listing of its shares on the Main Board of the JSE (the “Listing”).
At your request and for the purpose of the Pre-listing statement to be dated on or about 7 July 2014, we have audited the Historical Financial Information of the Company, and its subsidiaries (the “Group”), which comprises the Group statements of financial position as at 31 March 2014, 2013 and 2012, the Group income statement and Group statements of comprehensive income, changes in equity and cash flows for the years then ended, and the notes, comprising a summary of significant accounting policies and other explanatory information (the “Historical Financial Information”), as presented in Annexure 2 to the Pre-listing statement, in compliance with the JSE Listings Requirements.
Responsibility
Directors’ responsibility
The directors of the Company are responsible for the preparation, contents and presentation of the Pre-listing statement and are responsible for ensuring that the Group complies with the JSE Listings Requirements. The directors of the Company are also responsible for the preparation and fair presentation of the Historical Financial Information in accordance with International Financial Reporting Standards, and for such internal controls as they determine is necessary to enable the preparation of Historical Financial Information that is free from material misstatement, whether due to fraud or error.
Reporting accountant’s responsibility
Our responsibility is to express an opinion on the Historical Financial Information based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements, and plan and perform the audit to obtain reasonable assurance whether the Historical Financial Information of the Company is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Historical Financial Information . The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the Historical Financial Information, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the Historical Financial Information in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used, and the reasonableness of accounting estimates made by management of the Group, as well as evaluating the overall presentation of the Historical Financial Information.
We believe that the audit evidence we obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the Historical Financial Information of the Group as set out in Annexure 2 to the Pre-listing statement, presents fairly, in all material respects, the financial position of the Group at 31 March 2014, 2013 and 2012 and the Group’s financial performance and cash flows for the years then ended in accordance with International Financial Reporting Standards and the JSE Listings Requirements.
PricewaterhouseCoopers Inc.
Director: Johannes GrosskopfRegistered Auditor
Sunninghill 4 July 2014
259
Annexure 4
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The pro forma consolidated income statement for the financial year ended 31 March 2014 and pro forma
consolidated balance sheet (together, the “pro forma consolidated financial information”) as at and for the
financial year ended 31 March 2014 have been prepared to show the impact of the Restructure and the Offer,
as if the Restructure and Offer had occurred on 1 April 2013 for purposes of the pro forma consolidated
income statement and on 31 March 2014 for the purposes of the pro forma consolidated balance sheet. The
pro forma consolidated financial information is presented for illustrative purposes only and, because of its
nature, may not fairly reflect the financial position of the Group and results of operations, nor the impact of
the Restructure and Offer going forward. This information should be read in conjunction with, and is qualified
in its entirety by reference to, the Consolidated Financial Statements included in Annexure 2 to this
pre-listing statement.
The compilation, contents and preparation of the pro forma consolidated financial information is the
responsibility of the directors of the Company. Their responsibility includes determining that: the pro forma
consolidated financial information has been properly compiled on the basis stated; the basis is consistent with
accounting policies of the Company; and the pro forma adjustments are appropriate for the purposes of the
pro forma consolidated financial information disclosed in terms of Listings Requirements.
The pro forma consolidated financial information has been prepared using accounting policies that are
consistent with IFRS and with the basis on which the historical financial information has been prepared in
terms of the Group’s accounting policies.
The pro forma consolidated financial information as set out below should be read in conjunction with the
independent reporting accountants’ report set out in Annexure 5 to this pre-listing statement.
Such report is included solely to comply with the requirements of the Listings Requirements in South Africa.
Such pro forma consolidated financial information has not been prepared in accordance with the requirements
of Regulation S-X of the SEC or generally accepted accounting practices in the United States. In addition, the
rules and regulations related to the preparation of pro forma consolidated financial information in other
jurisdictions may also vary significantly from the requirements applicable in South Africa. The reporting on
the pro forma consolidated financial information by PricewaterhouseCoopers has not been carried out in
accordance with the auditing standards generally accepted in the United States and accordingly should not be
relied upon by investors as if it had been carried out in accordance with those standards or any other standards
besides the South African requirements mentioned above.
260
Pro
For
ma
Con
soli
date
d In
com
e S
tate
men
t
Yea
r en
ded
31
Ma
rch
20
14
Act
ua
l1
Imp
act
of
the
Res
tru
ctu
re2
Pro
for
ma
aft
er t
he
Res
tru
ctu
reD
econ
soli
-d
ati
ons3
,4
Issu
e of
S
ub
scri
pti
on S
ha
res5
His
tori
cal
tra
nsa
ctio
n
ba
se
ince
nti
ves
6
Fu
ture
sh
are
in
cen
tiv
e sc
hem
es7
Tra
nsa
ctio
n
cost
s8
Pro
for
ma
aft
er t
he
Off
er
(R m
illi
on u
nle
ss o
ther
wis
e in
dic
ate
d)
Con
tin
uin
g o
per
ati
ons
Fee a
nd
com
mis
sio
n i
ncom
e4
,77
64
,77
64
,77
6
Less: D
irect
ex p
en
ses a
ttrib
uta
ble
to
fee a
nd c
om
mis
sio
n i
ncom
e(8
01)
(801)
(8
01
)
Net
incom
e f
rom
in
su
ran
ce
op
erati
on
s4
17
41
74
17
Net
rev
enu
e4
,39
24
,39
2
4 ,3
92
Op
erati
ng
ex
pen
ses
(3 ,3
52
)(3
,35
2)
1( 2
9)
(5 3
)(3
,43
3)
Tra
din
g p
rofi
t1
,04
01
,04
01
( 29
)(5
3)
9 5
9N
on
-trad
ing
an
d c
ap
ital
item
s(1
08
)(1
08
)(2
3)
(1 6
0)
( 3 6
)(3
2 7
)
Op
era
tin
g p
rofi
t9
32
93
2(2
2)
( 1 8
9)
(5 3
)( 3
6)
6 3
2In
vestm
en
t in
com
e2
33
23
32
33
Fin
an
ce c
osts
(84
3)
71
5(1
28
)
12
(1 0
)( 3
)(1
29
)
Sh
are o
f n
et
profi
t of
associa
tes
(net
of
incom
e t
ax
)2
22
Pro
fit
bef
ore
tax
ati
on3
24
71
51
,03
9(2
2)
12
( 19
9)
(5 3
)( 3
9)
7 3
8In
com
e t
ax
ex
pen
se
(48
7)
(71
)(5
58
)( 3
)5
6 1
5(4
9 0
)
Pro
fit/
(los
s) f
or t
he
yea
r fr
om
con
tin
uin
g o
per
ati
ons
(16
3)
64
44
81
(22
) 9
( 1 4
3)
(3 8
)( 3
9)
2 4
8
Dis
con
tin
ued
op
era
tion
sP
rofi
t on
dis
con
tin
ued
op
erati
on
s
(net
of
incom
e t
ax
)5
42
54
25
42
Pro
fit/
(los
s) f
or t
he
yea
r3
79
64
41
,02
3(2
2)
9( 1
43
)(3
8)
( 3 9
)7
9 0
Profi
t/(l
oss)
att
rib
uta
ble
to:
Eq
uit
y h
old
ers
26
96
44
91
3(2
2)
9(1
43
)(3
8)
( 3 9
)6
8 0
Non
-con
troll
ing
in
terest
11
01
10
11
0
37
9 6
44
1 ,0
23
(22
) 9
(1 4
3)
(3 8
) (3
9)
79
0
261
Yea
r en
ded
31
Ma
rch
20
14
Act
ua
l1
Imp
act
of
the
Res
tru
ctu
re2
Pro
for
ma
aft
er t
he
Res
tru
ctu
reD
econ
soli
-d
ati
ons3
,4
Issu
e of
S
ub
scri
pti
on S
ha
res5
His
tori
cal
tra
nsa
ctio
n
ba
se
ince
nti
ves
6
Fu
ture
sh
are
in
cen
tiv
e sc
hem
es7
Tra
nsa
ctio
n
cost
s8
Pro
for
ma
aft
er t
he
Off
er
(R m
illi
on u
nle
ss o
ther
wis
e in
dic
ate
d)
Ea
rnin
gs
an
d h
ead
lin
e ea
rnin
gs
reco
nci
lia
tion
Profi
t/(l
oss)
att
rib
uta
ble
to
eq
uit
y h
old
ers
26
96
44
91
3(2
2)
9(1
43
)(3
8)
( 3 9
)
68
0
Ad
juste
d f
or:
Profi
t on
dis
posal
of
su
bsid
iary
(56
4)
(56
4)
(56
4)
Good
wil
l im
pair
men
t1
14
11
41
14
Hea
dli
ne
earn
ing
s(1
81
)6
44
46
3(2
2)
9( 1
43
)(3
8)
(3 9
) 2
3 0
Weig
hte
d a
verag
e n
um
ber o
f S
hares
in i
ssu
e (
mil
lion
s)
34
58
10
1 ,1
55
96
44
81
,30
3
Ba
sic
earn
ing
s/(l
oss)
per
Sh
are
(c
ents
) C
on
tin
uin
g o
perati
on
s(7
6)
34
12
Dis
con
tin
ued
op
erati
on
s1
55
46
41
Tota
l op
erati
on
s7
98
0 5
3
Hea
dli
ne
earn
ing
s/(l
oss)
per
Sh
are
(c
ents
) C
on
tin
uin
g o
perati
on
s(7
6)
33
12
Dis
con
tin
ued
op
erati
on
s2
47
6
Tota
l op
erati
on
s(5
2)
40
18
262
All effects are recurring except where otherwise stated.
1. Extracted from the Consolidated Financial Statements.
2. On 31 March 2014, the Group completed the Restructure. See “Restructure”. The impact of the Restructure on finance costs is not
included in the Group’s consolidated income statement for financial year 2014 because the Restructure was implemented on 31 March
2014. The Restructure adjustment is based on the assumption that the Restructure was undertaken on 1 April 2013. The impact of
this change will be realised in the interest paid by the Group net of taxation. The taxation is adjusted by the tax deductions made in
the underlying subsidiaries for 2014. The taxation impact is affected by unrecognised deferred tax assets in certain subsidiaries. The
R715 million reversal of finance costs relates to:
Rand million
Senior preference shares 90
High-yield term loan 293
Put and call options 60
PIK debentures 337
Amortisation of fees 13
Interest rate hedge 20
Interest cost of new term loan (98)
Total 715
The fair value gains and losses on the put and call options and interest rate hedge were recognised as part of finance costs. These
instruments were settled as part of the Restructure. Consequently, the losses of R60 million and R20 million, respectively, have been
removed from the income statement based on the assumption that the Restructure continued on 1 April 2013.
3. The adjustment reflects the impact of the Listing on the Alexander Forbes Management Trust. The Alexander Forbes Management Trust
will be deconsolidated as a result of the changes to the control over the Alexander Forbes Management Trust after the Listing. In addition,
the Remuneration Committee has approved the write-off of a loan of R24 million between the Alexander Forbes Management Trust and
the Company which is subject to the Listing taking effect and which effect is non-recurring.
4. The adjustment reflects the deconsolidation of the BEE SPV and the Management SPV resulting from the sale of the Company’s shares
in the BEE SPV and the Management SPV as part of the Offer and utilisation of the proceeds to repay the underlying funding. The
deconsolidation has no income statement impact as the funding was raised on 31 March 2014 and had no impact on the Group’s
consolidated income statement for financial year 2014.
5. As part of the Offer, an estimated 44, 117,647 Subscription Shares will be issued at an assumed price of R7. 48 . Of the net proceeds,
R179 million will be used to redeem the “B” Preference Shares held by Golden Falls at R8.44 per “B” Preference Share. The remainder
of the net proceeds will be used to increase regulatory capital holdings in line with the FSB regulatory requirements for consolidated
supervision as discussed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations —Consolidated
Supervision” and to reduce the Group’s outstanding debt, which will give rise to a reduction in finance costs of R12 million .
6. The incentive adjustments are one-off costs triggered by the Listing which will not be recurring and which include:
• a “Make-Good” payment in the amount of R 5 7 million paid to the Alexander Forbes Management Trust, as described in “ Management
and Corporate Governance—Directors’ Incentives and Interests in Transaction—Management Payment Agreement (“Make-Good”
Payment)” ;
• the 2011 Executive Long-Term Incentive Plan, as described in “Management and Corporate Governance —Directors’ Incentives and
Interests in Transaction — 2011 Executive Long-Term Incentive Plan as Amended and Revised in June 2014” , with 50%, or R 4 4 million,
payable upon the completion of the transaction and the other 50% payable over 18 months, of which 12/18, or R 29 million, has been
accrued; and
• the 2014 Exit Transaction Incentive Plan, as described in “Management and Corporate Governance — Directors’ Incentives and
Interests in Transaction—2014 Exit Transaction Incentive” , of which an amount of R 59 million before taxation is reflected in the
income statement. The settlement of this incentive will be made through the issue of 7,848,710 shares at an assumed price of R 7. 48 .
Interest at an average rate of 7.93% is charged on the cash outflow arising from the settlement of the incentive awards.
7. Management and staff will be incentivised through a share incentive scheme. See “Management and Corporate Governance—Share
Schemes—Long-Term Incentive Share Plan” . The IFRS 2 scheme costs of R 5 3 million will be reflected in the income statement in the first
year of the scheme and no share dilution is expected. The pro forma impact of the share-based payment has been reflected for one year
on the income statement only, because the share scheme vests evenly over three years. Under IFRS 2, the income statement expense is
calculated as the fair value of the award, assumed at R 7. 48 per Share, multiplied by the period of the vesting period completed. As the
Pro Forma Consolidated Income Statement assumes the award is granted on 1 April 2013, one year of the three-year service period will
have been completed as at 31 March 2014.
8. Transaction costs of the Offer are estimated to be R 8 6 million, of which R 3 6 million will be paid for by the Group and the remainder will
be paid by the Selling Shareholders. These costs, which primarily relate to the Listing, will be expensed through the income statement
and will not be recurring.
263
Pro
For
ma
Con
soli
da
ted
Ba
lan
ce S
hee
t
As
at
31
Ma
rch
20
14
Act
ua
l1D
econ
soli
-d
ati
ons2
,3
Issu
e of
S
ub
scri
pti
on S
ha
res4
His
tori
cal
tra
nsa
ctio
n
ba
se
ince
nti
ves
5
Fu
ture
sh
are
in
cen
tiv
e sc
hem
es6
Tra
nsa
ctio
n c
osts
7
Pro
for
ma
a
fter
th
e O
ffer
(R m
illi
on u
nle
ss o
ther
wis
e in
dic
ate
d)
AS
SE
TS
Fin
an
cia
l assets
held
un
der m
ult
i-m
an
ag
er i
nvestm
en
t
con
tracts
25
3 ,7
47
25
3 ,7
47
Fin
an
cia
l assets
of
cell
-cap
tive i
nsu
ran
ce f
acil
itie
s3
15
31
5
Prop
erty
an
d e
qu
ipm
en
t3
35
33
5
Pu
rch
ased
an
d d
evelo
ped
com
pu
ter s
oft
ware
80
80
Good
wil
l3
,98
53
,98
5
Inta
ng
ible
assets
88
68
86
Investm
en
ts i
n a
ssocia
tes
66
Defe
rred
tax
assets
11
71
17
Fin
an
cia
l assets
40
94
09
Insu
ran
ce r
eceiv
able
s8
14
81
4
Trad
e a
nd
oth
er r
eceiv
able
s8
73
87
3
Cash
an
d c
ash
eq
uiv
ale
nts
3 ,9
07
(2)
3 ,9
05
Assets
of
dis
posal
grou
p c
lassif
ied
as h
eld
for s
ale
91
91
Tot
al
ass
ets
26
5 ,5
65
(2)
26
5 ,5
6 3
EQ
UIT
Y A
ND
LIA
BIL
ITIE
SS
hare c
ap
ital
an
d p
rem
ium
5 ,8
19
15
1 5
9 6
,0 2
9
Treasu
ry
sh
ares
(40
5)
40
5–
Accu
mu
late
d l
oss
(88
9)
(9)
( 10
4)
( 36
)(1
,0 3
8)
Oth
er r
eserves
10
2(1
02
)
Eq
uit
y h
old
ers’ fu
nd
s4
,62
73
96
15
1( 4
5)
( 36
)5
,09
3
Non
-con
troll
ing
in
terest
21
02
10
Tot
al
equ
ity
4 ,8
37
39
6 1
51
( 4 5
)( 3
6)
5 , 30
3
Fin
an
cia
l li
abil
itie
s h
eld
un
der m
ult
i-m
an
ag
er i
nvestm
en
t
con
tracts
25
3 ,7
47
25
3 ,7
47
Lia
bil
itie
s o
f cell
-cap
tive i
nsu
ran
ce f
acil
itie
s3
15
31
5
Borrow
ing
s1
,65
2(3
86
)( 1
51
)
10
1 3
61
,2 5
2
Em
plo
yee b
en
efi
ts1
68
16
8
Defe
rred
tax
ben
efi
ts4
32
43
2
Provis
ion
s2
84
28
4
Fin
an
ce l
ease l
iabil
ity
90
90
Op
erati
ng
lease l
iabil
ity
11
91
19
264
As
at
31
Ma
rch
20
14
Act
ua
l1D
econ
soli
-d
ati
ons2
,3
Issu
e of
S
ub
scri
pti
on S
ha
res4
His
tori
cal
tra
nsa
ctio
n
ba
se
ince
nti
ves
5
Fu
ture
sh
are
in
cen
tiv
e sc
hem
es6
Tra
nsa
ctio
n c
osts
7
Pro
for
ma
a
fter
th
e O
ffer
(R m
illi
on u
nle
ss o
ther
wis
e in
dic
ate
d)
Defe
rred
in
com
e2
52
5
Insu
ran
ce p
ay
able
s2
,27
02
,27
0
Trad
e a
nd
oth
er p
ay
able
s1
,59
1(1
2)
(5 6
)1
,52
3
Lia
bil
itie
s o
f d
isp
osal
grou
p c
lassif
ied
as h
eld
for s
ale
35
35
Tot
al
lia
bil
itie
s2
60
,72
8(3
98
)(1
51
) 4
53
62
60
, 26
0
Tot
al
equ
ity
an
d l
iab
ilit
ies
26
5 ,5
65
(2)
2
65
,56
3
Nu
mber o
f S
hares i
n i
ssu
e (
mil
lion
s)
1 ,1
55
96
44
81
,3 0
3
NA
V p
er S
hare (
cen
ts)
40
13
9 1
Tan
gib
le N
AV
per S
hare (
cen
ts)
(28
) 1
1
All
eff
ects
are r
ecu
rrin
g e
xcep
t w
here o
therw
ise s
tate
d.
1.
Ex
tracte
d f
rom
th
e C
on
soli
date
d F
inan
cia
l S
tate
men
ts.
2.
Th
e a
dju
stm
en
t refl
ects
th
e im
pact
of
the L
isti
ng
on
th
e A
lex
an
der F
orbes M
an
ag
em
en
t Tru
st.
Th
e A
lex
an
der F
orbes M
an
ag
em
en
t Tru
st
wil
l be d
econ
soli
date
d a
s a
resu
lt o
f th
e c
han
ges t
o t
he c
on
trol over
the A
lex
an
der F
orbes M
an
ag
em
en
t Tru
st
aft
er t
he L
isti
ng
. In
ad
dit
ion
, th
e R
em
un
erati
on
Com
mit
tee h
as a
pp
roved
th
e w
rit
e-o
ff o
f a l
oan
of
R2
4 m
illi
on
betw
een
th
e A
lex
an
der F
orbes M
an
ag
em
en
t Tru
st
an
d t
he C
om
pan
y w
hic
h i
s s
ubje
ct
to t
he L
isti
ng
tak
ing
eff
ect
an
d w
hic
h e
ffect
is n
on
-recu
rrin
g.
3.
Th
e a
dju
stm
en
t refl
ects
th
e d
econ
soli
dati
on
of
the B
EE
SP
V a
nd
th
e M
an
ag
em
en
t S
PV
resu
ltin
g f
rom
th
e s
ale
of
the C
om
pan
y’s
sh
ares i
n t
he B
EE
SP
V a
nd
th
e M
an
ag
em
en
t S
PV
as p
art
of
the O
ffer a
nd
uti
lisati
on
of
the p
roceed
s t
o r
ep
ay
th
e u
nd
erly
ing
fu
nd
ing
. T
he d
econ
soli
dati
on
has n
o i
ncom
e s
tate
men
t im
pact
as t
he f
un
din
g w
as r
ais
ed
on
31
March
20
14
an
d h
ad
no i
mp
act
the G
rou
p’s
con
soli
date
d
incom
e s
tate
men
t fo
r f
inan
cia
l y
ear 2
01
4.
4.
As p
art
of
the O
ffer,
an
esti
mate
d 4
4,1
17
,64
7 S
ubscrip
tion
Sh
ares w
ill
be i
ssu
ed
at
an
assu
med
pric
e o
f R
7. 4
8 .
Of
the n
et
proceed
s,
R1
79
mil
lion
wil
l be u
sed
to r
ed
eem
th
e “
B”
Prefe
ren
ce S
hares h
eld
by
Gold
en
Fall
s a
t R
8.4
4 p
er “
B”
Prefe
ren
ce S
hare.
Th
e r
em
ain
der o
f th
e n
et
proceed
s w
ill
be u
sed
to i
ncrease r
eg
ula
tory
cap
ital
hold
ing
s i
n l
ine w
ith
th
e F
SB
reg
ula
tory
req
uir
em
en
ts f
or c
on
soli
date
d
su
pervis
ion
as d
iscu
ssed
un
der “
Man
ag
em
en
t’s D
iscu
ssio
n a
nd
An
aly
sis
of
Fin
an
cia
l C
on
dit
ion
an
d R
esu
lts o
f O
perati
on
s –
Con
soli
date
d S
up
ervis
ion
” an
d t
o r
ed
uce t
he G
rou
p’s
ou
tsta
nd
ing
debt.
5.
Th
e i
ncen
tive a
dju
stm
en
ts a
re o
ne-o
ff c
osts
trig
gered
by
th
e L
isti
ng
wh
ich
wil
l n
ot
be r
ecu
rrin
g a
nd
wh
ich
in
clu
de:
•
a “
Mak
e-G
ood
” p
ay
men
t in
th
e a
mou
nt
of
R 5
7 m
illi
on
paid
to t
he A
lex
an
der F
orbes M
an
ag
em
en
t Tru
st,
as d
escrib
ed
in
“M
an
ag
em
en
t an
d C
orp
orate
Govern
an
ce —
Dir
ecto
rs’ In
cen
tives a
nd
In
terests
in
Tran
sacti
on
— M
an
ag
em
en
t P
ay
men
t A
greem
en
t (“
Mak
e-G
ood
” P
ay
men
t)”;
•
the 2
01
1 E
xecu
tive L
on
g-T
erm
In
cen
tive P
lan
, as d
escrib
ed
in
“M
an
ag
em
en
t an
d C
orp
orate
Govern
an
ce —
Dir
ecto
rs’ In
cen
tives a
nd
In
terests
in
Tran
sacti
on
— 2
01
1 E
xecu
tive L
on
g-T
erm
In
cen
tive P
lan
as A
men
ded
an
d R
evis
ed
in
Ju
ne 2
01
4” ,
wit
h 5
0%
, or R
4 4
mil
lion
, p
ay
able
up
on
th
e c
om
ple
tion
of
the t
ran
sacti
on
an
d t
he o
ther 5
0%
pay
able
over 1
8 m
on
ths,
of
wh
ich
12
/18
, or R
29
mil
lion
, h
as b
een
accru
ed
; an
d
•
the 2
01
4 E
xit
Tran
sacti
on
In
cen
tive P
lan
, as d
escrib
ed
in
“M
an
ag
em
en
t an
d C
orp
orate
Govern
an
ce —
Dir
ecto
rs’ In
cen
tives a
nd
In
terests
in
Tran
sacti
on
— 2
01
4 E
xit
Tran
sacti
on
In
cen
tive” ,
of
wh
ich
an
am
ou
nt
of
R 5
9 m
illi
on
is r
efl
ecte
d i
n t
he a
ccu
mu
late
d l
oss . T
he s
ett
lem
en
t of
this
in
cen
tive w
ill
be m
ad
e t
hrou
gh
th
e i
ssu
e o
f 7
,84
8,7
10
sh
ares a
t an
assu
med
pric
e o
f R
7. 4
8 .
In
terest
at
an
averag
e r
ate
of
7.9
3%
is c
harg
ed
on
th
e c
ash
ou
tflo
w a
ris
ing
from
th
e s
ett
lem
en
t of
the i
ncen
tive a
ward
s.
6.
Man
ag
em
en
t an
d s
taff
wil
l be in
cen
tivis
ed
th
rou
gh
a s
hare in
cen
tive s
ch
em
e. S
ee “
Man
ag
em
en
t an
d C
orp
orate
Govern
an
ce —
Sh
are S
ch
em
es —
Lon
g-T
erm
In
cen
tive S
hare P
lan
”. T
he I
FR
S 2
sch
em
e c
osts
of
R 5
3 m
illi
on
wil
l be r
efl
ecte
d i
n t
he i
ncom
e s
tate
men
t in
th
e f
irst
year o
f th
e s
ch
em
e a
nd
no s
hare d
ilu
tion
is e
xp
ecte
d. T
he p
ro f
orm
a i
mp
act
of
the s
hare-b
ased
pay
men
t h
as b
een
refl
ecte
d f
or o
ne y
ear o
n
the i
ncom
e s
tate
men
t on
ly,
becau
se t
he s
hare s
ch
em
e v
ests
even
ly o
ver t
hree y
ears.
Un
der I
FR
S 2
, th
e i
ncom
e s
tate
men
t ex
pen
se i
s c
alc
ula
ted
as t
he f
air
valu
e o
f th
e a
ward
, assu
med
at
R 7
. 48
per S
hare,
mu
ltip
lied
by
th
e p
erio
d o
f th
e v
esti
ng
perio
d c
om
ple
ted
. A
s t
he P
ro F
orm
a C
on
soli
date
d F
inan
cia
l In
com
e S
tate
men
t assu
mes t
he a
ward
is g
ran
ted
on
1 A
pril
20
13
, on
e y
ear o
f th
e t
hree-y
ear s
ervic
e p
erio
d
wil
l h
ave b
een
com
ple
ted
as a
t 3
1 M
arch
20
14
.
7.
Tran
sacti
on
costs
of
the O
ffer a
re e
sti
mate
d t
o b
e R
8 6
mil
lion
, of
wh
ich
R 3
6 m
illi
on
wil
l be p
aid
for b
y t
he G
rou
p a
nd
th
e r
em
ain
der w
ill
be p
aid
by
th
e S
ell
ing
Sh
areh
old
ers. T
hese c
osts
, w
hic
h p
rim
aril
y
rela
te t
o t
he L
isti
ng
, w
ill
be e
xp
en
sed
th
rou
gh
th
e i
ncom
e s
tate
men
t an
d w
ill
not
be r
ecu
rrin
g.
265
Annexure 5
INDEPENDENT REPORTING ACCOUNTANT’S REPORT ON THE PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The Board of Directors
Alexander Forbes Group Holdings Limited
115 West Street
Sandown
2146
Independent Reporting Accountant’s Assurance Report on the Compilation of Pro Forma Consolidated Financial Information of Alexander Forbes Group Holdings Limited (the “Company ”) and its Subsidiaries (the “Group”)
Introduction
Alexander Forbes Group Holdings Limited is issuing a pre-listing statement (the “Pre-listing statement”)
regarding the proposed listing of its shares on the Main Board of the JSE (the “Listing”).
At your request and for the purposes of the Pre-listing statement to be dated on or about 7 July 2014 , we
present our assurance report on the compilation of the pro forma consolidated financial information of the
Group by the directors. The pro forma consolidated financial information of the Group, presented in
the Summary and Annexure 4 to the Pre-listing statement, consists of the pro forma consolidated income
statement for the year ended 31 March 2014, the pro forma consolidated balance sheet as at 31 March 2014
and the pro forma consolidated financial effects (the “Pro Forma Consolidated Financial Information”). The
Pro Forma Consolidated Financial Information has been compiled on the basis of the applicable criteria
specified in the JSE Listings Requirements.
The Pro Forma Consolidated Financial Information has been compiled by the directors to illustrate the impact
of the Listing on the Group’s reported financial position as at 31 March 2014, and the Group’s financial
performance for the period then ended, as if the Listing and Restructure had taken place at 31 March 2014
and 1 April 2013, respectively. As part of this process, information about the Group’s financial position and
financial performance has been extracted by the directors from the Group’s financial statements for the year
ended 31 March 2014, presented in this Pre-listing statement, on which a reporting accountant’s report has
been published.
Directors’ Responsibility
The directors of the Company are responsible for the compilation, contents and presentation of the Pro Forma
Consolidated Financial Information on the basis of the applicable criteria specified in the JSE Listings
Requirements and described in Annexure 4. The directors of the Company are also responsible for the financial
information from which it has been prepared.
Reporting Accountant’s Responsibility
Our responsibility is to express an opinion about whether the Pro Forma Consolidated Financial Information
has been compiled, in all material respects, by the directors on the basis specified in the JSE Listings
Requirements based on our procedures performed. We conducted our engagement in accordance with the
International Standard on Assurance Engagements (ISAE) 3420, Assurance Engagements to Report on the
Compilation of Pro Forma Consolidated Financial Information Included in a Prospectus. This standard
requires that we comply with ethical requirements and plan and perform our procedures to obtain reasonable
assurance about whether the Pro Forma Consolidated Financial Information has been compiled, in all material
respects, on the basis specified in the JSE Listings Requirements.
For purposes of this engagement, we are not responsible for updating or reissuing any reports or opinions on
any historical financial information used in compiling the Pro Forma Consolidated Financial Information, nor
have we, in the course of this engagement, performed an audit or review of the financial information used in
compiling the Pro Forma Consolidated Financial Information.
As the purpose of Pro Forma Consolidated Financial Information included in a pre-listing statement is solely
to illustrate the impact of a significant corporate action or event on unadjusted financial information of the
entity as if the corporate action or event had occurred or had been undertaken at an earlier date selected for
purposes of the illustration, we do not provide any assurance that the actual outcome of the event or transaction
would have been as presented.
266
A reasonable assurance engagement to report on whether the Pro Forma Consolidated Financial Information
has been compiled, in all material respects, on the basis of the applicable criteria involves performing
procedures to assess whether the applicable criteria used in the compilation of the Pro Forma Consolidated
Financial Information provides a reasonable basis for presenting the significant effects directly attributable
to the corporate action or event, and to obtain sufficient appropriate evidence about whether:
• the related pro forma adjustments give appropriate effect to those criteria; and
• the Pro Forma Consolidated Financial Information reflects the proper application of those adjustments to
the unadjusted financial information.
Our procedures selected depend on our judgement, having regard to our understanding of the nature of the
company, the corporate action or event in respect of which the Pro Forma Consolidated Financial Information
has been compiled, and other relevant engagement circumstances.
Our engagement also involves evaluating the overall presentation of the Pro Forma Consolidated Financial
Information.
We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Opinion
In our opinion, the Pro Forma Consolidated Financial Information has been compiled, in all material respects,
on the basis of the applicable criteria specified by the JSE Listings Requirements and described in Annexure
4 to the Pre-listing statement.
PricewaterhouseCoopers Inc.
Director: Johannes Grosskopf
Registered Auditor
Sunninghill
4 July 2014
267
Annexure 6
ADDITIONAL PARTICULARS OF THE DIRECTORS OF THE COMPANY AND ITS MAJOR SUBSIDIARIES AND SENIOR MANAGEMENT OF THE GROUP
The names of all companies and partnerships of which the directors of the Company and its major subsidiaries
and senior management of the Group have been a director or partner at any time in the five years preceding
the date of issue of this pre-listing statement, including brief details of the service contracts of the directors
of the Company, where applicable, are listed below:
Edward Christian Kieswetter • Current directorships: Alexander Forbes Group Holdings Limited ;
Shoprite Holdings Limited; University of Free State Governing
Council; Chairman of Independent Regulatory Board for Auditors
Committee for Auditor Ethics; Member of International Accounting
Education Standards Board; Chancellor of the Da Vinci Institute and
The Association for Savings and Investment South Africa (ASISA).
• Other directorships held in the last 5 years: N/A.
• Service contract: On or about 4 January 2010, Mr Kieswetter entered
into a contract with the Company in respect of his service as the
Group Chief Executive. No restraint payments are payable in terms
of this contract.
Deon Marius Viljoen • Current directorships: Alexander Forbes Group Holdings Limited ,
Alexander Forbes Empowerment Holdings Proprietary Limited, AFL
Employee Investments Proprietary Limited AF BEE Funding SPV
Proprietary Limited, AF MST Funding SPV Proprietary Limited and
Demsha Proprietary Limited.
• Other directorships held in the last 5 years: N/A.
• Service contract: On or about 30 September 2004, Mr Viljoen
transferred from Investment Solutions Limited to the staff of the
Group. In terms of this transfer, he would serve as Finance Director:
Africa. No restraint payments are payable in terms of this contract.
Matthews Sello Moloko • Current directorships: Alexander Forbes Group Holdings Limited ;
Thesele Group Proprietary Limited; General Reinsurance Africa
Limited; Business Venture Investments No. 991 Proprietary Limited;
Acucap Properties Limited; Sycom Property Fund Managers Limited;
Kellogg Brown and Root South Africa Proprietary Limited and
Sibanye Gold Limited.
• Other directorships held in the last 5 years: Gold Fields Limited and
AF Risk and Insurance Services Proprietary Limited.
• Service contract: On or about 1 July 2014, Mr Moloko entered into
a service contract with the Company in respect of his service as a
non-executive director of the board of directors, the Chairman of the
Company and the Chairman of each of the Nominations Committee, the
Remuneration Committee and the Social, Ethics and Transformation
Committee. No restraint payments are payable in terms of this
contract.
André Roux • Current directorships: Alexander Forbes Group Holdings Limited;
Ethos Private Equity Limited; Ethos Holdings Limited; Sphere Private
Equity (Proprietary) Limited and Emerging Markets Private Equity
Association.
• Other directorships held in the last 5 years: N/A.
• Service contract: None.
268
Barend Petersen • Current directorships: Alexander Forbes Group Holdings Limited;
Anglo American South Africa Limited; De Beers Consolidated Mines
Limited; DBCM Holdings Proprietary Limited; De Beers Société
Anonyme; Fixtrade 771 Limited; JGK Trust; Kovacs Investments
776 Proprietary Limited; Ntinga Ntaka Investments Proprietary
Limited; Petersen Investment Trust Proprietary Limited; Ponahalo
Capital Proprietary Limited; Ponahalo Holdings Proprietary Limited;
Ponahalo Investments Proprietary Limited; SBR Management Services;
Sizwe Business Recoveries Proprietary Limited; Tamarron Trading
181 Proprietary Limited; Thornbird Trade and Invest 2 Proprietary
Limited; Two-Tone Investments 16 Proprietary Limited; Ultimate
Financial Management Services; Shanduka Capital Proprietary
Limited; Xanado Trade and Invest 222 (RF) Proprietary Limited;
Aeromaritime International Management Services Proprietary
Limited; Curro Holdings Limited; Cape Lime Proprietary Limited;
Gilikhepu Energy Proprietary Limited; Really Useful Investments No
72 Proprietary Limited; Marcovest 147 Proprietary Limited; Scamont
Investment Holdings Proprietary Limited and Gowin 110 Proprietary
Limited.
• Other directorships held in the last 5 years: Dromedaris Visserye
Limited.
• Service contract: On or about 30 August 2013, Mr Petersen renewed
his service contract with the Company in respect of his service as an
independent non-executive director of the board of directors of the
Company, a member of the audit committee and member of certain
subsidiary boards and audit committees. No restraint payments are
payable in terms of this contract.
Mark Derrick Collier • Current directorships: Alexander Forbes Group Holdings Limited and
Mark Collier Limited.
• Other directorships held in the last 5 years: Winechap Global Holdings
Limited (UK); Custom Healthcare Limited (UK) and Concordis (Hong
Kong) Limited.
• Service contract: On or about 31 March 2014, Mr Collier renewed
his service contract with the Company in respect of his service as
an independent non-executive director of the board of directors of
the Company, a member of the Audit Committee, chairman of the
retail sub-committee and member of certain subsidiary boards and
audit committees. No restraint payments are payable in terms of this
contract.
Deenadayalen Konar • Current directorships: Alexander Forbes Group Holdings Limited;
Exxaro Resources Limited; Illovo Sugar Limited; Macsteel Services
Centres SA 2005 Proprietary Limited; Mustek Limited; Old Mutual
Investment Group (South Africa) Proprietary Limited; Outsources
Risk and Compliance Assessment Proprietary Limited; Sappi Limited;
Steinhoff International Holdings Limited; Lonmin Public Limited
Company and Credit Suisse Securities Johannesburg Proprietary
Limited.
• Other directorships held in the last 5 years: Sentech Limited; Old
Mutual Emerging Markets Limited; Old Mutual Life Holdings (South
Africa) Proprietary Limited; Old Mutual Life Assurance Company
(South Africa) Limited; Transaction Capital Limited; CID Energy
Corporation (Canada); JD Group Limited; Automobile Association and
the South African Reserve Bank.
• Service contract: On or about 7 March 2013 (effective
6 September 2012), Mr Konar renewed his service contract with the
Company in respect of his service as an independent non-executive
director of the board of directors of the Company, chairman of the
Audit Committee, member of certain subsidiary boards and chairman
of certain subsidiary audit committees. No restraint payments are
payable in terms of this contract.
269
Hilgard Pieter Meyer • Current directorships: Alexander Forbes Group Holdings Limited;
General Reinsurance Africa Limited; Nodus Equity Proprietary
Limited; Natsure Limited Public; Trudon Proprietary Limited; Pienso
Proprietary Limited; Luddite Wines Proprietary Limited; Dooierus
Beleggings (Edms) Bpk and Bubbletree Proprietary Limited.
• Other directorships held in the last 5 years: N/A.
• Service contract: On or about 6 August 2013, Mr Pieter Meyer renewed
his service contract with the Company in respect of his service as
an independent non-executive director of the board of directors of
the Company, as a member of the Remuneration Committee and as
a member of the Nominations Committee. No restraint payments are
payable in terms of this contract.
Lori Hall-Kimm • Current directorships: Alexander Forbes Group Holdings Limited and
Icon 1 S.A.
• Other directorships held in the last 5 years: Airports UK No. 2 Limited
and Bristol Airports (UK) No. 3 Limited.
• Service contract: None.
Natalie Catherine Kolbe • Current directorships: Tracker Technology Holdings Proprietary
Limited.
• Other directorships held in the last 5 years: Savcio Holdings
Proprietary Limited.
• Service contract: None.
David Ngobeni • Current directorships: Alexander Forbes Group Holdings Limited;
Shanduka Group Proprietary Limited; Incwala Platinum Proprietary
Limited; Born Free Investments 580 Proprietary Limited; McDonald’s
SA Proprietary Limited; Auram Restaurant Company Proprietary
Limited and Gino’s Corner Proprietary Limited.
• Other directorships held in the last 5 years: N/A.
• Service contract: None.
Dave D Govender • Current directorships: Alexander Forbes Group Holdings Limited;
K2013116223 Proprietary Limited; Ixia Creek Home Owners
Association NPC and TBWA South Africa Proprietary Limited.
• Other directorships held in the last 5 years: N/A.
• Service contract: None.
John Adrian van Wyk • Current directorships: Alexander Forbes Group Holdings Limited.
• Other directorships held in the last 5 years: RTT Group Proprietary
Limited.
• Service contract: None.
Anthonie Christoffel de Beer • Current directorships: Alexander Forbes Group Holdings Limited;
Kevro Holdings Proprietary Limited; Idwala Industrial Holdings
Proprietary Limited and Friedshelf 1511 Proprietary Limited.
• Other directorships held in the last 5 years: Plumblink (SA)
(Proprietary) Limited and Main Street 63 Proprietary Limited.
• Service contract: None.
Jean-Charles Emmanuel Douin • Current directorships: Alexander Forbes Group Holdings Limited;
(alternate); 2334906 Ontario Limited; Acorn Care 1 Limited; Odin
Luxco S.arl.; Eagle Superco Limited; Frontier Topco Limited.
• Other directorships held in the last 5 years: N/A.
• Service contract: None.
Robert Ngetha Waithaka • Current directorships: Alexander Forbes Group Holdings Limited and
Autoxpress Limited Kenya.
• Other directorships held in the last 5 years: N/A.
• Service contract: None.
Jabulani Steven Masondo • Current directorships: Alexander Forbes Group Holdings Limited;
K2013116223 Proprietary Limited; Incwala Resources Proprietary
Limited; Dinatla Investment Holdings Proprietary Limited; Lexshell
806 Investments Proprietary Limited and Lexshell 140 General
Trading Proprietary Limited.
• Other directorships held in the last 5 years: N/A.
• Service contract: None.
270
Bradley John Eliot • Current directorships: Alexander Forbes AfriNet Investments
Proprietary Limited; Alexander Forbes Financial Services Holdings
Proprietary Limited; Alexander Forbes Group and Technology
Services Proprietary Limited; Alexander Forbes Group Services
Proprietary Limited; Alexander Forbes Risk and Insurance Services
Proprietary Limited and Alexander Forbes South Africa Holdings
Proprietary Limited.
• Other directorships held in the last 5 years: N/A.
Lisa Stott • Current directorships: Alexander Forbes Financial Services Holdings
Proprietary Limited and Alexander Forbes AfriNet Investments
Proprietary Limited.
• Other directorships held in the last 5 years: N/A.
Peter Alan Edwards • Current directorships: Alexander Forbes Financial Services Holdings
Proprietary Limited.
• Other directorships held in the last 5 years: Alexander Forbes Health
Proprietary Limited.
Vishnumurthie Kista Naicker • Current directorships: Alexander Forbes Financial Services Holdings
Proprietary Limited; Alexander Forbes Compensation Technologies
Proprietary Limited; AFL Employee Investments Proprietary
Limited; Alexander Forbes Group Services Proprietary Limited; GMA
Subsidiary Trading 9 Proprietary Limited and Arch Information and
Technology Services Proprietary Limited.
• Other directorships held in the last 5 years: Pan African Holdings
Proprietary Limited.
Luendran Pillay • Current directorships: Alexander Forbes AfriNet Investments
Proprietary Limited.
• Other directorships held in the last 5 years: N/A.
Lindiwe Angela Dlamini • Current directorships: Alexander Forbes Retail Holdings Proprietary
Limited.
• Other directorships held in the last 5 years: Liberty Active Limited;
Capital Alliance Limited; Rentmeester Proprietary Limited and The
Smart Life Insurance Company Limited.
Garikai Dombo • Current directorships: Alexander Forbes Insurance Company Limited;
Alexander Forbes Administration Services Proprietary Limited and
Alexander Forbes Direct Proprietary Limited.
• Other directorships held in the last 5 years: Alexander Forbes Risk
and Insurance Services Proprietary Limited; Alexander Forbes
Management Services Proprietary Limited; Guardrisk Holdings
Limited; Guardrisk Insurance Company Limited; Guardrisk Life
Limited; Board member of Ombudsman of the Short term Insurance
(OSTI), Board member of South African Insurance Association (SAIA).
Derrick Thembinkosi Vusumuzi
Msibi
• Current directorships: Investment Solutions Holdings Limited.
• Other directorships held in the last 5 years: RCL Foods Limited; Cape
Town Community Housing SOC (Proprietary) Limited; Bakwena
Platinum Concessionaire Company (Proprietary) Limited; Real People
Investment Holdings (Proprietary) Limited and Plusko (Proprietary)
Limited and New Foodcorp Holdings Proprietary Limited.
Janice Eva Salvado • Current directorships: Envirocover Proprietary Limited and GMA
Subsidiary Trading 7 Proprietary Limited.
• Other directorships held in the last 5 years: Alexander Forbes
Compensation Technologies Administration Proprietary Limited;
GMA Subsidiary Trading 4 Proprietary Limited and GMA Subsidiary
Trading 6 Proprietary Limited.
271
Grant Edwin Stobart • Current directorships: Alexander Forbes International Limited;
Alexander Forbes Financial Services Holdings Limited; Alexander
Forbes Group Jersey Limited; LCP; LCP Europe Limited; LCP Belgium;
10012 Limited (in Members’ Voluntary Liquidation); 10018 Limited
(in Members’ Voluntary Liquidation); AF DC Administration Services
Limited (in Members’ Voluntary Liquidation); AF DC Administration
Services Number 2 Limited (in Members’ Voluntary Liquidation);
10900 Limited (in Members’ Voluntary Liquidation); Alexander
Forbes Financial Services No. 2 Limited; 10723 Limited; 10800
Limited (in Members’ Voluntary Liquidation); Alfred Blackmore
Limited (in Members’ Voluntary Liquidation); Hillmorton Financial
Services Limited; Media Insurance Services Limited; Media Insurance
Services No. 2 Limited; Media Insurance Services UK Limited
(in Members’ Voluntary Liquidation); The Annuity Bureau Limited (in
Members’ Voluntary Liquidation) and The Investors Bureau Limited
(in Members’ Voluntary Liquidation).
• Other directorships held in the last 5 years: 10840 Limited (in Members’
Voluntary Liquidation); Alexander Forbes Consultants & Actuaries
Limited; Alexander Forbes Services Limited; Euroguard Insurance
Company PCC Limited; Mobius Life Administration Services Limited;
Mobius Life Group Limited and Mobius Life Limited.
Lynn Wilhemina Stevens • Current directorships: Alexander Forbes Insurance Company Limited
and Salesian Institute Youth Projects (NGO).
• Other directorships held in the last 5 years: TBSP Advertising
and Marketing Proprietary Limited; Guardrisk Holdings Limited;
Guardrisk Life Limited; Guardrisk Insurance Company Limited and
Guardrisk Allied Products and Services Proprietary Limited.
Thabo Mashaba • Current directorships: CEC Engineering Services Proprietary Limited
and Cometsa Capacity Development Agency (NPA).
• Other directorships held in the last 5 years: Cancer Association of
South Africa (NPA) and Emerald Sky Trading 352 Proprietary Limited.
Marilyn Ramplin • Current directorships: Investment Solutions Holdings Limited;
Ashburton Management Company (RF) Proprietary Limited; Strate
Limited, RMB CIS Manco (RF) Proprietary Limited and Hedge Fund
Academy.
• Other directorships held in the last 5 years: SEB Prime Solutions
(Luxembourg).
Ntobeko Goodman Nyawo • Current directorships: Investment Solutions Holdings Limited and
Africa Entsha Investments Proprietary Limited.
• Other directorships held in the last 5 years: Alexander Forbes AfriNet
Investments Proprietary Limited.
Mavuso Msimang • Current directorships: Investment Solutions Holdings Limited;
Investment Solutions Unit Trusts Limited; African Parks Networks;
Blueprint Holdings Proprietary Limited; Corruption Watch (RF)
NPC; Denel SOC Limited; Gidani Proprietary Limited; Harmony Gold
Mining Proprietary Limited; Isimangaliso Wetland Park Authority;
Peace Park Foundation; Save the Children South Africa; The Oliver
and Adelaide Tambo Foundation; Tourism Business Council of South
Africa; WWF South Africa; WWP-Memeza Holdings Proprietary
Limited and Delphini Limited.
• Other directorships held in the last 5 years: Centre for Development
and Enterprise (NPO); Denel Land Systems Proprietary Limited;
Design of Europe (SA); Emeritus Investment Holdings Proprietary
Limited; Infinitum Solutions Proprietary Limited and Sisakonke
Trading Proprietary Limited.
272
Phillip Mark Elliott • Current directorships: Alexander Forbes Financial Services Holdings
Limited; AF DC Administration Services Limited (in Members’
Voluntary Liquidation); AF DC Administration Services Number 2
Limited; 10900 Limited (in Members’ Voluntary Liquidation);
Alexander Forbes Financial Services No. 2 Limited; 10800 Limited
(in Members’ Voluntary Liquidation); Alfred Blackmore Limited (in
Members’ Voluntary Liquidation); The Annuity Bureau Limited (in
Members’ Voluntary Liquidation) and The Investors Bureau Limited
(in Members’ Voluntary Liquidation).
• Other directorships held in the last 5 years: 10170 Limited; The
Bureaux Limited; The Care Funding Bureau Limited; The Drawdown
Bureau Limited and The Long Term Care Bureau Limited.
273
Annexure 7
ISSUES AND OFFERS IN THE COMPANY AND ITS SUBSIDIARIES
Issues of Shares in the Last Three Years
Alexander Forbes Group Holdings Limited
The price and terms at which the securities were
issued or offered
873 ,339 ,806 ordinary par value shares were issued
at a total price of R5 ,254 ,593 ,241 or R6.01667 per
share.
The number of securities allotted in pursuance of
such issues or offers
873 ,339 ,806 ordinary shares.
Were the securities issued to all securities holders in
proportion to their holdings? If not, to whom they
were issued?
No. The shares were issued to Actis AF, CDPQ,
Ethos, HarbourVest, OTPP, AF Pref, the B-BBEE
Investors, Alexander Forbes Management Co-
Investment Trust, Management SPV and Actis
Affi liates.
The reasons for the issues and the basis of allotment The issues were made pursuant to the Restructure
of the Company, as set out under “Restructure”.
The dates of the issues or offers 31 March 2014.
The reasons for any premium or discount Not applicable. Shares were issued at fair value
estimated at a particular point in time.
How were such premiums or discounts dealt with? Not applicable. Shares were issued at fair value
estimated at a particular point in time.
Were some securities issued or offered at par and
others at varying premiums or discounts? If so,
provide the reasons for the differential.
Not applicable. All issued shares were issued at the
same value.
The value of the asset, if any, acquired or to be
acquired out of the proceeds of the issue or offer.
Not applicable. Shares were issued for the
redemption/conversion of various capital
instruments held by the Company or its, directly or
indirectly, owned subsidiaries.
The details of any share repurchases. The issuance of the ordinary shares pursuant to the
Restructure was effected as consideration for
repurchasing the entire issued redeemable “A”
preference shares in the Company.
Alexander Forbes Holdco Proprietary Limited
The price and terms at which the securities were
issued or offered
610 ,292 ordinary shares each having a par value of
R0.01 were issued to the Company at a total price of
R270 ,804 ,990.
1 ordinary share having a par value of R0.01 was
issued to the Company at a total price of
R2 ,287 ,532 ,947.
The number of securities allotted in pursuance of
such issues or offers
See above.
Were the securities issued to all securities holders in
proportion to their holdings? If not, to whom they
were issued?
No. However, the securities were issued to the sole
existing shareholder.
The reasons for the issues and the basis of allotment The issues were made pursuant to the Restructure
of the Company, as set out under “Restructure”.
The dates of the issues or offers 31 March 2014.
274
The reasons for any premium or discount 610 ,292 shares were issued without any premium
or discount with reference to book value of equity.
One share was issued at a premium to the book value
of equity to facilitate a capitalisation of an inter-
group company but the premium is irrelevant as the
Company is the sole shareholder.
How were such premiums or discounts dealt with? See above.
Were some securities issued or offered at par and
others at varying premiums or discounts? If so,
provide the reasons for the differential.
See above.
The value of the asset, if any, acquired or to be
acquired out of the proceeds of the issue or offer.
610 ,292 shares were issued to acquire preference
shares issued by AF PIK Funding Proprietary
Limited at a value of R270 ,804 ,990.
Not applicable to the one share which was issued to
facilitate a capitalisation of an inter-group company.
The details of any share repurchases. N/A.
Alexander Forbes PIK Funding Proprietary Limited
The price and terms at which the securities were
issued or offered
610 ,277 ordinary shares each having a par value of
R0.01 were issued to Alexander Forbes Holdco
Proprietary Limited at a total price of R270 ,804 ,990.
1 ordinary share having a par value of R0.01 was
issued to Alexander Forbes Holdco Proprietary
Limited at a total price of R2 ,287 ,532 ,947.
The number of securities allotted in pursuance of
such issues or offers
See above.
Were the securities issued to all securities holders in
proportion to their holdings? If not, to whom they
were issued?
No. However, the securities were issued to the sole
existing ordinary shareholder.
The reasons for the issues and the basis of allotment The issues were made pursuant to the Restructure
of the Company, as set out under “Restructure”.
The dates of the issues or offers 31 March 2014.
The reasons for any premium or discount 610 ,277 shares were issued without any premium
or discount with reference to book value of equity.
One share was issued at a premium to book value of
equity to facilitate a capitalisation of an inter-group
company but the premium is irrelevant as Alexander
Forbes Holdco Proprietary Limited is the sole
shareholder.
How were such premiums or discounts dealt with? See above.
Were some securities issued or offered at par and
others at varying premiums or discounts? If so,
provide the reasons for the differential.
See above.
The value of the asset, if any, acquired or to be
acquired out of the proceeds of the issue or offer.
610 ,277 shares were issued without any premium
or discount with reference to book value of equity.
One share was issued at a premium to the book value
of equity to facilitate a capitalisation of an inter-
group company but the premium is irrelevant as
Alexander Forbes Holdco Proprietary Limited is the
sole shareholder.
275
The details of any share repurchases. The preference shares were repurchased from
Alexander Forbes Holdco Proprietary Limited in
consideration for the issuance of ordinary shares in
Alexander Forbes PIK Funding Proprietary Limited.
Alexander Forbes Funding Proprietary Limited
The price and terms at which the securities were
issued or offered
1 ,774 ,795 ordinary shares each having a par value
of R0.01 were issued to Alexander Forbes PIK
Funding Proprietary Limited for a total price of
R363 ,832 ,958.
229 ,623 ordinary shares each having a par value of
R0.01 were issued to Alexander Forbes PIK Funding
Proprietary Limited for a total price of R130 ,110 ,783.
One ordinary share having a par value of R0.01 was
issued to Alexander Forbes PIK Funding Proprietary
Limited for a total price of R4 ,841 ,042 ,539.
The number of securities allotted in pursuance of
such issues or offers
See above.
Were the securities issued to all securities holders in
proportion to their holdings? If not, to whom they
were issued?
No. However, the securities were issued to the sole
existing ordinary shareholder.
The reasons for the issues and the basis of allotment The issues were made pursuant to the Restructure
of the Company, as set out under “Restructure”.
The dates of the issues or offers 31 March 2014.
The reasons for any premium or discount 1 ,774 ,795 shares and the 229,623 shares were
issued without any premium or discount with
reference to book value of equity.
One share was issued at a premium to the book value
of equity to facilitate a capitalisation of an inter-
group company but the premium is irrelevant as
Alexander Forbes PIK Funding Proprietary Limited
is the sole shareholder.
How were such premiums or discounts dealt with? See above.
Were some securities issued or offered at par and
others at varying premiums or discounts? If so,
provide the reasons for the differential
See above.
The value of the asset, if any, acquired or to be
acquired out of the proceeds of the issue or offer
Not applicable. 1 ,774 ,795 shares and 229 ,623 shares
were issued to convert inter-company loans into
equity and one share was issued to facilitate a
capitalisation of an inter-group company.
The details of any share repurchases The preference shares were repurchased by
Alexander Forbes Funding Proprietary Limited
from Alexander Forbes PIK Funding Proprietary
Limited in consideration for the issuance of ordinary
shares in Alexander Forbes Funding Proprietary
Limited.
Alexander Forbes Acquisition Proprietary Limited
The price and terms at which the securities were
issued or offered
One ordinary share having a par value of R0.01 for
a total consideration of R4 ,841 ,042 ,539.
The number of securities allotted in pursuance of
such issues or offers
See above.
Were the securities issued to all securities holders in
proportion to their holdings? If not, to whom they
were issued?
No. However, the securities were issued to the sole
existing ordinary shareholder.
276
The reasons for the issues and the basis of allotment The issues were made pursuant to the Restructure
of the Company, as set out under “Restructure”.
The dates of the issues or offers 31 March 2014.
The reasons for any premium or discount The share was issued at a premium to the book value
of equity to facilitate a capitalisation of an inter-
group company but the premium is irrelevant as
Alexander Forbes Funding Proprietary Limited is
the sole shareholder.
How were such premiums or discounts dealt with? See above.
Were some securities issued or offered at par and
others at varying premiums or discounts? If so,
provide the reasons for the differential
See above.
The value of the asset, if any, acquired or to be
acquired out of the proceeds of the issue or offer
Not applicable. The share was issued to facilitate a
capitalisation of an inter-group company.
The details of any share repurchases N/A.
AFIC
The price and terms at which the securities were
issued or offered
2 ,000 ,000 ,000 ordinary no par value shares for a
total consideration of R20 ,000 ,000 issued on
10 December 2012.
1 ,500 ,000 ordinary no par value shares for a total
consideration of R15 ,000 ,000 issued on
18 November 2013.
One ordinary no par value share for a total
consideration of R20 ,000 ,000 issued on
18 March 2014.
The number of securities allotted in pursuance of
such issues or offers
See above.
Were the securities issued to all securities holders in
proportion to their holdings? If not, to whom they
were issued?
The securities were issued to the sole existing
ordinary shareholder.
The reasons for the issues and the basis of allotment Capital injection in order to meet the capital
adequacy requirements as stipulated by the
Regulator.
The dates of the issues or offers See above.
The reasons for any premium or discount The shares were issued at a premium to the book
value of equity to facilitate a capitalisation of an
inter-group company. This is not material due to the
issue being made to the sole shareholder.
How were such premiums or discounts dealt with? See above.
Were some securities issued or offered at par and
others at varying premiums or discounts? If so,
provide the reasons for the differential
See above.
The value of the asset, if any, acquired or to be
acquired out of the proceeds of the issue or offer
N/A. The shares were issued to facilitate a
capitalisation of an inter-group company.
The details of any share repurchases N/A.
Alexander Forbes Direct Proprietary Limited
The price and terms at which the securities were
issued or offered
One ordinary no par value share for a total
consideration of R204 ,026 ,997.95 issued on
14 March 2014.
The number of securities allotted in pursuance of
such issues or offers
See above.
277
Were the securities issued to all securities holders in
proportion to their holdings? If not, to whom they
were issued?
The securities were issued to the sole existing
ordinary shareholder.
The reasons for the issues and the basis of allotment In advance of the Restructure, Alexander Forbes
Risk and Insurance Services Proprietary Limited
capitalised Alexander Forbes Direct Proprietary
Limited in order for Alexander Forbes Direct
Proprietary Limited to repay a portion of its inter-
company loan with AF Acquisition. This was done to
align the inter-company loan balances with the
external debt of R1 ,250 ,000 ,000.
The dates of the issues or offers 14 March 2014.
The reasons for any premium or discount The shares were issued at a premium to the book
value of equity to facilitate a capitalisation of an
inter-group company. This is not material due to the
issue being made to the sole shareholder.
How were such premiums or discounts dealt with? See above.
Were some securities issued or offered at par and
others at varying premiums or discounts? If so,
provide the reasons for the differential
See above.
The value of the asset, if any, acquired or to be
acquired out of the proceeds of the issue or offer
N/A. The shares were issued to facilitate a
capitalisation of an inter-group company.
The details of any share repurchases N/A.
Alexander Forbes Financial Planning Consultants Proprietary Limited
The price and terms at which the securities were
issued or offered
One ordinary no par value share for a total
consideration of R272 ,000 ,456.20 issued on
14 March 2014.
The number of securities allotted in pursuance of
such issues or offers
See above.
Were the securities issued to all securities holders in
proportion to their holdings? If not, to whom they
were issued?
The securities were issued to the sole existing
ordinary shareholder.
The reasons for the issues and the basis of allotment In advance of the Restructure, Alexander Forbes
Retail Holdings Proprietary Limited capitalised
AF Financial Planning in order for AF Financial
Planning to repay a portion of its inter-company
loan with AF Acquisition. This was done to align the
inter-company loan balances with the external debt
of R1 ,250 ,000 ,000.
The dates of the issues or offers 14 March 2014.
The reasons for any premium or discount The shares were issued at a premium to the book
value of equity to facilitate a capitalisation of an
inter-group company. This is not material due to the
issue being made to the sole shareholder.
How were such premiums or discounts dealt with? See above.
Were some securities issued or offered at par and
others at varying premiums or discounts? If so,
provide the reasons for the differential
See above.
The value of the asset, if any, acquired or to be
acquired out of the proceeds of the issue or offer.
N/A. The shares were issued to facilitate a
capitalisation of an inter-group company.
The details of any share repurchases N/A.
278
Alexander Forbes Financial Services Holdings Proprietary Limited
The price and terms at which the securities were
issued or offered
One ordinary no par value share for a total
consideration of R272 ,000 ,456.20 issued on
14 March 2014.
One ordinary no par value share for a total
consideration of R597 ,590 ,018.82 issued on
14 March 2014.
One ordinary no par value share for a total
consideration of R87 ,809 ,659.65 issued on
14 March 2014.
One ordinary no par value share for a total
consideration of R597 ,590 ,018.82 issued on
14 March 2014.
The number of securities allotted in pursuance of
such issues or offers
See above.
Were the securities issued to all securities holders in
proportion to their holdings? If not, to whom they
were issued?
The securities were issued to the sole existing
ordinary shareholder.
The reasons for the issues and the basis of allotment In advance of the Restructure, AFFS Holdings
capitalised AFFS in order for AFFS to repay a
portion of its inter-company loan with
AF Acquisition. This was done to align the inter-
company loan balances with the external debt of
R1 ,250 ,000 ,000.
The dates of the issues or offers 14 March 2014.
The reasons for any premium or discount The shares were issued at a premium to the book
value of equity to facilitate a capitalisation of an
inter-group company. This is not material due to the
issue being made to the sole shareholder.
How were such premiums or discounts dealt with? See above.
Were some securities issued or offered at par and
others at varying premiums or discounts? If so,
provide the reasons for the differential
See above.
The value of the asset, if any, acquired or to be
acquired out of the proceeds of the issue or offer
N/A. The shares were issued to facilitate a
capitalisation of an inter-group company.
The details of any share repurchases N/A.
Alexander Forbes Health Proprietary Limited
The price and terms at which the securities were
issued or offered
One ordinary no par value share for a total
consideration of R87 ,809 ,659.65 issued on
14 March 2014.
The number of securities allotted in pursuance of
such issues or offers
See above.
Were the securities issued to all securities holders in
proportion to their holdings? If not, to whom they
were issued?
The securities were issued to the sole existing
ordinary shareholder.
The reasons for the issues and the basis of allotment In advance of the Restructure, AFFS Holdings
capitalised AF Health in order for AF Health to
repay a portion of its inter-company loan with
AF Acquisition. This was done to align the inter-
company loan balances with the external debt of
R1 ,250 ,000 ,000.
The dates of the issues or offers 14 March 2014.
279
The reasons for any premium or discount The shares were issued at a premium to the book
value of equity to facilitate a capitalisation of an
inter-group company. This is not material due to the
issue being made to the sole shareholder.
How were such premiums or discounts dealt with? See above.
Were some securities issued or offered at par and
others at varying premiums or discounts? If so,
provide the reasons for the differential.
See above.
The value of the asset, if any, acquired or to be
acquired out of the proceeds of the issue or offer.
N/A. The shares were issued to facilitate a
capitalisation of an inter-group company.
The details of any share repurchases. N/A.
Alexander Forbes Retail Holdings Proprietary Limited
The price and terms at which the securities were
issued or offered
One ordinary no par value share for a total
consideration of R272 ,000 ,456.20 issued on
14 March 2014.
One ordinary no par value shares for a total
consideration of R597 ,590 ,018.82 issued on
14 March 2014.
One ordinary no par value share for a total
consideration of R597 ,590 ,018.82 issued on
14 March 2014.
The number of securities allotted in pursuance of
such issues or offers
See above.
Were the securities issued to all securities holders in
proportion to their holdings? If not, to whom they
were issued?
The securities were issued to the sole existing
ordinary shareholder.
The reasons for the issues and the basis of allotment In advance of the Restructure, AFFS Holdings
capitalised Alexander Forbes Retail Holdings
Proprietary Limited in order for Alexander Forbes
Retail Holdings Proprietary Limited to repay a
portion of its inter-company loan with AF Acquisition.
This was done to align the inter-company loan
balances with the external debt of R1 ,250 ,000 ,000.
The dates of the issues or offers 14 March 2014.
The reasons for any premium or discount The shares were issued at a premium to the book
value of equity to facilitate a capitalisation of an
inter-group company. This is not material due to the
issue being made to the sole shareholder.
How were such premiums or discounts dealt with? See above.
Were some securities issued or offered at par and
others at varying premiums or discounts? If so,
provide the reasons for the differential
See above.
The value of the asset, if any, acquired or to be
acquired out of the proceeds of the issue or offer
N/A. The shares were issued to facilitate a
capitalisation of an inter-group company.
The details of any share repurchases N/A.
280
Alexander Forbes Limited
The price and terms at which the securities were
issued or offered
One ordinary no par value share for a total
consideration of R597 ,590 ,018.82 issued on
14 March 2014.
One ordinary no par value shares for a total
consideration of R87 ,809 ,659.65 issued on
14 March 2014.
One ordinary no par value share for a total
consideration of R272 ,000 ,456.20 issued on
14 March 2014.
One ordinary no par value share for a total
consideration of R204 ,026 ,997.95 issued on
14 March 2014.
1 ordinary no par value share for a total consideration
of R597 ,590 ,018.82 issued on 14 March 2014.
The number of securities allotted in pursuance of
such issues or offers
See above.
Were the securities issued to all securities holders in
proportion to their holdings? If not, to whom they
were issued?
The securities were issued to the sole existing
ordinary shareholder.
The reasons for the issues and the basis of allotment In advance of the Restructure, AF Acquisition
capitalised Alexander Forbes Limited in order for
Alexander Forbes Limited to repay a portion of its
inter-company loan with AF Acquisition. This was
done to align the inter-company loan balances with
the external debt of R1 ,250 ,000 ,000.
The dates of the issues or offers 14 March 2014.
The reasons for any premium or discount The shares were issued at a premium to the book
value of equity to facilitate a capitalisation of an
inter-group company. This is not material due to the
issue being made to the sole shareholder.
How were such premiums or discounts dealt with? See above.
Were some securities issued or offered at par and
others at varying premiums or discounts? If so,
provide the reasons for the differential
See above.
The value of the asset, if any, acquired or to be
acquired out of the proceeds of the issue or offer
N/A. The shares were issued to facilitate a
capitalisation of an inter-group company.
The details of any share repurchases N/A.
Alexander Forbes Individual Client Administration Proprietary Limited
The price and terms at which the securities were
issued or offered
One ordinary no par value share for a total
consideration of R597 ,590 ,018.82 issued on
14 March 2014.
One ordinary no par value share for a total
consideration of R597 ,590 ,018.82 issued on
14 March 2014.
The number of securities allotted in pursuance of
such issues or offers
See above.
Were the securities issued to all securities holders in
proportion to their holdings? If not, to whom they
were issued?
The securities were issued to the sole existing
ordinary shareholder.
281
The reasons for the issues and the basis of allotment In advance of the Restructure, Alexander Forbes
Retail Holdings Proprietary Limited capitalised
AFICA in order for AFICA to repay a portion of its
inter-company loan with AF Acquisition. This was
done to align the inter-company loan balances with
the external debt of R1 ,250 ,000 ,000.
The dates of the issues or offers 14 March 2014.
The reasons for any premium or discount The shares were issued at a premium to the book
value of equity to facilitate a capitalisation of an
inter-group company. This is not material due to the
issue being made to the sole shareholder.
How were such premiums or discounts dealt with? See above.
Were some securities issued or offered at par and
others at varying premiums or discounts? If so,
provide the reasons for the differential
See above.
The value of the asset, if any, acquired or to be
acquired out of the proceeds of the issue or offer
N/A. The shares were issued to facilitate a
capitalisation of an inter-group company.
The details of any share repurchases N/A.
Alexander Forbes Risk and Insurance Proprietary Limited
The price and terms at which the securities were
issued or offered
One ordinary no par value share for a total
consideration of R204 ,026 ,997.95 issued on
14 March 2014.
The number of securities allotted in pursuance of
such issues or offers
See above.
Were the securities issued to all securities holders in
proportion to their holdings? If not, to whom they
were issued?
The securities were issued to the sole existing
ordinary shareholder.
The reasons for the issues and the basis of allotment In advance of the Restructure, Alexander Forbes
Limited capitalised Alexander Forbes Risk and
Insurance Services Proprietary Limited in order for
Alexander Forbes Risk and Insurance Services
Proprietary Limited to repay a portion of its inter-
company loan with AF Acquisition. This was done to
align the inter-company loan balances with the
external debt of R1 ,250 ,000 ,000.
The dates of the issues or offers 14 March 2014.
The reasons for any premium or discount The shares were issued at a premium to the book
value of equity to facilitate a capitalisation of an
inter-group company. This is not material due to the
issue being made to the sole shareholder.
How were such premiums or discounts dealt with? See above.
Were some securities issued or offered at par and
others at varying premiums or discounts? If so,
provide the reasons for the differential
See above.
The value of the asset, if any, acquired or to be
acquired out of the proceeds of the issue or offer
N/A. The shares were issued to facilitate a
capitalisation of an inter-group company.
The details of any share repurchases N/A.
282
Alexander Forbes South Africa Holdings Proprietary Limited
The price and terms at which the securities were
issued or offered
One ordinary no par value share for a total
consideration of R272 ,000 ,456.20 issued on
14 March 2014.
One ordinary no par value share for a total
consideration of R597 ,590 ,018.82 issued on
14 March 2014.
One ordinary no par value share for a total
consideration of R597 ,590 ,018.82 issued on
14 March 2014.
One ordinary no par value share for a total
consideration of R87 ,809 ,659.69 issued on
14 March 2014.
The number of securities allotted in pursuance of
such issues or offers
See above.
Were the securities issued to all securities holders in
proportion to their holdings? If not, to whom they
were issued?
The securities were issued to the sole existing
ordinary shareholder.
The reasons for the issues and the basis of allotment In advance of the Restructure, Alexander Forbes
Limited capitalised Alexander Forbes South Africa
Holdings Proprietary Limited in order for Alexander
Forbes South Africa Holdings Proprietary Limited
to repay a portion of its inter-company loan with
AF Acquisition. This was done to align the inter-
company loan balances with the external debt of
R1 ,250 ,000 ,000.
The dates of the issues or offers 14 March 2014.
The reasons for any premium or discount The shares were issued at a premium to the book
value of equity to facilitate a capitalisation of an
inter-group company. This is not material due to the
issue being made to the sole shareholder.
How were such premiums or discounts dealt with? See above.
Were some securities issued or offered at par and
others at varying premiums or discounts? If so,
provide the reasons for the differential
See above.
The value of the asset, if any, acquired or to be
acquired out of the proceeds of the issue or offer
N/A. The shares were issued to facilitate a
capitalisation of an inter-group company.
The details of any share repurchases N/A.
Alexander Forbes Group Services Proprietary Limited
The price and terms at which the securities were
issued or offered
1 ordinary no par value share for a total consideration
of R1.00 issued on 28 February 2014.
The number of securities allotted in pursuance of
such issues or offers
See above.
Were the securities issued to all securities holders in
proportion to their holdings? If not, to whom they
were issued?
The securities were issued to the sole existing
ordinary shareholder.
The reasons for the issues and the basis of allotment Share issued at incorporation of the company.
The dates of the issues or offers 28 February 2014.
The reasons for any premium or discount N/A
How were such premiums or discounts dealt with? N/A
Were some securities issued or offered at par and
others at varying premiums or discounts? If so,
provide the reasons for the differential
N/A
283
The value of the asset, if any, acquired or to be
acquired out of the proceeds of the issue or offer
N/A.
The details of any share repurchases N/A.
Lane Clark & Peacock Netherlands BV
The price and terms at which the securities were
issued or offered
3 ,450 “A” shares to ActLogic BV for consideration of
€1 per share (nominal value).
3 ,450 A shares to Stuifheuvel BV for consideration
of €1 per share (nominal value).
100 B shares to Lane Clark & Peacock LLP BV for
consideration of €1 per share (nominal value).
The number of securities allotted in pursuance of
such issues or offers
See above.
Were the securities issued to all securities holders in
proportion to their holdings? If not, to whom they
were issued?
No. See above.
The reasons for the issues and the basis of allotment As part of a restructuring and shareholders
agreement for the exit of a shareholder/Netherlands
partner and reduction in LCP’s proportion of voting
rights/shares held. The issue of new shares was in
order to bring each shareholder’s proportion of
voting rights/shares held to that agreed by the
shareholders, being 70% LCP; 15% ActLogic BV and
15% Stuifheuvel BV.
The dates of the issues or offers 17 April 2012.
The reasons for any premium or discount N/A.
How were such premiums or discounts dealt with? N/A.
Were some securities issued or offered at par and
others at varying premiums or discounts? If so,
provide the reasons for the differential
No.
The value of the asset, if any, acquired or to be
acquired out of the proceeds of the issue or offer
N/A.
The details of any share repurchases N/A.
LCP Belgium
The price and terms at which the securities were
issued or offered
Consideration of €32 per ordinary share of
€1 nominal value.
The number of securities allotted in pursuance of
such issues or offers
12 ,500 ordinary shares.
Were the securities issued to all securities holders in
proportion to their holdings? If not, to whom they
were issued?
Yes.
The reasons for the issues and the basis of allotment Recapitalisation: The board of directors determined
on 15 October 2012 that the net-active of the
company had decreased under the thresholds as
mentioned in article 431 of the Belgian Companies
Code. Consequently, the directors proposed to
increase the capital through the contribution of a
part of the existing receivables in current-accounts
between LCP Belgium and its shareholders, LCP
Europe Limited, LCP Enterprises Limited and Peter
Bastiaens en Co BVBA, in order to strengthen its
capital. In total €400 ,000 was capitalised.
The dates of the issues or offers 12 November 2012.
284
The reasons for any premium or discount See above.
How were such premiums or discounts dealt with? The premium of €387 ,500 (12 ,500 shares at
€31 each) was credited to share premium account.
€1 ,286 ,108 of the share premium account was then
utilised against retained losses brought forward.
Were some securities issued or offered at par and
others at varying premiums or discounts? If so,
provide the reasons for the differential
No.
The value of the asset, if any, acquired or to be
acquired out of the proceeds of the issue or offer
N/A.
The details of any share repurchases N/A.
285
Annexure 8
DETAILS OF GROUP COMPANIES
Subsidiaries and Associates of the Company
The following tables set forth the subsidiaries and associates of the Company after the Offer.
None of these subsidiaries or associates are listed on the JSE.
Direct Subsidiaries
Alexander Forbes Holdco Proprietary Limited
Registration number 2006/024582/07
Date and place of incorporation 7 August 2006 in South Africa
Issued share capital 12 ,210 ,293 ordinary par value shares of R0.01 each
Nature of business To hold shares in Alexander Forbes PIK Funding Proprietary
Limited, as principal; and to enter into the approved
documents, exercise and perform its rights and duties under
such approved documents, and all related matters.
Date became subsidiary 1 February 2007
Alexander Forbes direct interest 100%
Indirect Subsidiaries
Alexander Forbes PIK Funding Proprietary Limited
Registration number 2006/026476/07
Date and place of incorporation 25 August 2006 in South Africa
Issued share capital 12 ,210 ,278 ordinary par value shares of R0.01 each
Nature of business To hold shares in Alexander Forbes Funding Proprietary
Limited, as principal; and to enter into the approved
documents, exercise and perform its rights and duties under
such approved documents, and all related matters.
Date became subsidiary 1 February 2007
Alexander Forbes effective interest 100%
Alexander Forbes Funding Proprietary Limited
Registration number 2006/024950/07
Date and place of incorporation 11 August 2006 in South Africa
Issued share capital 13 ,604 ,419 ordinary par value shares of R0.01 each
Nature of business To hold shares in Alexander Forbes Acquisition Proprietary
Limited, as principal; and to enter into the approved
documents, exercise and perform its rights and duties under
such approved documents, and all related matters.
Date became subsidiary 1 February 2007
Alexander Forbes effective interest 100%
286
Alexander Forbes Acquisition Proprietary Limited
Registration number 2006/023218/07
Date and place of incorporation 26 July 2006 in South Africa
Issued share capital 11 ,600 ,001 ordinary par value shares of R0.01 each
Nature of business The holding company of the Alexander Forbes Limited group
of companies. AF Acquisition earns investment income
through loans made to various subsidiaries of Alexander
Forbes Limited.
Date became subsidiary 1 February 2007
Alexander Forbes effective interest 100%
Alexander Forbes Limited
Registration number 1958/001974/06
Date and place of incorporation 16 June 1958 in South Africa
Issued share capital 461 ,506 ,296 ordinary no par value shares
Nature of business The holding company of the Alexander Forbes group of
companies which provides, inter alia, fi nancial, investment
and risk services.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
Alexander Forbes Group Services Proprietary Limited
Registration number 2014/043524/07
Date and place of incorporation 28 February 2014 in South Africa
Issued share capital 1 ordinary no par value share
Nature of business No restrictions on business activities.
Date became subsidiary 1 March 2014
Alexander Forbes effective interest 100%
Alexander Forbes South Africa Holdings Proprietary Limited (AFSA Holdings)
Registration number 2003/013466/07
Date and place of incorporation 12 June 2003 in South Africa
Issued share capital 100 ,004 ordinary no par value shares and 813 “C” no par
value shares
Nature of business To act as a holding company.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
Alexander Forbes Investments Proprietary Limited
Registration number 1997/003924/07
Date and place of incorporation 18 March 1997 in South Africa
Issued share capital 100 ordinary no par value shares
Nature of business To acquire and hold assets for investment purposes.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
287
Alexander Forbes Group and Technology Services Proprietary Limited
Registration number 1977/003357/07
Date and place of incorporation 14 October 1977 in South Africa
Issued share capital Group services and to hold all internally developed systems of
the Group for rental
Nature of business 1 ,375 ,035 ordinary no par value shares.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
Alter Ego Investments Proprietary Limited
Registration number 2006/000004/07
Date and place of incorporation 3 January 2006 in South Africa
Issued share capital 1 ,000 ordinary shares of R1.00 each
Nature of business To enter into approved documents and to exercise and perform
its rights, duties and obligations under such approved
documents.
Date became subsidiary 14 December 2012
Alexander Forbes effective interest 100%
Micawber 510 Proprietary Limited
Registration number 2006/028185/07
Date and place of incorporation 8 September 2006 in South Africa
Issued share capital 1 ,000 ordinary shares of R1.00 each
Nature of business To enter into approved documents and to exercise and perform
its rights, duties and obligations under such approved
documents.
Date became subsidiary 14 December 2012
Alexander Forbes effective interest 100%
Micawber 511 Proprietary Limited
Registration number 2006/028182/07
Date and place of incorporation 8 September 2006 in South Africa
Issued share capital 1 ,000 ordinary shares of R1.00 each
Nature of business To enter into approved documents and to exercise and perform
its rights, duties and obligations under such approved
documents.
Date became subsidiary 14 December 2012
Alexander Forbes effective interest 100%
FFSGH Employee Investments Limited
Registration number 1987/00256/07
Date and place of incorporation 28 January 1987 in South Africa
Issued share capital 13 ,026 ,215 “C” ordinary shares of R0.28 each
Nature of business To carry on share investment on behalf of the G roup.
Date became subsidiary 27 February 2014
Alexander Forbes effective interest 100%
288
FFSGH (1990) Employee Investments Limited
Registration number 1990/001687/06
Date and place of incorporation 23 March 1990 in South Africa
Issued share capital 11 ,964 ,505 “C” ordinary shares of R0.04 each
Nature of business To carry on the business of a share investment company.
Date became subsidiary 27 February 2014
Alexander Forbes effective interest 100%
Naboom Lodge Golf Estate Proprietary Limited
Registration number 1989/003028/07
Date and place of incorporation 26 May 1989 in South Africa
Issued share capital 4 ordinary no par value shares
Nature of business The holder of immovable property.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
GMA Subsidiary Trading 1 Proprietary Limited
Registration number 1970/006441/07
Date and place of incorporation 18 May 1970 in South Africa
Issued share capital 1 ,575 ordinary no par value shares
Nature of business To carry on the business of a holding company, including
administration and support services.
Date became subsidiary 31 August 2007
Alexander Forbes effective interest 100%
GMA Subsidiary Trading 7 Proprietary Limited
Registration number 1997/022559/07
Date and place of incorporation 30 December 1997 in South Africa
Issued share capital 1 ,000 ordinary shares with a par value of R1.00 each
Nature of business To carry on the business of a holding company.
Date became subsidiary 31 August 2007
Alexander Forbes effective interest 100%
GMA Subsidiary Trading 9 Proprietary Limited
Registration number 1977/002709/07
Date and place of incorporation 24 August 1977 in South Africa
Issued share capital 7 shares with a par value of R0.25 each
Nature of business To engage in all aspects of the business of employee benefi ts
consultants.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
289
GMA Subsidiary Trading 15 Proprietary Limited
Registration number 1963/004736/07
Date and place of incorporation 30 September 1963 in South Africa
Issued share capital 50 ,000 ordinary shares with a par value of R1.00 each
Nature of business Insurance brokers.
Date became subsidiary 31 August 2007
Alexander Forbes effective interest 50%
RMB Insurance Brokers Proprietary Limited
Registration number 1983/004614/07
Date and place of incorporation 17 May 1983 in South Africa
Issued share capital 100 ordinary no par value shares
Nature of business To carry on the business of insurance brokers.
Date became subsidiary 31 August 2007
Alexander Forbes effective interest 50%
Envirocover Proprietary Limited
Registration number 1997/009541/07
Date and place of incorporation 20 June 1997 in South Africa
Issued share capital 100 ordinary no par value shares
Nature of business Receiving, holding and applying monies contributed to it in
order to discharge the post-closure and other environmental
liabilities of industrial and mining companies.
Date became subsidiary 31 August 2007
Alexander Forbes effective interest 100%
Alexander Forbes Financial Services Holdings Proprietary Limited
Registration number 1995/012732/07
Date and place of incorporation 27 November 1995 in South Africa
Issued share capital 5 ordinary no par value shares
Nature of business Holding company which provides various services, including
employee benefi ts, health and retirement fund actuarial
consulting; administration for umbrella and standalone
retirement funds, share schemes and discretionary savings
products; and individual and group life products.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
Alexander Forbes Fiduciary Services Limited
Registration number 1920/002057/06
Date and place of incorporation 20 July 1920 in South Africa
Issued share capital 50 ,000 ordinary no par value shares
Nature of business Trust administration.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
290
Alexander Forbes Financial Planning Consultants Proprietary Limited
Registration number 1995/012764/07
Date and place of incorporation 28 November 1995 in South Africa
Issued share capital 2 ordinary shares of no par value
Nature of business Retail business, fi nancial planning, actuarial services,
consulting and advisory services, trust services and related
activities.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
Alexander Forbes Financial Services Proprietary Limited
Registration number 1969/018487/07
Date and place of incorporation 29 December 1969 in South Africa
Issued share capital 3 ,509 ,068 ordinary shares of no par value
Nature of business To carry on the business of providing fi nancial services.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
Alexander Forbes Health Proprietary Limited
Registration number 2007/015447/07
Date and place of incorporation 28 May 2007 in South Africa
Issued share capital 121 ordinary no par value shares
Nature of business The provision of healthcare, wellness and related consulting,
broking and actuarial services and the development and
provision of health, wellness and related products.
Date became subsidiary 13 September 2007
Alexander Forbes effective interest 100%
Alexander Forbes Individual Clients Administration Proprietary Limited
Registration number 2007/015632/07
Date and place of incorporation 28 May 2007 in South Africa
Issued share capital 122 ordinary no par value shares
Nature of business Retail business, fi nancial planning, actuarial services
administration services, consulting and advisory services,
trust services and related activities.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
Alexander Forbes Intermediary Services Proprietary Limited
Registration number 2007/020446/07
Date and place of incorporation 19 July 2007 in South Africa
Issued share capital 120 ordinary no par value shares
Nature of business Independent broker distribution channel services.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
291
Alexander Forbes Life Limited
Registration number 1997/022561/06
Date and place of incorporation 30 December 1997 in South Africa
Issued share capital 10 ,000 ,000 ordinary no par value shares
Nature of business To provide life assurance services to the public in terms of the
LTIA or any substitution thereof.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
Alexander Forbes Retail Client Administration Proprietary Limited
Registration number 2010/007532/07
Date and place of incorporation 19 April 2010 in South Africa
Issued share capital 120 ordinary no par value shares
Nature of business General trading and investment in all aspects.
Date became subsidiary 13 November 2010
Alexander Forbes effective interest 100%
Alexander Forbes Retail Holdings Proprietary Limited
Registration number 2001/001066/07
Date and place of incorporation 19 January 2001 in South Africa
Issued share capital 103 ordinary no par value shares
Nature of business Holding company for retail business.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
Fireball Trade and Invest 30 Proprietary Limited
Registration number 2010/006083/07
Date and place of incorporation 29 March 2010 in South Africa
Issued share capital 120 ordinary no par value shares
Nature of business General trading and investment in all aspects.
Date became subsidiary 3 May 2010
Alexander Forbes effective interest 100%
Seniors’ Finance Proprietary Limited
Registration number 2005/039721/07
Date and place of incorporation 9 November 2005 in South Africa
Issued share capital 272 ordinary shares with a par value of R1.00 each
Nature of business The provision of mortgage-related products.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 86.8%
292
Seniors’ Finance Security SPV Proprietary Limited
Registration number 2007/019770/07
Date and place of incorporation 13 July 2007 in South Africa
Issued share capital 1 ordinary share with a par value of R1.00
Nature of business To issue lender guarantees ; Seniors’ Finance guarantees,
obtain and hold the lender indemnity, obtain and hold debtor
indemnities, obtain, hold, maintain and execute collateral
ceded and pledged and enter into fi nance documents.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
Alexander Forbes Nominees Proprietary Limited
Registration number 1988/005546/07
Date and place of incorporation 28 September 1988 in South Africa
Issued share capital 100 ordinary no par value shares
Nature of business Registered holder of securities for and on behalf of clients.
Date became subsidiary 26 July 2007
Alexander Forbes interest 100%
Homeplan Proprietary Limited
Registration number 2007/007085/07
Date and place of incorporation 5 March 2007 in South Africa
Issued share capital 120 ordinary shares with a par value of R1.00
Nature of business Trading and investment.
Date became subsidiary 26 July 2007
Alexander Forbes interest 100%
Homeplan Financial Solutions Security SPV Proprietary Limited
Registration number 2004/026210/07
Date and place of incorporation 10 September 2004 in South Africa
Issued share capital One ordinary share of R1.00
Nature of business Issue guarantees to creditors of Homeplan Financial Solutions
Proprietary Limited and guarantee payment to such creditors
of their claims against issuer on the terms set out in such
guarantees.
Date became subsidiary 26 July 2007
Alexander Forbes interest 100%
Alexander Forbes Management Services Proprietary Limited
Registration number 1997/022552/07
Date and place of incorporation 30 December 1997 in South Africa
Issued share capital 100 ordinary no par value shares
Nature of business Management, administration and support services.
Date became subsidiary 26 July 2007
Alexander Forbes interest 100%
293
Faranani Risk Solutions Proprietary Limited
Registration number 1983/008255/07
Date and place of incorporation 8 August 1983 in South Africa
Issued share capital 1 ,000 ordinary shares with a par value of R1.00 each
Nature of business The provision of insurance broking and related services.
Date became subsidiary 26 July 2007
Alexander Forbes interest 100%
Fihrst Management Services Proprietary Limited
Registration number 1988/022460/07
Date and place of incorporation 12 November 1998 in South Africa
Issued share capital 100 ordinary shares of R0.10 each
Nature of business Financial management services as an agent.
Date became subsidiary 26 July 2007
Alexander Forbes interest 100%
Investment Solutions Holdings Limited (Investment Solutions)
Registration number 1997/022540/06
Date and place of incorporation 30 December 1997 in South Africa
Issued share capital 288 ,964 ,909 ordinary no par value shares
Nature of business The holding company for the multi-manager asset
management and investment administration businesses.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
Investment Solutions Limited
Registration number 1997/000595/06
Date and place of incorporation 21 January 1997 in South Africa
Issued share capital 15 ,500 ,000 ordinary no par value shares
Nature of business In accordance with the LTIA or any substitution therefor.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
Investment Solutions Administrative Services Proprietary Limited
Registration number 2005/043273/07
Date and place of incorporation 8 December 2005 in South Africa
Issued share capital 120 ordinary no par value shares
Nature of business To deliver investment administrative services to non-long-
term insurance clients.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
294
CFS II Investments Proprietary Limited
Registration number 2007/015588/07
Date and place of incorporation 28 May 2007 in South Africa
Issued share capital 120 ordinary no par value shares
Nature of business To act as an investment company.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
CFS I Investments Proprietary Limited
Registration number 2006/006099/07
Date and place of incorporation 28 February 2006 in South Africa
Issued share capital 120 ordinary no par value shares
Nature of business To act as an investment company.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
Caveo Fund Solutions Proprietary Limited
Registration number 2003/017504/07
Date and place of incorporation 24 July 2003 in South Africa
Issued share capital 10 ,000 ordinary par value shares of R0.10 each
Nature of business To act as a fi nancial services provider in terms of the FAIS.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 50.01%
Investment Solutions Unit Trusts Limited
Registration number 2001/015776/06
Date and place of incorporation 20 July 2001 in South Africa
Issued share capital 10 ,000 ,000 ordinary no par value shares
Nature of business To carry on business as the management company of unit
trust schemes in securities other than proper shares in
accordance with the Unit Trusts Control Act, No 54 of 1981.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
Super Flex Limited
Registration number 1995/010767/06
Date and place of incorporation 10 September 1995 in South Africa
Issued share capital 5 ,000 ,000 ordinary no par value shares
Nature of business Long-term insurance business of the nature of immediate
annuities only in accordance with the Insurance Act, 1943,
as amended, or any statutory substitution therefor.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
295
Investment Solutions Trustee Company Proprietary Limited
Registration number 2000/027207/07
Date and place of incorporation 26 October 2000 in South Africa
Issued share capital 120 ordinary no par value shares
Nature of business To act as trustees for various trusts.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
Investment Solutions Offshore Funds (SA) Limited
Registration number 2000/027208/06
Date and place of incorporation 26 October 2000 in South Africa
Issued share capital 2 ,000 ,000 ordinary no par value shares
Nature of business Investments as principal.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
Investment Solutions International Proprietary Limited
Registration number 1999/009202/07
Date and place of incorporation 6 May 1999 in South Africa
Issued share capital 100 ordinary no par value shares
Nature of business The business of an international investment company.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
Investment Solutions Transition Management Company Proprietary Limited
Registration number 2000/026510/07
Date and place of incorporation 18 October 2000 in South Africa
Issued share capital 100 ordinary no par value shares
Nature of business For the purpose of doing transition management and related
matters.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
Alexander Forbes Risk and Insurance Services Proprietary Limited
Registration number 1985/002410/07
Date and place of incorporation 21 May 1985 in South Africa
Issued share capital 2 ordinary no par value shares
Nature of business To provide risk and insurance services and all activities
ancillary thereto.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
296
Alexander Forbes Insurance Company Limited
Registration number 1976/001547/06
Date and place of incorporation 28 April 1976 in South Africa
Issued share capital 15 ,415 ,083 ordinary no par value shares
Nature of business The business of direct short-term insurance in accordance
with the provisions of the Insurance Act, 1943, as amended
from time to time.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
Alexander Forbes Direct Proprietary Limited
Registration number 2007/018501/07
Date and place of incorporation 5 July 2007 in South Africa
Issued share capital 121 ordinary no par value shares
Nature of business Direct marketing.
Date became subsidiary 30 August 2007
Alexander Forbes effective interest 100%
Alexander Forbes Administration Services Proprietary Limited
Registration number 1972/000632/07
Date and place of incorporation 24 January 1972 in South Africa
Issued share capital 7 ordinary shares of no par value
Nature of business A specialised company performing administration functions
and related services.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
CRM Training Proprietary Limited
Registration number 1996/000503/07
Date and place of incorporation 18 January 1996 in South Africa
Issued share capital 100 ordinary shares with a par value of R1.00 each
Nature of business To provide risk management training to all existing risk
services and non-risk services clients.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
Alexander Forbes Compensation Technologies Proprietary Limited
Registration number 2001/011416/07
Date and place of incorporation 21 May 2001 in South Africa
Issued share capital 420 ordinary no par value shares
Nature of business The provision of cost containment services to the payers of
medical benefi ts.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
297
Alexander Forbes Accident Compensation Technologies Proprietary Limited
Registration number 2000/021810/07
Date and place of incorporation 29 August 2000 in South Africa
Issued share capital 4 ,000 ordinary no par value shares
Nature of business Provide management services to health care providers for
MVA claims and related activities.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
Alexander Forbes Accident Verifi cation Unit Proprietary Limited
Registration number 2001/000985/07
Date and place of incorporation 18 January 2001 in South Africa
Issued share capital 220 ordinary no par value shares
Nature of business Provide management services to healthcare providers for
MVA claims and related activities.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
Alexander Forbes AfriNet Investments Proprietary Limited
Registration number 1997/004662/07
Date and place of incorporation 2 April 1997 in South Africa
Issued share capital 100 “A” ordinary no par value shares and 100 “B” ordinary
no par value shares.
Nature of business To act as a holding company for risk related fi nancial services
in Africa.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
Alexander Forbes Botswana Group Holdings Proprietary Limited
Registration number 94/636
Date and place of incorporation 22 April 1994 in Botswana
Issued share capital 1 ,000 ordinary shares of P1 each
Nature of business To operate as an investment holding company, carry on the
business of agents of all kinds, provide fi nance and a number
of other detailed business.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 99.9%
Alexander Forbes Financial Services Botswana (Proprietary) Limited
Registration number 1988/313
Date and place of incorporation 30 March 1988 in Botswana
Issued share capital 151 ,136 ordinary shares of P1 each
Nature of business The provision of employee benefi t administration services to
employers and institutional businesses.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 66.67%
298
Alexander Forbes Asset Consultants (Proprietary) Limited
Registration number 2010/4924
Date and place of incorporation 31 May 2010 in Botswana
Issued share capital 100 ordinary shares of P1 each
Nature of business The provision of asset consulting/investment advisory
services.
Date became subsidiary 20 May 2011
Alexander Forbes effective interest 74%
Price Forbes Africa Group (Proprietary) Limited
Registration number 1992/776
Date and place of incorporation 8 May 1992 in Botswana
Issued share capital 26 ,000 ordinary shares of P1 each
Nature of business Insurance and reinsurance brokers.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
Alexander Forbes Financial Services (East Africa) Limited
Registration number C80894
Date and place of incorporation 8 May 1998 in Kenya
Issued share capital 250 ,000 ordinary shares of KSh100 each
Nature of business Provision of retirement consulting, actuarial and
administration services; houses the AFRF.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 60%
Alexander Forbes Namibia Investments Proprietary Limited
Registration number 90/305
Date and place of incorporation 15 June 1990 in Namibia
Issued share capital 100 ordinary shares of N$1 each
Nature of business The provision of retirement consulting, actuarial and
administration services.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
Alexander Forbes Namibia Holdings Proprietary Limited
Registration number 90/231
Date and place of incorporation 10 May 1990 in Namibia
Issued share capital 100 ordinary shares of N$1 each
Nature of business Investment company.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 75%
299
Alexander Forbes Namibia Empowerment Holdings (Proprietary) Limited
Registration number 2003/168
Date and place of incorporation 27 February 2003 in Namibia
Issued share capital 8 ,001 ordinary shares of N$1 each (6 ,000 class A ordinary
shares and 2 ,001 class B ordinary shares) and 17 ,450
preference shares of N$1 each.
Nature of business Investments and all related activities.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
Alexander Forbes Financial Services Namibia (Proprietary) Limited
Registration number 93/284
Date and place of incorporation 25 June 1993 in Namibia
Issued share capital 2 ,500 ordinary shares of N$2 each
Nature of business Short-term broking, life assurance, pension funds, retirement
planning, risk analysis and consulting, reinsurance broking
and consulting and all related business.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 75%
Alexander Forbes Insurance Company Namibia Limited
Registration number 2003/374
Date and place of incorporation 9 June 2003 in Namibia
Issued share capital 4 ,000 ,000 ordinary shares of N$1 each
Nature of business The provision of short-term cell-captive insurance, selling
various insurance products off the promoter cell and the
provision of cell-captive solutions to clients.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 75%
Investment Solutions Namibia Limited
Registration number 99/228
Date and place of incorporation 7 June 1999 in Namibia
Issued share capital 1 ,000 ,001 ordinary shares of N$1 each
Nature of business The provision of life assurance services.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 75%
300
Lumley Agra Farmers Insurance Brokers (Proprietary) Limited
Registration number 93/360
Date and place of incorporation 10 October 1996 in Namibia
Issued share capital 10 ,000 ordinary shares of N$1 each
Nature of business Farming and agricultural insurance broking and all objects
ancillary thereto.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 75%
Investment Solutions Holdings (Proprietary) Limited
Registration number 2001/062
Date and place of incorporation 19 February 2001 in Namibia
Issued share capital 100 ordinary shares of N$1 each
Nature of business Holding company.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 75%
Reinsurance Solutions Namibia (Proprietary) Limited
Registration number 93/145
Date and place of incorporation 25 March 1993 in Namibia
Issued share capital 50 ordinary shares of N$2 each
Nature of business Short-term insurance broking and all objects ancillary
thereto.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 75%
Guardrisk Life Namibia Limited
Registration number 2004/108
Date and place of incorporation 15 March 2004 in Namibia
Issued share capital 100 ,000 ordinary shares of N$1 each
Nature of business To provide funeral and life assurance cover.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 75%
Optimum Vehicle Solutions Limited
Registration number 92/467
Date and place of incorporation 5 November 1992 in Namibia
Issued share capital 4 ,000 ordinary shares of N$1 each
(2 ,000 class A ordinary shares and 2 ,000 class B ordinary
shares)
Nature of business Finance company.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 75%
301
Alexander Forbes Consulting Actuaries Nigeria Limited
Registration number LC 620284
Date and place of incorporation 31 March 2005 in Nigeria
Issued share capital 50 ,000 ,000 ordinary shares of N$1 each
Nature of business Conducting the business of pension fund valuation, benefi t
design and costing, individual member benefi t calculations of
pension benefi ts, calculating individual transfer values to the
new contributory pension scheme, advising on pension
increases, pension fund liquidation, assurance company
valuations, assurance product development, modelling of
liabilities for investment strategy planning, independent
advice on appointing service providers and statistical analysis
and profi t projections.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 78%
Alexander Forbes Financial Services Uganda Limited
Registration number 147409
Date and place of incorporation 10 April 2012 in Uganda
Issued share capital 10 ,000 shares of USh1 000 each
Nature of business Retirement fund administration.
Date became subsidiary 10 April 2012
Alexander Forbes effective interest 51%
WFDR (Private) Limited
Registration number 168/1968
Date and place of incorporation 1 March 1968 in Zimbabwe
Issued share capital 50 ,000 ordinary shares of US$0.01 each
Nature of business To carry on all kinds of insurance business, the business of
an investment company and many other detailed businesses.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
Alexander Forbes Zimbabwe (Private) Limited
Registration number 369/1977
Date and place of incorporation 23 September 1977 in Zimbabwe
Issued share capital 50 ,000 ordinary shares of US$0.001 each
Nature of business To operate as a holding and investment company.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 60%
302
Alexander Forbes International Limited
Registration number 2265613
Date and place of incorporation 8 June 1988 in England and Wales
Issued share capital 7 ,700 ,000 ordinary par value shares of £1 each
Nature of business Holding company for the EU businesses of the Group,
including the LCP business.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
Lane Clark & Peacock Limited
Registration number 5706321
Date and place of incorporation 13 February 2006 in England and Wales
Issued share capital 1 ordinary share fully paid up at £1 nominal value
Nature of business The company is dormant.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 60%
Lane Clark & Peacock LLP
Registration number OC301436
Date and place of incorporation 6 February 2002 in England and Wales
Issued share capital N/A (LCP LLP is a limited liability partnership)
Nature of business Actuaries and consultants.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 60%
Lane Clark & Peacock Services Limited
Registration number 8678813
Date and place of incorporation 5 September 2013 in England and Wales
Issued share capital 1 ordinary share fully paid-up at £1 nominal value
Nature of business The company is dormant.
Date became subsidiary 17 September 2013
Alexander Forbes effective interest 60%
Alfred Blackmore Limited
Registration number 3931919
Date and place of incorporation 23 February 2000 in England and Wales
Issued share capital 100 ordinary shares of £1 each
Nature of business Dormant – in members’ voluntary liquidation.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
303
10800 Limited
Registration number 1347496
Date and place of incorporation 11 January 1978, England and Wales
Issued share capital £1 ,042 ,677.15 divided into 53 ,543 A ordinary shares of
£1 each, 986 ,457 B ordinary shares of £1 each and 267 ,715
C ordinary shares of 1p each
Nature of business Dormant – in members’ voluntary liquidation.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
10900 Limited
Registration number 2806452
Date and place of incorporation 2 April 1993, England and Wales
Issued share capital £1 ,194 ,725 divided into 1 ,172 ,000 preference shares of
£1 each and 2 ,272 ,500 A ordinary shares of 1p each
Nature of business Dormant – in members’ voluntary liquidation.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
The Annuity Bureau Limited
Registration number 02399904
Date and place of incorporation 30 June 1989, England and Wales
Issued share capital £100 ,000 divided into 100 ordinary shares of £1 each and
100 ,000 preference shares of £1 each
Nature of business Dormant – in members’ voluntary liquidation.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
AF DC Administration Services Limited
Registration number 01967611
Date and place of incorporation 2 December 1985, England and Wales
Issued share capital £150 ,000 divided into 150 ,000 Ordinary Shares of £1 each
Nature of business Dormant – in members’ voluntary liquidation.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
AF DC Administration Services Number 2 Limited
Registration number 4904305
Date and place of incorporation 18 September 2003, England and Wales
Issued share capital 1 ordinary share of £1
Nature of business Dormant – in members’ voluntary liquidation.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
304
The Investors Bureau Limited
Registration number 01974288
Date and place of incorporation 31 December 1985, England and Wales
Issued share capital 126 ,077 ordinary shares of £1 each
Nature of business Dormant – in members’ voluntary liquidation.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
Alexander Forbes Financial Services Holdings Limited
Registration number 4336416
Date and place of incorporation 7 December 2001 in England and Wales
Issued share capital 1 ordinary par value share of £1
Nature of business Holding company for a non-trading subsidiary in the Isle of
Man and is the Corporate Member in LCP.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
Alexander Forbes Financial Services No. 2 Limited
Registration number 2619088
Date and place of incorporation 11 June 1991 in England and Wales
Issued share capital 310 ,000 ordinary shares of £1 each
Nature of business Non-trading.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
10723 Limited
Registration number 111732C
Date and place of incorporation 14 September 2004 in Isle of Man
Issued share capital 23 ,000 ordinary shares of £1 each
Nature of business Non-trading.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
LCP Europe Limited
Registration number 5064181
Date and place of incorporation 4 March 2004 in England and Wales
Issued share capital 355 ,485 ordinary shares of £1 each
Nature of business Acts as a holding company for shareholdings in Belgium and
LCP Enterprises Limited.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 80%
305
LCP Enterprises Limited
Registration number 5408003
Date and place of incorporation 30 March 2005 in England and Wales
Issued share capital 1 ordinary share of £1 nominal value
Nature of business Shareholder in the business of LCP Belgium.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 80%
LCP Trustees Limited
Registration number 1450281
Date and place of incorporation 24 September 1979 in England and Wales
Issued share capital 2 ordinary shares fully paid up at £1 nominal value
Nature of business The company is dormant.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 60%
IS Global Research Limited
Registration number 8304292
Date and place of incorporation 22 November 2012 in England and Wales
Issued share capital 100 ordinary shares of £1 each
Nature of business Investment research services.
Date became subsidiary 22 November 2012
Alexander Forbes effective interest 100%
LCP Belgium
Registration number 863.840.923
Date and place of incorporation 3 March 2004 in Belgium
Issued share capital 35 ,000 shares of €1 each
Nature of business Actuarial, fi nancial, risk and business services fi rm
specialising in the areas of pensions, employee benefi ts and
compensation, investment, insurance and healthcare,
including provision of IT development, support and
maintenance related to these services.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 72%
Alexander Forbes Group Jersey Limited
Registration number 70732
Date and place of incorporation 29 January 1988 in Jersey
Issued share capital 51 ,447 ordinary par value shares of £1 each
Nature of business Holding company.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
306
Investment Solutions (Jersey) Limited
Registration number 67439
Date and place of incorporation 29 January 1997 in Jersey
Issued share capital 25 ,000 ordinary shares of £1 each
Nature of business Fund multi-management.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
Alexander Forbes Channel Islands Limited
Registration number 9596
Date and place of incorporation 14 January 1975 in Jersey
Issued share capital 250 ,000 ordinary shares of £0.10 each
Nature of business Financial advisor offering independent fi nancial advice to
both corporate clients and individuals.
Date became subsidiary 26 July 2007
Alexander Forbes effective interest 100%
Lane Clark & Peacock Netherlands B.V.
Registration number 30237621
Date and place of incorporation 25 February 2008 in The Netherlands
Issued share capital 55 ,000 shares of €1 each
Nature of business Actuarial and pension consultancy.
Date became associate 25 February 2008
Alexander Forbes effective interest 42%
Lane Clark & Peacock Trustee Services Limited
Registration number 477939
Date and place of incorporation 25 November 2009 in Ireland
Issued share capital 100 ordinary shares of €1 each
Nature of business The company is dormant and has not commenced trading.
Date became associate 25 November 2009
Alexander Forbes effective interest 48%
Lane Clark & Peacock Ireland Holdings Limited
Registration number 434115
Date and place of incorporation 2 February 2007 in Ireland
Issued share capital 1 ,545 ordinary shares of €1 each
Nature of business Investment holding company.
Date became associate 1 April 2008
Alexander Forbes effective interest 48%
307
Lane Clark & Peacock Ireland Limited
Registration number 337796
Date and place of incorporation 24 January 2001 in Ireland
Issued share capital 5 ordinary shares of €1.27 each
1 “A” ordinary share at €1.27
Nature of business Provision of actuarial consulting services to insurance and
pension funds and independent advice to private individuals
and companies.
Date became associate 1 April 2008
Alexander Forbes effective interest 48%
Swaziland Employee Benefi ts Consultants (Proprietary) Limited
Registration number 143/1985
Date and place of incorporation 15 May 1985 in Swaziland
Issued share capital 300 A shares of E1 each
Nature of business
Pension fund administration, consulting, actuarial and
related fi nancial services. This entity is currently in the
process of being disposed, subject to the receipt of certain
regulatory approvals.
Date became associate 26 July 2007
Alexander Forbes effective interest 70.6%
Alexander Forbes Lesotho Limited
Registration number 69/35
Date and place of incorporation 7 October 1969
Issued share capital 25 ,000 ordinary shares of R1.00 each
Nature of business To carry on business as insurance brokers and agents.
Date became associate 26 July 2007
Alexander Forbes effective interest 100%
Associates
Alexander Forbes Risk & Insurance Brokers Proprietary Limited
Registration number C104447
Date and place of incorporation 7 July 2003 in Kenya
Issued share capital 150 ,000 ordinary shares of KSh 100 each
Nature of business Conducting the business of short-term insurance broking.
Date became associate 30 January 2009
Alexander Forbes effective interest 40%
308
Alexander Forbes Financial Services Zambia Limited
Registration number LCO 61720
Date and place of incorporation 17 March 2006 in Zambia
Issued share capital 1 ,100 ,000 ordinary shares of K1 each
Nature of business The administration of pension funds and the management
employee benefi t schemes.
Date became associate 4 October 2009
Alexander Forbes effective interest 49%
Alexander Forbes Risk Services Zimbabwe (Private) Limited
Registration number 370/1977
Date and place of incorporation 23 September 1977 in Zimbabwe
Issued share capital 75 ,000 ordinary shares of US$0.01 each
Nature of business Insurance broking, investment of capital, acquisition of
investments, to raise money as the company sees fi t, to
acquire property and to carry on any business to enhance the
value of the company.
Date became associate 26 July 2007
Alexander Forbes effective interest 24%
Tibiyo Insurance Brokers (Proprietary) Limited
(trading as Alexander Forbes Risk Services Swaziland)
Registration number 30/1978
Date and place of incorporation 8 February 1978 in Swaziland
Issued share capital 10 ,000 A shares
Nature of business Insurance broking and services ancillary thereto. This entity
is currently in the process of being disposed of, subject to the
receipt of certain regulatory approvals.
Date became associate 26 July 2007
Alexander Forbes effective interest 41.25%
309
An
nex
ure
9
DE
TA
ILS
OF
PR
INC
IPA
L I
MM
OV
AB
LE
PR
OP
ER
TIE
S L
EA
SE
D O
R O
WN
ED
Deta
ils o
f th
e p
rin
cip
al
imm
ovable
prop
erti
es l
eased
by
th
e C
om
pan
y a
nd
its
su
bsid
iarie
s i
n S
ou
th A
fric
a a
s a
t 1
Ap
ril
20
14
are a
s f
oll
ow
s:
Les
see
Les
sor
Loc
ati
on
Flo
or S
pa
ce
(On
ly O
ffi c
e S
pa
ce E
xcl
B
ase
men
t a
nd
S
tora
ge)
(m2)
Com
men
ce-
men
t D
ate
Ten
ure
an
d U
nex
pir
ed
Ter
m o
f th
e L
ease
Cu
rren
t M
onth
ly
Ren
tal
An
nu
al
Esc
ala
tion
Su
b-L
esse
e
AF
GT
SA
lex
Ch
am
mas
Un
it 2
0 C
aste
l D
el
Mon
te,
Du
nk
eld
N/A
19
-Oct-
09
Th
e f
orm
al
lease e
xp
ired
an
d
cu
rren
t ren
t is
mon
th t
o
mon
th,
wit
h a
tw
o-m
on
th
noti
ce p
erio
d
R3
3 ,3
81
.48
p.m
.
10
%
AF
GT
S1
15
West
Str
eet
Tru
st
11
5 W
est
Str
eet
San
dto
n
Erf
53
2 S
an
dow
n E
xte
nsio
n
44
, S
an
dto
n (
Head
Offi
ce)
37
,47
1 (
inclu
din
g
su
ble
t area
of
6 ,6
73
)
Net:
30
79
8
01
-Oct-
12
12
years (
ex
pir
es 3
0-S
ep
-24
)R
18
8.9
4/m
27
.5%
Gu
ard
ris
k I
nsu
ran
ce
Com
pan
y L
imit
ed
an
d
Tron
ox
Investm
en
t
Solu
tion
s
Inclu
b P
rop
erti
es
Prop
rie
tary
Lim
ited
Bu
ild
ing
1 I
nan
da G
reen
s
Offi
ce P
ark
, 5
4 W
ierd
a R
oad
West,
Wie
rd
a V
all
ey
3 ,0
10
01
-Feb-1
05
years 6
mon
ths’ n
oti
ce
(ex
pir
es 3
1-J
an
-15
)
R1
46
.89
/m2
8.5
%C
aveo F
un
d S
olu
tion
s
Prop
rie
tary
Lim
ited
AF
FS
Bou
levard
Park
Tru
st
Blo
ck
A,
Th
e B
ou
levard
,
Erf
17
36
62
, W
ood
sto
ck
, C
ap
e
Tow
n
4 ,7
70
01
-Dec-0
91
0 y
ears (
ex
pir
es 3
0-N
ov 1
9)
R1
49
.65
/m2
8%
Marsh
Prop
rie
tary
Lim
ited
AF
FS
G.V
.V.
Investm
en
ts
Prop
rie
tary
Lim
ited
40
Dorp
Str
eet,
Erf
1 3
22
6,
Ste
llen
bosch
2 ,0
88
01
-Mar-1
33
years (
ex
pir
es 2
9-F
eb-1
6)
R1
29
.90
/m2
8.2
5%
AF
ICM
arsh
Prop
rie
tary
Lim
ited
50
A a
nd
51
Dorp
Str
eet
as
well
as c
orn
er D
orp
an
d
Pap
eg
aai
Str
eet,
Ste
llen
bosch
34
4.9
01
-Ap
r-1
41
year (
ex
pir
es 3
1-M
ar-1
5)
(Lease p
ursu
an
t to
Tran
sit
ion
al
Servic
es
Ag
reem
en
t betw
een
Ale
xan
der
Forbes G
rou
p a
nd
Tech
nolo
gy
Servic
es P
rop
rie
tary
Lim
ited
an
d M
arsh
Prop
rie
tary
Lim
ited
date
d 3
1 A
ug
ust
20
11
(th
e “
Marsh
TS
A”)
)
R4
3.5
7/m
2N
o
escala
tion
310
Les
see
Les
sor
Loc
ati
on
Flo
or S
pa
ce
(On
ly O
ffi c
e S
pa
ce E
xcl
B
ase
men
t a
nd
S
tora
ge)
(m2)
Com
men
ce-
men
t D
ate
Ten
ure
an
d U
nex
pir
ed
Ter
m o
f th
e L
ease
Cu
rren
t M
onth
ly
Ren
tal
An
nu
al
Esc
ala
tion
Su
b-L
esse
e
AF
FS
G.
E.
Prop
erty
an
d M
ark
eti
ng
Prop
rie
tary
Lim
ited
10
Torsvale
Crescen
t, L
a
Lu
cia
Offi
ce P
ark
, L
a L
ucia
Rid
ge,
Du
rban
4 ,9
76
(In
clu
din
g
su
b-l
et
area o
f
25
0.6
) N
et:
4 ,7
25
.4
30
-Ju
l-1
15
years (
ex
pir
es 3
1-J
ul-
16
)R
10
0.0
6/m
28.5
%B
ase 1
0 P
ayroll
Syste
ms
Clo
se C
orporati
on
&
Tran
su
nio
n C
redit
Bu
reau
Proprie
tary
Lim
ited &
Marsh
Proprie
tary L
imit
ed
AF
FS
Am
arak
a
Investm
en
ts
No.
10
Prop
rie
tary
Lim
ited
3 H
igh
gate
Driv
e,
Red
lan
ds
Esta
te,
1 G
eorg
e M
cF
arla
ne,
Pie
term
arit
zbu
rg
17
00
1-A
ug
-10
5 y
ears (
ex
pir
es 3
1-J
ul-
15
)R
13
2.0
9/m
29
%M
arsh
Prop
rie
tary
Lim
ited
AF
FS
Rom
an
co 5
Prop
rie
tary
Lim
ited
25
6 –
25
8 C
ap
e R
oad
, P
ort
Eli
zabeth
, E
rf
13
54
Mil
park
,
Port
Eli
zabeth
1 6
23
01
-Nov-1
36
years (
ex
pir
es 3
1-O
ct-
19
)R
12
7.0
0/m
27
.5%
AF
FS
Laeveld
Tru
st
20
01
Prop
rie
tary
Lim
ited
22
Ru
ssel
Str
eet,
Nels
pru
it1
89
01
-May
-11
5 y
ears (
ex
pir
es 3
0-A
pr-1
6)
R8
9.1
3/m
28
%M
arsh
Prop
rie
tary
Lim
ited
AF
IC (
as
su
b-l
essee)
Marsh
Prop
rie
tary
Lim
ited
(as s
ub-
lessor)
– l
easin
g f
rom
Brook
lyn
Cir
cle
Prop
erti
es
Prop
rie
tary
Lim
ited
(Lease i
s i
n t
he n
am
e
of
AF
RS
wh
ich
was
bou
gh
t by
Marsh
Prop
rie
tary
Lim
ited
)
Erf
87
1 B
rook
lyn
, P
reto
ria
Not
sta
ted
01
-Au
g-1
03
1-J
ul-
16
(L
ease p
ursu
an
t to
Marsh
TS
A)
R2
05
,48
6.5
28
%
AF
FS
(as
su
b-l
essee)
Marsh
Prop
rie
tary
Lim
ited
(as s
ub-
lessor)
– l
easin
g f
rom
Brook
lyn
Cir
cle
Prop
erti
es
Prop
rie
tary
Lim
ited
(Lease i
s i
n t
he n
am
e
of
AF
RS
wh
ich
was
bou
gh
t by
Marsh
Prop
rie
tary
Lim
ited
)
Erf
87
1 B
rook
lyn
, P
reto
ria
Not
sta
ted
01
-Au
g-1
03
1-J
ul-
16
(L
ease p
ursu
an
t to
Marsh
TS
A)
R1
43
,91
5.5
28
%
311
Les
see
Les
sor
Loc
ati
on
Flo
or S
pa
ce
(On
ly O
ffi c
e S
pa
ce E
xcl
B
ase
men
t a
nd
S
tora
ge)
(m2)
Com
men
ce-
men
t D
ate
Ten
ure
an
d U
nex
pir
ed
Ter
m o
f th
e L
ease
Cu
rren
t M
onth
ly
Ren
tal
An
nu
al
Esc
ala
tion
Su
b-L
esse
e
AF
FS
Brook
lyn
Brid
ge
Offi
ce P
ark
Prop
rie
tary
Lim
ited
Offi
ce B
21
3,
Bu
ild
ing
2,
Brook
lyn
Brid
ge O
ffi c
e P
ark
,
57
0 F
eh
rsen
Str
eet,
Brook
lyn
, P
reto
ria
25
8.2
60
1-A
pr-1
31
year (
ex
pir
ed
31
-Mar-1
4)
(lease n
eg
oti
ati
on
for f
urth
er
12
mon
ths o
ng
oin
g)
R1
37
.30
/m2
8%
Ale
xan
der
Forbes
Accid
en
t
Com
pen
sa-
tion
Tech
nolo
gie
s
Prop
rie
tary
Lim
ited
Grow
thp
oin
t
Prop
erti
es L
imit
ed
33
3 G
rosven
or S
treet,
Hatfi
eld
, P
reto
ria
1 ,1
96
.93
01
-Dec-1
35
years (
ex
pir
es 3
0-
Nov-1
8)
R9
4.7
5/m
28
%
AF
FS
Ash
lar P
rop
erti
es
Prop
rie
tary
Lim
ited
Blo
ck
B,
Fir
st
Flo
or,
Sh
ort
Mil
l H
ou
se,
Vic
toria
Crescen
t, t
he Q
uarry
Offi
ce
Park
, E
ast
Lon
don
Erf
47
72
7
52
50
1-J
an
-14
3 y
ears (
ex
pir
es 3
1-D
ec-1
7)
R1
00
.00
/m2
7.5
%
AF
ICC
ron
iel
Investm
en
ts
Prop
rie
tary
Lim
ited
6A
Pie
rrre S
treet
Ben
dor,
Erf
31
61
Ben
dor E
xt
30
,
Polo
kw
an
e.
Not
sta
ted
01
-Dec-1
31
year (
ex
pir
es 3
0-N
ov-1
4)
R1
3 ,7
88
.99
per a
nn
um
No
escala
tion
Marsh
Prop
rie
tary
Lim
ited
AF
IC (
as
su
b-l
essee)
Marsh
Prop
rie
tary
Lim
ited
(as s
ub-
lessor)
leasin
g f
rom
Corp
ufl
ex
Investm
en
ts C
C
(Lease i
s i
n t
he n
am
e
of
AF
RS
wh
ich
was
bou
gh
t by
Marsh
Prop
rie
tary
Lim
ited
40
Yu
su
f D
ad
oo A
ven
ue,
Wit
kop
pie
s,
Kle
rk
sd
orp
Not
sta
ted
01
-Nov-1
13
1-O
ct-
16
(L
ease p
ursu
an
t to
Marsh
TS
A)
R7
,62
3.9
28
%
AF
IC (
as
su
b-l
essee)
Marsh
Prop
rie
tary
Lim
ited
(as s
ub-
lessor)
leasin
g f
rom
WB
Prop
erti
es T
ru
st
(Lease i
s i
n t
he n
am
e
of
AF
RS
wh
ich
was
bou
gh
t by
Marsh
Prop
rie
tary
Lim
ited
)
8-1
0 R
eid
Str
eet,
Westd
en
e,
Blo
em
fon
tein
Not
sta
ted
01
-Ju
n-1
13
1-M
ay
-14
(L
ease p
ursu
an
t to
Marsh
TS
A)
(Neg
oti
ati
on
s i
n
process f
or d
irect
form
al
lease
by
AF
FS
wit
h W
B P
rop
erti
es
Tru
st,
wil
l th
en
su
ble
t to
AF
IC)R
6 ,6
56
.49
8%
312
Les
see
Les
sor
Loc
ati
on
Flo
or S
pa
ce
(On
ly O
ffi c
e S
pa
ce E
xcl
B
ase
men
t a
nd
S
tora
ge)
(m2)
Com
men
ce-
men
t D
ate
Ten
ure
an
d U
nex
pir
ed
Ter
m o
f th
e L
ease
Cu
rren
t M
onth
ly
Ren
tal
An
nu
al
Esc
ala
tion
Su
b-L
esse
e
AF
FS
(as
su
b-l
essee)
Marsh
Prop
rie
tary
Lim
ited
(as s
ub-
lessor)
leasin
g f
rom
WB
Prop
erti
es T
ru
st
(Lease i
s i
n t
he n
am
e
of
AF
RS
wh
ich
was
bou
gh
t by
Marsh
Prop
rie
tary
Lim
ited
8-1
0 R
eid
Str
eet,
Westd
en
e,
Blo
em
fon
tein
Not
sta
ted
01
-Ju
n-1
13
1-M
ay
-14
(L
ease p
ursu
an
t to
Marsh
TS
A)
(Neg
oti
ati
on
s i
n
process f
or d
irect
form
al
lease
wit
h W
B P
rop
erti
es T
ru
st)
R1
1 ,6
60
.50
8%
AF
IC (
as
su
b-l
essee)
Marsh
Prop
rie
tary
Lim
ited
(as s
ub-
lessor)
leasin
g f
rom
MM
Prop
erty
Investm
en
t (L
ease i
s
in t
he n
am
e o
f A
FR
S
wh
ich
was b
ou
gh
t by
Marsh
Prop
rie
tary
Lim
ited
)
Beacon
Pla
ce B
uil
din
g,
12
5 M
ead
e S
treet,
Erf
90
94
,
Georg
e
95
01
-May
-14
1 y
ear (
ex
pir
es 3
0-A
pr-1
5)
R6
,28
3.3
0N
o
escala
tion
AF
FS
(as
su
b-l
essee)
Marsh
Prop
rie
tary
Lim
ited
(as s
ub-
lessor)
leasin
g f
rom
MM
Prop
erty
Investm
en
t (L
ease i
s
in t
he n
am
e o
f A
FR
S
wh
ich
was b
ou
gh
t by
Marsh
Prop
rie
tary
Lim
ited
)
Beacon
Pla
ce B
uil
din
g,
12
5 M
ead
e S
treet,
Erf
90
94
,
Georg
e
Not
sta
ted
01
-May
-10
30
-Ap
r-1
4 w
ith
an
op
tion
to
ren
ew
for a
fu
rth
er f
ou
r y
ears
(Lease p
ursu
an
t to
Marsh
TS
A)
R2
,62
9.0
08
%
AF
IC (
as
su
b-
lessee)
Marsh
Prop
rie
tary
Lim
ited
(as s
ub-
lessor)
leasin
g f
rom
the S
uk
dev T
ru
st
Su
b 1
3 o
f L
ot
11
33
4,
9 L
ira
Lin
k,
Ric
hard
s B
ay
99
01
-Ju
n-1
31
year (
ex
pir
ed
31
-May
-14
)
(lease n
eg
oti
ati
on
for f
urth
er
12
mon
ths o
ng
oin
g)
R1
58
.73
/m2
9%
AF
ICM
ox
icorp
Investm
en
ts
Prop
rie
tary
Lim
ited
C/O
Du
rban
Prop
erty
Man
ag
ers
Lak
efi
eld
Sh
op
pin
g C
en
tre
Corn
er,
Lak
efi
eld
an
d
Sh
on
gw
en
i R
oad
, L
ak
efi
eld
,
Ben
on
i
18
30
1-A
pr-1
41
year (
ex
pir
es 3
1-M
ar-1
5)
R1
4 ,6
40
.00
No
escala
tion
313
Deta
ils o
f th
e p
rin
cip
al
imm
ovable
prop
erti
es l
eased
by
th
e C
om
pan
y a
nd
its
su
bsid
iarie
s i
n s
ub-S
ah
aran
Afr
ica, ex
clu
din
g S
ou
th A
fric
a, are a
s f
oll
ow
s:
Les
see
Les
sor
Loc
ati
on
Flo
or S
pa
ce
(On
ly O
ffi c
e S
pa
ce E
xcl
B
ase
men
t a
nd
S
tora
ge)
(m2)
Com
men
ce-
men
t D
ate
Ten
ure
an
d U
nex
pir
ed
Ter
m o
f th
e L
ease
Cu
rren
t M
onth
ly
Ren
tal
An
nu
al
Esc
ala
tion
Su
b-L
esse
e
Ale
xan
der
Forbes
Grou
p
Nam
ibia
(Pty
) L
td
Wern
hil
l P
ark
(Pty
) L
td
Ale
xan
der F
orbes H
ou
se
Win
dh
oek
63
69
.15
0 6
- May
-10
Roll
over e
very
tw
o y
ears f
or
a p
erio
d o
f 9
years a
nd
11
mon
ths a
t th
e o
pti
on
of
the l
essor
N$
62
6 ,7
96
.16
8%
Marsh
(N
am
ibia
)
(Pty
) L
td
Ale
xan
der
Forbes
Fin
an
cia
l
Servic
es,
a
div
isio
n o
f
Ale
xan
der
Forbes G
rou
p
Nam
ibia
(Pty
) L
td
Ku
du
Prop
erti
es C
CU
nit
3 K
ud
u B
uil
din
g
sit
uate
d a
t E
rf
83
9,
11
th R
oad
, W
alv
is B
ay.
13
00
1-A
pr-1
23
years (
ex
pir
es 2
8-F
eb-1
5)
N$
6 ,6
55
.00
10
%
Ale
xan
der
Forbes
Fin
an
cia
l
Servic
es,
a
div
isio
n o
f
Ale
xan
der
Forbes G
rou
p
Nam
ibia
(Pty
) L
td
Malh
erbe &
Partn
ers
Prop
erty
CC
Offi
ce 1
of
the S
tad
tmit
te
bu
ild
ing
, R
em
ain
ing
Ex
ten
t
Con
soli
date
d E
rf
25
9
Sw
ak
op
mu
nd
Not
sta
ted
01
-Sep
t-1
15
years (
ex
pir
es 3
1-A
ug
-16
)N
$1
3 ,2
30
.00
8%
Ale
xan
der
Forbes
Insu
ran
ce
Com
pan
y
Nam
ibia
Lim
ited
Lu
dw
ig S
ch
rod
er
Esta
te A
gen
ts C
C
Secti
on
50
an
d S
ecti
on
11
4,
Erf
37
52
, M
orin
ga G
ard
en
s,
Sw
ak
op
mu
nd
16
60
1-O
ct-
11
5 y
ears (
ex
pir
es 3
0-S
ep
-16
)N
$9
4.7
0/m
27
%
Ale
xan
der
Forbes
Insu
ran
ce
Com
pan
y
Nam
ibia
Lim
ited
Mrs G
isela
Wen
tsch
er
Secti
on
51
an
d S
ecti
on
11
5
Erf
37
52
, M
orin
ga G
ard
en
s,
Sw
ak
op
mu
nd
69
01
-Oct-
11
5 y
ears (
ex
pir
es 3
0-S
ep
-16
)N
$9
1.3
4/m
27
%
314
Les
see
Les
sor
Loc
ati
on
Flo
or S
pa
ce
(On
ly O
ffi c
e S
pa
ce E
xcl
B
ase
men
t a
nd
S
tora
ge)
(m2)
Com
men
ce-
men
t D
ate
Ten
ure
an
d U
nex
pir
ed
Ter
m o
f th
e L
ease
Cu
rren
t M
onth
ly
Ren
tal
An
nu
al
Esc
ala
tion
Su
b-L
esse
e
Ale
xan
der
Forbes
Fin
an
cia
l
Servic
es,
a
div
isio
n o
f
Ale
xan
der
Forbes G
rou
p
Nam
ibia
(Pty
) L
td
Rosh
kor T
ow
nsh
ip
(Pty
) L
td
Un
it 1
, 15 K
ok
erboom
Str
eet,
Plo
t 1
48
, R
osh
Pin
ah
Not
sta
ted
01
-Mar-1
1E
xp
ired
30
-Ap
r-1
4.
Th
e l
essor
has i
ssu
ed
a l
ett
er e
xte
nd
ing
the l
ease f
rom
1-J
ul-
14
for
12
mon
ths.
N$
2 ,6
79
.55
N$
2 ,8
26
.93
from
1-J
ul-
14
Ale
xan
der
Forbes
Fin
an
cia
l
Servic
es
Bots
wan
a
(Pty
) L
td
Vis
ible
Ed
ge
(Pty
) L
td
Un
it 1
, L
ot
68
2,
68
3
Gaboron
e
35
20
1-M
ay
-14
3 y
ears (
ex
pir
es 3
0-A
pr-1
7)
P3
6 ,9
60
p.m
.8
%
Ale
xan
der
Forbes
Fin
an
cia
l
Servic
es
Bots
wan
a
(Pty
) L
td
Prim
eti
me P
rop
erty
Hold
ing
s L
td
Com
mercia
l bu
ild
ing
con
str
ucte
d o
n P
lot
20
3
Gaboron
e
92
60
1-A
pr-1
35
years (
ex
pir
es 3
1-M
ar-1
8)
P1
00
.00
/m2
8%
Ale
xan
der
Forbes
Fin
an
cia
l
Servic
es
(East
Afr
ica)
Lim
ited
Lan
dm
ark
Pla
za
(20
04
) L
td
10
th F
loor,
Main
Pla
za,
Lan
dm
ark
Pla
za,
Arg
win
gs
Kod
hek
Road
, N
air
obi,
Ken
ya
75
8.0
80
1-A
pr-1
36
years (
ex
pir
es 3
1-M
ar-1
9)
US
$1
2.2
0/m
23
%
Ale
xan
der
Forbes
Con
su
ltin
g
Actu
arie
s
Nig
eria
Lim
ited
Tip
a N
igeria
Ltd
Secon
d fl
oor o
f th
e o
ffi c
e
com
ple
x a
t 2
35
Mu
ri
Ok
un
ola
Str
eet,
Vic
toria
Isla
nd
An
nex
, L
ag
os S
tate
,
Nig
eria
40
00
1-J
un
-11
3 y
ears (
ex
pir
ed
31
-May
-14
bu
t h
as b
een
verball
y
ex
ten
ded
)
N$
3 ,3
33
.33
No
escala
tion
Verod
Cap
ital
Man
ag
em
en
t L
td
Ale
xan
der
Forbes
Fin
an
cia
l
Servic
es
Ug
an
da
Lim
ited
Sy
msek
Ug
an
da L
tdL
RV
25
33
Foli
o 2
0 P
lot
5
Ban
dali
Ris
e,
Bu
golo
bi,
Kam
pala
, S
econ
d F
loor
(Offi
ce S
pace 2
), S
tud
io
Hou
se,
Ug
an
da
11
30
1-J
un
-12
3 y
ears (
ex
pir
es 3
1-M
ay
-15
)U
S$
1 ,4
69
.00
No
escala
tion
315
Les
see
Les
sor
Loc
ati
on
Flo
or S
pa
ce
(On
ly O
ffi c
e S
pa
ce E
xcl
B
ase
men
t a
nd
S
tora
ge)
(m2)
Com
men
ce-
men
t D
ate
Ten
ure
an
d U
nex
pir
ed
Ter
m o
f th
e L
ease
Cu
rren
t M
onth
ly
Ren
tal
An
nu
al
Esc
ala
tion
Su
b-L
esse
e
Ale
xan
der
Forbes
Fin
an
cia
l
Servic
es
Zam
bia
Ltd
ZS
IC L
ife L
tdS
tan
d N
o.
21
03
/4/5
, O
ffi c
e
20
2,
Wood
gate
Hou
se,
Zam
bia
Not
sta
ted
01
-Mar-1
41
year (
ex
pir
es 2
8-F
eb-1
5)
K8
,90
6.1
8N
o
escala
tion
Deta
ils o
f th
e p
rin
cip
al
imm
ovable
prop
erti
es l
eased
by
th
e C
om
pan
y a
nd
its
su
bsid
iarie
s i
n c
ou
ntr
ies o
uts
ide o
f su
b-S
ah
aran
Afr
ica a
re a
s f
oll
ow
s:
Les
see
Les
sor
Sit
ua
tion
Flo
or S
pa
ce
(sq
. ft
.)C
omm
ence
men
tD
ate
Ten
ure
an
d U
nex
pir
ed T
erm
of
the
Lea
seC
ost
per
sq
. ft
./tot
al
per
a
nn
um
AF
In
tern
ati
on
al
Mobiu
s L
ife L
td3
rd
Flo
or,
1 R
oy
al
Ex
ch
an
ge,
Lon
don
1 ,0
00
Ju
ne-1
33
years (
ex
pir
es 1
9-D
ec-1
5)
(Note
: T
his
is n
ot
a l
ease
ag
reem
en
t bu
t a l
icen
ce t
o
occu
py
)
£7
8.0
0
LC
PT
he G
reat
Wig
more
Partn
ersh
ip a
nd
Great
Wig
more P
ty L
td
95
Wig
more S
treet,
Lon
don
39
,94
2A
ug
-13
15
years (
ex
pir
es 2
2-J
ul-
28
)In
itia
l ren
t £
3 ,0
95
,50
5
(£7
7.5
0)
LC
PW
yn
ch
wood
Hold
ing
s L
tdS
t. P
au
l’s H
ou
se,
St.
Pau
l’s H
ill,
Win
ch
este
r
17
,88
5F
eb-0
41
5 y
ears (
ex
pir
es F
eb-1
9)
Init
ial
ren
t £
28
6 ,1
60
(£1
6.0
7)
LC
PH
arm
sw
orth
Pen
sio
n F
un
ds
Car p
ark
ing
ad
jacen
t to
St.
Pau
l’s H
ou
se,
St.
Pau
l’s H
ill,
Win
ch
este
r
N/A
Ap
r-1
0In
itia
l le
ase o
f 7
years p
lus
furth
er l
ease o
f 2
years
(ex
pir
es 1
5-F
eb 1
9)
Init
ial
basic
ren
t of
£5
,00
0 p
.a.
LC
P I
rela
nd
Marti
n H
au
gh
, C
on
or D
aly
,
Joh
n L
yn
ch
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h D
oran
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d J
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n M
cC
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Offi
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, G
ran
d C
an
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arf,
Sou
th D
ock
s R
oad
, R
ing
sen
d
Du
bli
n 4
1 ,5
00
Nov-0
52
1 y
ears (
ex
pir
es 2
02
6)
Init
ial
ren
t €
48
,00
0 (
€3
2.0
0)
Lan
e,
Cla
rk
& P
eacock
Belg
ium
CV
BA
Un
ion
In
vestm
en
t R
eal
Esta
te G
mbH
Belg
ian
Bran
ch
Da V
incil
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, 1
1-B
19
30
ZA
VE
NT
EM
Belg
ium
6 ,7
17
Jan
-12
8 y
ears (
ex
pir
es 3
1-D
ec-2
0)
Init
ial
ren
t £
66
,03
2 p
.a.
wit
h a
nn
ual
increases
(in
clu
siv
e o
f p
ark
ing
)
(offi
ce s
pace i
nit
ial
ren
t
£7
per s
q.
ft)
Lan
e,
Cla
rk
& P
eacock
Abu
Dh
abi
CV
BA
Abd
ull
ah
Moh
am
ed
Ali
Alm
ull
a
Ham
eem
Str
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39
, A
bu
Dh
abi
2 ,2
00
Nov-1
31
year (
ex
pir
es 0
9-N
ov-1
4)
25
0 ,0
00
AE
D p
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(11
4.0
0 A
ED
)
LC
P N
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sR
un
sd
ijk
Beh
eer B
VH
ercu
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lein
40
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58
4 A
A,
Utr
ech
t
2 ,5
30
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ex
pir
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Annexure 10
DETAILS OF MATERIAL BORROWINGS AND MATERIAL INTER-COMPANY LOANS
The funding for the Group consists of the Term Loan Facility, the RCF and the Settlement Facility. In addition
to these debt instruments, there are various inter-company loans in place in terms of which the debt of AF
Acquisition is pushed down to Alexander Forbes Limited (“AF Limited”) and in turn by AF Limited to the
subsidiaries of AF Limited. The terms of these inter-company loans track the terms of the Term Facility
Agreement. The material inter-company loans have been noted below.
The table below contains details, as at the Last Practicable Date, of:
• material loans, including issued debentures, made to the Company and its subsidiaries; and
• all material inter-company financial and other transactions.
Details of all outstanding loan capital are listed below as material borrowings of the Company as at the Last
Practicable Date. There are no material loans receivable outstanding made by the Company or its subsidiaries
to third parties.
Material Loans Made by Third Parties to the Company and its Subsidiaries
1. Term Loan Facility Agreement between AF Acquisition (as borrower) and FirstRand Bank Limited
(acting through its Rand Merchant Bank division) (as lender).
Reason for loan and brief description Term Loan Facility – AF Acquisition shall apply all amounts
borrowed by it under the facility towards refi nancing the existing
indebtedness of the Group.
Date on which the loan was made 31 March 2014
Signature date 26 March 2014
Amount R1 ,250 ,000 ,000
Interest rate The rate of interest on the loan for each interest period is 3-month
JIBAR plus 2.1% per annum. Default interest of 2% will be charged
on any unpaid amount. If there is any default other than a payment
default, an additional 1% default interest will be payable. All
accrued interest on the loan shall be payable quarterly in arrears
on 28 February, 31 May, 31 August and 31 November of each year.
Terms and conditions of repayment or
renewal
The fi nal repayment date is 31 March 2017.
Secured or unsecured Unsecured. No cross-guarantees from the Group. The lender did
not require security.
Security provided N/A
Conversion or redemption rights N/A
Financing of repayments of debts that
are repayable within 12 months
N/A
2. General Banking Facility Agreement (including a Revolving Credit Facility) between AF Acquisition,
Alexander Forbes Administration Services Proprietary Limited, Alexander Forbes Direct Proprietary
Limited, Alexander Forbes Financial Planning Consultants Proprietary Limited, Alexander Forbes
Financial Services Proprietary Limited, Alexander Forbes Group and Technology Proprietary Limited,
Alexander Forbes Health Proprietary Limited, AFIC, Investment Solutions Limited and Alexander Forbes
Accident Compensation Technology Proprietary Limited, as borrowers (“All Borrowers”) and FirstRand
Bank Limited (acting through RMB Corporate Banking), as lender.
Reason for loan and brief description General banking facility – including a revolving credit facility for
general banking products, corporate cards, fi rst auto cards, asset
based fi nance, interest rate hedges, foreign exchange contracts and
settlement.
318
Date on which the loan was made Loans are made and repaid on a revolving basis from time to time.
The credit facilities are utilised on a revolving basis for the purpose
stipulated in respect of the relevant facility.
Signature date 18 March 2014.
Amount The revolving credit facility is the sum of the below:
• R190 ,000 ,000 short-term direct general banking products
facility made available to AF Acquisition
• R101 ,000 short-term direct Corporate Cards facility made
available to All Borrowers
• R1 ,000 ,000 short-term direct FirstAuto Cards facility made
available to All Borrowers,
(collectively, the “Short Term Direct Facilities”).
The settlement facilities are the sum of the below:
• R9 ,000 ,000 long-term direct asset based finance revolving
facility made available to All Borrowers (the “Long Term Direct
Facility”)
• R70 ,000 ,000 long-term pre-settlement interest rate hedges
facility made available to All Borrowers (the “Long Term Pre-
Settlement Facility”)
• R1 ,000 ,000 (margined) short-term pre-settlement forward
exchange contracts facility made available to All Borrowers (the
“Short Term Pre-Settlement Facility”)
• R400 ,000 ,000 settlement facility made available to All Borrowers
(the “Settlement Facility”).
Interest rate Terms and conditions to be agreed from time to time in respect of
various facilities.
Terms and conditions of repayment or
renewal
• The Short Term Direct Facilities are repayable on 60 days’ notice.
• The term of the Long Term Direct Facility may not exceed
60 months.
• The Long Term Pre-Settlement Facility, Short Term Pre-
Settlement Facility and the Settlement Facility are terminable
on 60 days’ notice. Individual contracts in respect of the Long
Term Pre-Settlement Facility may not exceed 36 months.
Secured or unsecured Unsecured. No cross-guarantees from the Group. The lender did
not require security.
Security provided N/A
Conversion or redemption rights N/A
Financing of repayments of debts that
are repayable within 12 months
N/A
Material Inter-Company Financial and Other Transactions
1. Inter-company Loan Agreement between AF International (as lender) and AFFS Holdings (as borrower)
Reason for loan and brief description The facility shall be available to be advanced to AFFS Holdings by
AF International upon request.
Dates on which the loans were made 1 April 2007.
Signature date 27 March 2011.
Amount Facility amount: £40 ,000 ,000.
Loan amount as at 31 March 2014 is R30 ,531 ,767.
319
Interest rate The loan together with accrued and unpaid interest shall bear
interest at the applicable rate (from the initial period the 6-month
LIBOR British Bankers’ Association Fixing for pound sterling as of
the determination date being, fi rst business day of April and
October each year that the loan remains outstanding, plus 100 basis
points and for the subsequent period the 6-month LIBOR British
Bankers’ Association Fixing for pound sterling as of the
determination date plus 410 basis points.
Terms and conditions of repayment or
renewal
AFFS Holdings may make repayments from time to time as long as
the total principal amount (excluding accrued and unpaid interest)
outstanding under the agreement from time to time may never
exceed the facility and no event of default has occurred. AFFS
Holdings may borrow, repay and reborrow under this loan
agreement until 30 March 2022.
AFFS Holdings shall repay the loan on 30 March 2022 or such date
as may be agreed by the parties together with interest accrued
thereon and all other amounts due by the borrower under the
agreement. Interest will be payable on demand or at the lenders
sole opinion on other such date as may be agreed by the parties but
in any event no later than the repayment date, being 31 March 2022.
Period of the loan 1 April 2007 to 30 March 2022.
If the interest and/or capital redemption
payments are in arrears, the last date
on which payment was made and the
extent of the arrears
N/A
Secured or unsecured Unsecured. No security required as the loan is intra-Group.
Security provided N/A
Conversion or redemption rights N/A
Financing of repayments of debts that
are repayable within 12 months
The fi nal repayment date is 30 March 2022.
2. Inter-company Loan Agreement between Alexander Forbes Financial Services Holdings Proprietary
Limited (as lender) and Alexander Forbes South Africa Holdings Proprietary Limited (as borrower).
Reason for loan and brief description Alexander Forbes Financial Services Holdings Proprietary Limited
(AFFS Holdings) undertakes to advance the loan monies to
Alexander Forbes South Africa Holdings Proprietary Limited
(AFSA Holdings) as and when required as agreed between the
parties from time to time for the operational and working capital
requirements of AFSA Holdings.
Dates on which the loans were made There is no specifi c date – this loan is a function of a number of
transactions.
Signature date 29 April 2010.
Amount R1 ,148 ,991 ,436 (as at 31 March 2014).
Interest rate The loan has no interest or other obligations.
Terms and conditions of repayment or
renewal
The loan has no fi xed repayment terms and conditions.
AFFS Holdings reserves the right at any time and at its sole election
and discretion to recall and demand full repayment of the loan
which shall be repaid (in full) by AFSA Holdings to the AFFS
Holdings.
Period of the loan N/A
If the interest and/or capital redemption
payments are in arrears, the last date
on which payment was made and the
extent of the arrears
N/A
320
Secured or unsecured Unsecured. No security required as the loan is intra-Group.
Security provided N/A.
Conversion or redemption rights N/A.
Financing of repayments of debts that
are repayable within 12 months
N/A.
3. Inter-company Loan Agreement between Alexander Forbes Limited (as lender) and Alexander Forbes
Individual Client Administration Proprietary Limited (as borrower).
Reason for loan and brief description AF Acquisition funds to Alexander Forbes Individual Client
Administration Proprietary Limited (AFICA) for the purpose of
funding the purchase by AFICA from Alexander Forbes Financial
Services Proprietary Limited (AFFS) of the business of the Retail
Administration Division of AFFS in terms of a sale agreement
pursuant to a reorganisation. The loan was sold down by
AF Acquisition to AF Limited as part of the March 2014 Restructure.
Dates on which the loans were made 1 April 2007.
Signature date 12 September 2007.
Amount R134 ,800 ,000 (as of 31 March 2014).
Interest rate The terms of this loan shall track the terms of the Term Loan
Facility (see above).
Terms and conditions of repayment or
renewal
The repayment terms of this loan shall track the terms of the Term
Loan Facility (see above).
Period of the loan N/A.
If the interest and/or capital redemption
payments are in arrears, the last date
on which payment was made and the
extent of the arrears
N/A.
Secured or unsecured Unsecured. No security required as the loan is intra-Group.
Security provided N/A.
Conversion or redemption rights N/A.
Financing of repayments of debts that
are repayable within 12 months
N/A.
4. Inter-company Loan Agreement between Alexander Forbes Limited (as lender), and Alexander Forbes
Administration Services Proprietary Limited (as borrower).
Reason for loan and brief description AF Acquisition lent funds to AFAS for the purpose of funding the
purchase by AFAS from Alexander Forbes Management Services
Proprietary Limited (AFMS) of the business of the Personal Lines
Division of AFMS in terms of a sale agreement pursuant to a
reorganisation. The loan was sold down by AF Acquisition to
AF Limited as part of the Restructure.
Dates on which the loans were made 18 September 2007.
Signature date 14 September 2007.
Amount R161 ,900 ,000 (as of 31 March 2014).
Interest rate The terms of this loan shall track the terms of the Term Loan
Facility (see above).
Terms and conditions of repayment or
renewal
The repayment terms of this loan shall track the terms of the Term
Loan Facility (see above).
Period of the loan The loan and all accrued unpaid interest on the loans shall be repaid
(in whole or in part) by AFAS to AF Acquisition on demand by
AF Acquisition.
321
If the interest and/or capital redemption
payments are in arrears, the last date
on which payment was made and the
extent of the arrears
N/A.
Secured or unsecured Unsecured. No security required as the loan is intra-Group.
Security provided N/A.
Conversion or redemption rights N/A.
Financing of repayments of debts that
are repayable within 12 months
N/A.
5. Inter-company Loan Agreement between Alexander Forbes Limited (as lender), and Alexander Forbes
Direct Proprietary Limited (as borrower).
Reason for loan and brief description AF Acquisition wishes to lend funds to Alexander Forbes Direct
Proprietary Limited (AFD) for the purpose of funding the purchase
by AFD from Alexander Forbes Financial Services Proprietary
Limited (AFFS) of the business of the AF Direct Division of AFFS in
terms of a sale agreement pursuant to a reorganisation. The loan
was sold down by AF Acquisition to AF Limited as part of the
Restructure.
Dates on which the loans were made 18 September 2007.
Signature date 14 September 2007.
Amount R26 ,100 ,000 (as of 31 March 2014).
Interest rate The terms of this loan shall track the terms of the Term Loan
Facility (see above).
Terms and conditions of repayment or
renewal
The repayment terms of this loan shall track the terms of the Term
Loan Facility (see above).
Period of the loan The loan and all accrued unpaid interest on the loans shall be repaid
(in whole or in part) by AFD to AF Acquisition on demand by
AF Acquisition.
If the interest and/or capital redemption
payments are in arrears, the last date
on which payment was made and the
extent of the arrears
N/A.
Secured or unsecured Unsecured. No security required as the loan is intra-Group.
Security provided N/A.
Conversion or redemption rights N/A.
Financing of repayments of debts that
are repayable within 12 months
N/A
6. Inter-company Loan Agreement between Alexander Forbes Limited (as lender), and Alexander Forbes
Financial Planning Consultants Proprietary Limited (as borrower).
Reason for loan and brief description AF Acquisition lent funds to Alexander Forbes Financial Planning
Consultants Proprietary Limited (AFPC) for the purpose of funding
the purchase by AFPC from Alexander Forbes Financial Services
Proprietary Limited (AFFS) of the business of the Private Clients/
FPC Division of AFFS in terms of a sale agreement pursuant to a
reorganisation. The loan was sold down by AF Acquisition to
AF Limited as part of the Restructure.
Dates on which the loans were made 18 September 2007.
Signature date 14 September 2007.
Amount R137 ,100 ,000 (as of 31 March 2014).
Interest rate The terms of this loan shall track the terms of the Term Loan
Facility (see above).
322
Terms and conditions of repayment or
renewal
The repayment terms of this loan shall track the terms of the Term
Loan Facility (see above).
Period of the loan The loan and all accrued unpaid interest on the loans shall be repaid
(in whole or in part) by AFPC to AF Acquisition on demand by
AF Acquisition.
If the interest and/or capital redemption
payments are in arrears, the last date
on which payment was made and the
extent of the arrears
N/A.
Secured or unsecured Unsecured. No security required as the loan is intra-Group.
Security provided N/A.
Conversion or redemption rights N/A.
Financing of repayments of debts that
are repayable within 12 months
N/A.
7. Inter-company Loan Agreement between Alexander Forbes Limited (as lender), and Alexander Forbes
Group and Technology Services Proprietary Limited (as borrower).
Reason for loan and brief description The loan shall be used solely for the purpose of funding the
purchase by Alexander Forbes Group Technology Services
Proprietary Limited (AFGTS) from Investment Solutions of the
SAMMI, ISIS and UNITAS system of Investment Solutions in terms
of the Investments Solutions Sale Agreement pursuant to the
reorganisation, and funding the purchase by AFGTS from Fihrst of
Fihrst’s internally designed information technology systems. The
loan was sold down by AF Acquisition to AF Limited as part of the
Restructure.
Dates on which the loans were made 18 September 2007.
Signature date 18 September 2007.
Amount R290 ,100 ,000 (as of 31 March 2014).
Interest rate The terms of this loan shall track the terms of the Term Loan
Facility (see above).
Terms and conditions of repayment or
renewal
The repayment terms of this loan shall track the terms of the Term
Loan Facility (see above).
Period of the loan The loan and all accrued unpaid interest on the loans shall be repaid
(in whole or in part) by AFGTS to AF Acquisition on demand by
AF Acquisition.
If the interest and/or capital redemption
payments are in arrears, the last date
on which payment was made and the
extent of the arrears
N/A.
Secured or unsecured Unsecured. No security required as the loan is intra-Group.
Security provided N/A.
Conversion or redemption rights N/A.
Financing of repayments of debts that
are repayable within 12 months
N/A.
8. Inter-company Loan Agreement between Alexander Forbes Limited (as lender), and Alexander Forbes
Health Proprietary Limited (as borrower).
Reason for loan and brief description AF Acquisition lent funds to Alexander Forbes Health Proprietary
Limited (AFH) for the purpose of funding the purchase by AFH
from Alexander Forbes Financial Services Proprietary Limited
(AFFS) of the business of the Health Division of AFFS in terms of a
sale agreement pursuant to a reorganisation. The loan was sold
down by AF Acquisition to AF Limited as part of the Restructure.
323
Dates on which the loans were made 18 September 2007.
Signature date 1 4 September 2007.
Amount R500 ,000 ,000 (as of 31 March 2014).
Interest rate The terms of this loan shall track the terms of the Term Loan
Facility (see above).
Terms and conditions of repayment or
renewal
The repayment terms of this loan shall track the terms of the Term
Loan Facility (see above).
Period of the loan The loan and all accrued unpaid interest on the loans shall be repaid
(in whole or in part) by AFH to AF Acquisition on demand by
AF Acquisition.
If the interest and/or capital redemption
payments are in arrears, the last date
on which payment was made and the
extent of the arrears
N/A.
Secured or unsecured Unsecured. No security required as the loan is intra-Group.
Security provided N/A.
Conversion or redemption rights N/A.
Financing of repayments of debts that
are repayable within 12 months
N/A.
Other Material Intra-Company Financial Transactions
In addition to the specifi c inter-company fi nancial and other transactions dealt with above (which are the
subject of specifi c agreements), the following inter-company balances before elimination on consolidation are
material, but do not form the subject of specifi c agreements. In each instance, the loans made from time to
time and in respect of which there are no specifi c repayment periods are:
• made to provide capital and fund transactions between operating subsidiaries and the relevant holding
company;
• interest free;
• payable on demand; and
• unsecured (by virtue of being intra-Group in nature).
Other Material Inter-Company Loans
Payable by Amount Receivable by
Alexander Forbes Limited R2 ,553 ,570 ,000 Alexander Forbes Financial Services
Holdings Proprietary Limited
Alexander Forbes South Africa Holdings
Proprietary Limited
R1 ,221 ,087 ,671 Alexander Forbes Limited
Alexander Forbes Limited R928 ,579 ,729 Alexander Forbes South Africa Holdings
Proprietary Limited
Alexander Forbes Limited R836 ,445 ,845 Investment Solutions Holdings Limited
Alexander Forbes Risk & Insurance Services
Proprietary Limited
R665 ,622 ,046 Alexander Forbes Limited
Alexander Forbes Financial Services
Holdings Limited
£30 ,200 ,206 Alexander Forbes International Limited
Alexander Forbes South Africa Holdings
Proprietary Limited
R360 ,300 ,000 AF Financial Services Proprietary
Limited
Alexander Forbes Group & Technology
Services Proprietary Limited
R253 ,649 ,620 Alexander Forbes Limited
Alexander Forbes Risk & Insurance Services
Proprietary Limited
R193 ,242 ,000 Alexander Forbes Financial Services
Proprietary Limited
324
Annexure 11
EXTRACTS FROM THE MEMORANDUM OF INCORPORATIONOF THE COMPANY
Extracts from the Company’s Memorandum of Incorporation (the “Memorandum”) are set out below:
Voting Rights of Securities
“Classifi ed shares: 2 500 000 000 ordinary no par value shares, each of which shall entitle the holder, subject
to any preferences, rights or other share terms of any class of shares in the Company ranking prior to the
ordinary shares:
• to one vote for every ordinary share at every general meeting or annual general meeting, in person or
by proxy;
• to receive any distribution in accordance with the holder’s voting power;
• on a liquidation of the Company, to receive the net assets of the Company in accordance with the holder’s
voting power;
• to all of the preferences, rights or other terms set out in the Act and this Memorandum;
• to any other rights at common law insofar as such rights are not inconsistent with this Memorandum or
the Act.
45 ,000 ,000 non-convertible redeemable “B” preference shares, each of which shall entitle the holder to the
preferences, rights and other terms set out in the Act and this Memorandum.” (Schedule 1)
“Limitation of voting rights: The holders of any securities other than ordinary shares and any special shares
created for the purposes of black economic empowerment (“special shares”) shall not be entitled to vote on any
resolution taken by the Company, save as expressly provided for in this Memorandum. For so long as this is
required by the Listings Requirements, in instances where shareholders’ other than ordinary shareholders
and holders of special shares are allowed to vote at shareholders’ meetings or annual general meetings, their
votes may not carry any special rights or privileges and they shall be entitled to one vote for each share that
they hold, provided their total voting rights at a shareholders’ meeting or annual general meeting may not
exceed 24.99% (twenty-four point ninety-nine percent) of the total voting rights of all shareholders at such
meeting. It is recorded that the existing rights of the holders of the “B” preference shares in the Company are
preserved, as set out in Article 9.” (Article 4.13)
“Shareholders’ resolutions: There shall be no higher percentage of voting rights required to approve an
ordinary resolution than the percentage voting rights specifi ed in the Act, provided that resolutions required
to be approved by an increased majority in terms of the Listings Requirements must be approved by such
increased majority.
There shall be no different percentage of voting rights required to approve a special resolution than the
percentage voting rights of at least 75% specifi ed in the Act.
A special resolution is only required for matters contemplated in Section 65(11) of the Act.” (Article 6.8)
“ “B” Preference Shares: The holders of “B” preference shares shall not be entitled to receive notice of, attend
or vote, either in person or by proxy, at any general meeting of the Company, by virtue of or in respect of the
“B” preference shares, unless one or more of the following circumstances prevail at the date of the meeting:
• any redemption payment remains in arrear and unpaid after 5 (five) business days from due date thereof;
or
• a resolution of the Company is proposed which directly affects the rights and privileges attached to the
“B” preference shares or the interests of the holders of “B” preference shares, including the proposal of a
resolution for:
– the winding-up, liquidation, dissolution or commencement of business rescue proceedings, whether
provisionally or finally, of the Company;
– the reduction, repayment or distribution of the Company’s share capital or share premium account,
except in such manner as is permitted by applicable law and this Memorandum but only if such
repayment or distribution has the effect of reducing the share premium account to below the amount
required for the redemption of each “B” preference share plus any amount required to be retained in the
share premium account in respect of the redemption of any other shares; or
325
• a resolution of the Company is proposed for the disposal of the whole or substantially the whole of the
undertaking of the Company, or the whole or the greater part of the assets of the Company.” (Article 9.6)
“ “B” Preference Shares: At every general meeting of the Company at which holders of the “B” preference
shares as well as other classes of shares are present and entitled to vote, upon a poll, a holder of “B” preference
shares shall be entitled to that proportion of the total votes in the Company which the number of the
“B” preference shares held by that holder bears to the number of all shares issued by the Company and entitled
to be voted at such meeting.” (Article 9.7)
“Amendment of classes of shares, preferences, rights, limitations or other terms: If any amendment relates
to the variation of any preferences, rights, limitations and other terms attaching to any other class of shares
already in issue, that amendment must not be implemented without a special resolution taken by the holders
of the shares of that class of shares at a separate meeting. In such instances, the holders of the shares of that
class of shares may be allowed to vote at the meeting of ordinary shareholders subject to 4.13 and 9 and the
Listings Requirements. No resolution of shareholders may be proposed or passed, unless a special resolution
of the holders of the shares of that class of shares have approved the amendment.” (Article 8.1)
Preferential Conversion and/or Exchange Rights of Securities and Variation of Rights
“Alterations: For so long as is required by the Listings Requirements, any amendment to this Memorandum to:
• increase or decrease the number of authorised shares of any class of shares;
• reclassify any shares that have been authorised but not issued;
• classify any unclassified shares that have been authorised but not issued;
• determine the preferences, rights, limitations or other terms of any class of authorised shares or amend
any preferences, rights, limitations or other terms so determined;
• create any class of shares;
• convert one class of shares into one or more other classes;
• consolidate or sub-divide securities;
• change the name of the Company,
must be approved by special resolution of ordinary shareholders, save where such an amendment is ordered
by a court in terms of Sections 16(1)(a) and 16(4).” (Article 4.3)
“Capitalisation shares: This Memorandum does not limit, restrict or qualify the authority of the board, in
terms of Section 47 of the Act, to:
• approve the issue of any authorised shares of the Company as capitalisation shares, on a pro rata basis to
the shareholders of one or more classes of shares;
• approve the issue of shares of one class as capitalisation shares in respect of shares of another class; or
• permit shareholders to elect to receive a cash payment in lieu of a capitalisation share, at a value determined
by the board.” (Article 4.5)
Control Over Securities
“Authorisation for shares: The Company is authorised to issue the shares specifi ed in Schedule 1, provided
that, if required by the Act or the Listings Requirements, the Company may only issue:
• unissued shares to shareholders of a particular class of shares, pro rata to the shareholders’ existing
shareholding, unless any such shares were issued for an acquisition of assets;
• unissued shares or grant options, to subscribe for cash, other than as envisaged above, as the directors
in their discretion think fit, if approved by the shareholders at a shareholders’ meeting, subject to the
Listings Requirements; and
• shares that are fully paid-up.” (Article 4.2)
Rights to Dividends, Profi ts or Capital or any Other Rights of Each Class
“Company or subsidiary acquiring Company’s shares and distributions: Any acquisition by the Company
or a subsidiary company of the Company’s shares and any distribution to shareholders will be subject to the
provisions of the Act and the Listings Requirements. For so long as required by the Listings Requirements no
repayment of capital to shareholders shall be made on the basis that it may be called up again and dividends
must be payable to shareholders registered as at the date subsequent to the date of declaration or the date of
confi rmation of the dividend.” (Article 4.6)
326
“Registration of benefi cial interests: The registration of the Company’s issued securities in the name of, one
person for the benefi cial interest of another is allowed without limitation or restriction.” (Article 4.8)
“Commission: The Company may pay commission to any person in consideration of such person subscribing,
or agreeing to subscribe, for any shares of the Company or of such person procuring, or agreeing to procure,
subscriptions for shares, provided that such commission shall be subject to any limitations in the Act or the
Listings Requirements.” (Article 4.9)
“Information rights of persons holding a benefi cial interest in shares: This Memorandum does not establish
any information rights of any person in addition to the information rights provided in Sections 26(1) and (2)
of the Act.” (Article 5.1)
“Unclaimed Dividends: For so long as is required by the Listings Requirements, the Company must hold all
monies due to shareholders for the benefi t of shareholders, provided that the board may cause any such
monies unclaimed for a period of three years (from the due date for payment) to be forfeited for the benefi t of
the Company.” (Article 8.2)
“ “B” Preference Shares: It is recorded that the “B” preference shares will be redeemed immediately upon the
listing of the Company’s ordinary shares on the JSE, and that the provisions of Article 9 shall apply only until
such listing.
The following rights and privileges attach to the “B” preference shares:
• The “B” preference shares have been allotted and issued, credited as fully paid-up, in a single tranche
of 21 ,161 ,113 (twenty-one million one hundred and sixty-one thousand one hundred and thirteen)
“B” preference shares.
• The “B” preference shares will, on a liquidation, dissolution or winding-up of the Company, confer the right
upon the holder, in priority to any payments in respect of any other class of shares in the share capital of
the Company then issued, not ranking pari passu with the “B” preference shares, to receive in full out of
the assets of the Company the Redemption Amount. The “B” preference shares shall rank pari passu with
the “A” preference shares. Save as set out in Article 9, the “B” preference shares shall not be entitled to any
dividend or participation in the profits or assets of the Company or, on a liquidation, dissolution winding-
up, to any participation in any surplus assets of the Company.
• Subject to the provisions of the Act, the Company shall be obliged, but only upon the occurrence of an
event referred to in Article 9.4 to redeem the “B” preference shares for the Redemption Amount against
the tender to the Company of the certificate in respect of the “B” preference shares being redeemed and the
Company may apply its share premium for the purpose of any such redemption.
• The “B” preference shares shall forthwith become redeemable and be redeemed upon the occurrence of any
one of the following events, namely:
– the Company is placed into liquidation or business rescue proceedings begin, whether provisional or
final; or
– the Company gives any notice or takes any steps to convene a meeting of the Shareholders to adopt
a resolution placing it in liquidation or to begin business rescue proceedings whether provisional,
voluntary or otherwise; or
– the Company makes or attempts to make or recommends any general offer of compromise with any or
all of its creditors; or
– the Company gives written notice of redemption to the holders of “B” preference shares.
• If any certificate surrendered pursuant to any redemption of any of the “B” preference shares includes
any “B” preference shares not being redeemed on the occasion on which it is so surrendered, then a new
certificate for the remainder of the “B” preference shares not so being redeemed shall be issued free of
charge to the holder of “B” preference shares.” (Article 9)
“Disposal of Shares: “In the event that a shareholder holds more than one class of share, it shall not be
entitled to dispose (otherwise than by means of a redemption) of its shareholding of one category of shares
(the First Category) without simultaneously disposing of that number of shares of each other category
of shares held by such shareholder (each another Category) that is in the same proportion to the total number
of shares of such Other Category held by such shareholder immediately prior to the disposal as the number
of shares of the First Category being disposed of is to the total number of shares of the First Category held by
such shareholder immediately prior to the disposal.
Subject always to the prior approval of:
• a Special Majority of the shareholders; or
• written agreement signed by all of the ordinary shareholders,
327
the Company’s board is authorised to issue shares at any time, but only within the classes, and only to the
extent that the shares have been authorised by or in terms of this Memorandum.
Immediately upon Listing the provisions of Article 10 shall cease to apply.” (Articles 10.5 and 10.6)
Appointment/Term of Offi ce of Directors
“Composition of the board of directors: This Memorandum specifi es 4 directors as the minimum number of
directors of the Company, which number is higher than the minimum number of directors required in terms
of Section 66(2) of the Act, and 20 directors as the maximum number of directors of the Company.
Subject to Article 7.2 and the Listings Requirements, the shareholders shall elect the directors, and shall be
entitled to elect one or more alternate directors, in accordance with the provisions of Section 68(1) of the Act.
This Memorandum does not provide for the appointment of any person as an ex offi cio director of the Company.
Subject to the requirements of the Act, the chairman of the board shall be entitled, subject to the written
approval of the majority of the directors, to appoint any person as a director in terms of Section 66(4)(a)(i),
provided that such appointment must be approved by the shareholders at the next shareholders meeting or
annual general meeting.” (Articles 7.1.1 – 7.1.4)
“Vacancies: The board may appoint any person who satisfi es the requirements for election as a director to fi ll
any vacancy and serve as a director on a temporary basis until the vacancy is fi lled by election in accordance
with Section 68(1) of the Act.
If the number of directors falls below the minimum provided for in this Memorandum, the remaining directors
must as soon as possible and in any event not later than three months from the date that the number of
directors falls below the minimum, fi ll the vacancies or call a shareholders meeting for the purpose of fi lling
the vacancies. If required by the Listings Requirements:
• the appointment of a director to fill a vacancy or as an addition to the board must be confirmed by
shareholders at the next annual general meeting; and
• after the expiry of the three-month period the remaining directors shall be permitted to act for the
purpose of filling vacancies or calling shareholders’ meetings for the purpose of filling the vacancies.”
(Article 7.2.1 – 7.2.2)
“Composition of the board of directors: Without derogating from the provisions of the Act, a director shall
cease to be a director:
• if the director gives notice to the Company of the director’s resignation as a director with effect from the
date of, or such later date as is provided for in, such notice;
• if the director becomes insolvent, or assigns the director’s estate for the benefit of the director’s creditors
or suspends payment of the director’s liabilities or files a petition for the sequestration of the director’s
affairs, or compounds with the director’s creditors; and
• if the director is requested in writing by all the director’s co-directors to resign.” (Article 7.1.8)
“Life directorships: For so long as required by the Listings Requirements, life directorships and directorships
for an indefi nite period are not permissible.” (Article 7.11)
Qualifi cation of Directors
“Composition of the board of directors: Subject to Article 7.2, this Memorandum does not stipulate any
additional qualifi cations or eligibility requirements than those set out in the Act or the Listings Requirements
for a person to become or remain a director or a prescribed offi cer of the Company; provided that, for as long
as the Listings Requirements require it, the board, through its committee delegated responsibility to consider
nominations, should recommend eligibility of directors.” (Article 7.1.5)
Remuneration of Directors
“Directors’ compensation and fi nancial assistance to directors: The ability of the Company to pay
remuneration to its directors for their service as directors in accordance with Section 66(9) of the Act applies
without limitation, restriction or qualifi cation.” (Article 7.6.1)
“Director may be employed in the Company or subsidiary: A director may be employed in any other capacity
in the Company or as a director or employee of a subsidiary of the Company and, in such event, his appointment
and remuneration in respect of such other offi ce must be determined by a disinterested quorum of directors.”
(Article 7.9)
“Directors’ travelling and other expenses: Directors may be paid all their travelling and other expenses,
properly and necessarily incurred by them in and about the business of the Company, and in attending
meetings of the directors or of committees of the directors; and, if any director is required to perform extra
328
services, to reside abroad or be specifi cally occupied about the Company’s business, he may be entitled to such
remuneration as is determined by a disinterested quorum of directors, which may be either in addition to or
in substitution for any other remuneration payable, subject to the provisions of the Act.” (Article 7.10)
“Provisions applicable prior to Listing: Save for executive directors that may be nominated in terms of
Article 10.4.2.1.1 who shall not receive directors’ remuneration, the authority of the Company to pay
remuneration to the directors, in accordance with a special resolution approved by the shareholders within
the previous two years, is not restricted or varied by this Memorandum.” (Article 10.4.2.3)
“Indemnifi cation of directors, offi cers and employees: The ability of the Company to advance expenses to a
director to defend any legal proceedings arising from his service to the Company, or to indemnify a director
against such expenses if the proceedings are abandoned or exculpate the director or arise in respect of any
liability for which the Company may indemnify the director in terms of Sections 78(5) and 78(6) of the Act
applies without limitation, restriction or qualifi cation.” (Article 7.7.2)
Borrowing Powers of Directors
“Provisions applicable prior to Listing: Prior to Listing and, notwithstanding anything to the contrary in
this Memorandum, with respect to the Company, the board shall not, and with respect to each Affi liate the
board shall procure that none of the directors, offi cers or employees of the Affi liate shall have the authority to
bind or commit the Company or the Affi liate, as the case may be, to any of the resolutions or transactions set
out in Article 10.3 in relation to the Company or and Affi liate, nor will the shareholders or their nominees take
any steps of any nature to approve, authorise or permit the Company or any Affi liate to become bound or
committed to any such resolution or transaction, and no such resolution shall be validly passed or no such
transaction shall be implemented, unless such resolution or transaction shall have been approved in advance
by a Special Majority (provided that for purposes of this Article 10.2, the shareholding of Shareholder SC shall
not be counted in determining a Special Majority, except in respect of matters which require the approval of
Shareholders at a general shareholders’ meeting in terms of the Act).
Article 10.2 restricts the power of the board to:
• effect or approve any financing, refinancing or borrowing of monies by the Company in excess of
R350 ,000 ,000 individually or in the aggregate; or
• extend any loan to third parties or the enter into any contract of guarantee or indemnity by the Company
with a value in excess of R50 ,000 ,000 (whether viewed individually or cumulatively with other such loans,
guarantees or indemnities); …” (Articles 10.2 and 10.3)
Retirement of Directors by Rotation and/or Attaining an Age Limit
“Composition of the board of directors: Subject to the Act and this Memorandum, at every annual general
meeting of the Company, one-third of the directors for the time being or, if their number is not a multiple of
three, then the number nearest to, but not less than one-third or if there are less than three, then all the
directors shall retire from offi ce. The directors so to retire at every annual general meeting shall be those who
have been longest in offi ce since their last election. As between directors of equal seniority, the directors so to
retire shall, unless they otherwise agree among themselves, be selected by lot; provided that, notwithstanding
anything to the contrary in this Memorandum:
• if at the date of any annual general meeting any director shall have held office for a period of three years
since his last election or appointment (computed from his last election, appointment or date upon which he
was deemed re-elected), he shall retire at such meeting either as one of the directors to retire in terms of
this Article 7.1.6, or in addition to the directors who retire in terms of this Article 7.1.6;
• a director who intends to retire voluntarily at the annual general meeting may be taken into account in
determining the one-third of the directors to retire at such meeting;
• the identity of the directors to retire at such annual general meeting shall be determined as at the date of
the notice convening such meeting; and
• a director retiring at an annual general meeting shall retain office until the close or adjournment of such
meeting.” (Article 7.1.6)
“Composition of the board of directors: Retiring directors shall be eligible for re-election to the offi ce of
director at any shareholders’ meeting only upon the recommendation of the board.” (Article 7.1.7)
329
Annexure 12
MATERIAL AGREEMENTS
Term Loan Facility Agreement
AF Acquisition entered into the R1 250 ,000 ,000 term loan facility agreement with RMB dated 26 March 2014.
The Term Loan Facility was advanced on 31 March 201 4 and is repayable on 31 March 2017. AF Acquisition
may prepay the Term Loan Facility in increments of R5 ,000 ,000, provided that a refi nancing penalty is
payable (in the event that the prepayment is made other than from internally generated cashfl ows or through
a debt capital markets raising arranged by RMB) in an amount of 1% of the amount prepaid in respect of any
amount prepaid within the fi rst year of the advance date.
Under the Term Loan Facility, AF Acquisition may not (and shall ensure that no other Group
company will):
• create any encumbrance other than any permitted encumbrance;
• dispose of any asset other than pursuant to a permitted disposal (including in the ordinary course of
business), unless:
– no default is continuing or would result from the making of such disposal;
– no regulatory capital shortfall exists or would result from the making of such disposal; and
– AF Acquisition is in compliance with the net debt to EBITDA covenant;
• incur or allow to remain outstanding any financial indebtedness other than that specifically permitted in
terms of the agreement, unless:
– no default is continuing or would result from the making of such disposal;
– no regulatory capital shortfall exists or would result from the making of such disposal;
– AF Acquisition is in compliance with the net debt to EBITDA covenant;
– the financial indebtedness ranks pari passu with or below AF Acquisition’s obligations under the Term
Loan Facility Agreement; and
– such financial indebtedness is incurred by AF Acquisition.
Permitted fi nancial indebtedness includes: fi nance or capital leases, inter-Group loans, indebtedness under
any indemnity by any member of the Group in favour of Intermediaries Guarantee Facility Limited in respect
of a guarantee issued by such company and the making of any distribution.
AF Acquisition Guarantees
As described under “Restructure”, AF Acquisition has entered into certain guarantees pursuant to the
Restructure.
AF Acquisition entered into a guarantee on 26 March 2014 in favour of RMB as holder of preference shares
issued by Management SPV in terms of which AF Acquisition guarantees the obligations of Management SPV
(a shareholder of the Company) in respect of preference shares issued by Management SPV to RMB for
purposes of funding the subscription of ordinary shares by Management SPV in the Company. The aggregate
subscription price for the preference shares was R228 million. Management SPV is owned by the Alexander
Forbes Management Investment Trust and the Alexander Forbes Management Co-Investment Trust. The
preference shares are redeemable on 1 April 2017 and attract a dividend rate of 75% of Prime.
AF Acquisition also entered into a guarantee in favour of RMB as holder of the preference shares on
26 March 2014 in terms of which AF Acquisition guarantees the obligations of BEE SPV (a shareholder of the
Company) in respect of preference shares issued by BEE SPV to RMB for purposes of funding the subscription
for ordinary shares by BEE SPV in the Company. The aggregate subscription price for the preference shares
was R158 million. BEE SPV is owned by the Alexander Forbes Staff Share Trust and the Alexander Forbes
Community Trust. The preference shares are redeemable on 1 April 2017 and attract a dividend rate of 75%
of Prime.
The two aforementioned guarantees are hereinafter referred to as the “Guarantees” and the aforementioned
preference shares as the “Preference Shares”. Both are subject to the same terms and conditions. The Preference
Shares are voluntarily redeemable: (i) in part out of internally generated cashfl ows and (ii) in full out of the
direct or indirect proceeds of any Refi nance if: (a) the dividend rate is increased in terms of any rate adjustments
clauses or (b) any additional amount becomes payable pursuant to any adjustment event. The Preference
Shares may also be refi nanced at any time, provided that the subscriber has been given the opportunity to
330
make an offer in respect of such refi nancing, and to the extent that the subscriber doesn’t participate in the
refi nancing, shall pay to the holder of the Preference Shares a refi nance dividend in an amount of 3% of the
subscription price of the Preference Shares redeemed. The Preference Share terms impose certain restrictions
on the Management SPV and the BEE SPV, respectively, including in relation to the transfers of Shares held
by them in the Company without RMB’s consent. The Preference Shares terms include circumstances in which
the Preference Shares are compulsorily redeemable.
In the event that the Preference Shares are redeemed and all liabilities under the relevant subscription
agreements have been discharged, the Guarantees remain in place for 60 months after the actual redemption
date of the Preference Shares, particularly for purposes of securing the post-redemption tax indemnities
provided to RMB as described under “Restructure”.
Third Shareholders’ Agreement
The third shareholders’ agreement (the “TSA”) was entered into on 4 July 2013 among:
• the Private Equity Consortium;
• Dream World Investments 518 Proprietary Limited, Shanduka Group Proprietary Limited, Golden Falls
and Born Free Investments 580 Proprietary Limited; and
• Actis Africa Fund 2 L.P., Cifa Investments L.P., AF Pref, the Alexander Forbes Management Co-Investment
Trust, the Alexander Forbes Management Trust and the Company,
(collectively, the “TSA Parties”).
The TSA Parties had initially entered into the second shareholders’ agreement on 23 May 2007 to regulate,
among other things, the basis on which they subscribed for shares in the Company and their relationship as
shareholders of the Company.
The Company entered into the TSA, on substantially the same commercial terms as the second shareholders’
agreement, to bring it in line with the Companies Act. The TSA governs certain aspects of the relationship
between the TSA Parties including (among others things):
• the election of directors of the Company;
• management of the Company;
• shareholders’ meetings;
• shareholders’ voting rights;
• the formation of board committees;
• reserved matters;
• additional funding;
• restrictions on disposal of shares; and
• drag along, tag along and pre-emptive rights.
Under the TSA, each Consortium Member (other than Actis AF), with a shareholding in excess of 8% of the
ordinary shares of the Company, shall be entitled to nominate two directors of the Company. Actis AF shall be
entitled to nominate three directors of the Company for so long as it holds at least 12% of the ordinary shares
of the Company and two directors of the Company for so long as it holds at least 8% of the ordinary shares of
the Company.
Golden Falls shall be entitled to nominate two directors of the Company for so long as Golden Falls, Dream
World Investments 518 Proprietary Limited and Born Free Investments 580 Proprietary Limited hold at least
an aggregate of 12% of the ordinary shares of the Company and one director for so long as they hold 8% of
the ordinary shares of the Company (the “BEE Threshold”). Golden Falls shall retain its entitlement to
nominate one director in the event that the aggregate shareholding of the Company’s ordinary shares of those
B-BBEE companies falls below the BEE Threshold solely as a result of a dilution in their shareholding of
ordinary shares of the Company pursuant to a rights issue.
In addition to the directors referred to above, Consortium Members whose shareholdings in aggregate equal
or exceed 60% of the ordinary shares of the Company held by the Consortium Members shall nominate four
executive directors of the Company. To the extent that the shareholders fail to nominate such executive
directors, the board of directors of the Company may appoint so many independent non-executive directors,
and for so long as such independent non-executive directors hold offi ce, the shareholders’ right to nominate
those executive directors is suspended.
AF Pref is entitled to nominate and remove two independent directors of the Company if it has received written
directions from certain of its shareholders directing it to nominate such an independent director. Further,
AF Pref must by no later than 10 business days prior to the date of the proposed appointment of the independent
director(s), furnish the board with:
331
• a copy of the written directions received from its shareholders;
• a written confidentiality undertaking from each independent director;
• the curriculum vitae of the proposed independent director;
• a duly signed consent to act as a director;
• written confirmation from the relevant AF Pref shareholder that the proposed independent director is not
disqualified to act as a director of a company; and
• written confirmation from the relevant AF Pref shareholder that the proposed independent director has
become disqualified from acting as a director of a company.
Lastly, the board of directors of the Company may nominate and appoint one independent non-executive
director in the event that AF Pref is not entitled to, or does not fully exercise its entitlement, to make such a
nomination.
The selling of the Offer Shares by the Selling Shareholders and the Listing are reserved matters for purposes
of the TSA and require the approval of the Relevant Majority. “Relevant Majority” is defi ned in the TSA as a
number of Shareholders which fulfi ls both of the following requirements: (a) Shareholders whose shareholdings
collectively equal or exceed 50% plus one ordinary share of the ordinary shares of the Company held by all of
the Shareholders and (b) Consortium Members whose shareholdings collectively equal or exceed 60% of the
ordinary shares of the Company held by the Consortium Members. Other reserved matters include, inter alia,
in respect of each entity in the Alexander Forbes Group (“Affected Companies”):
• the increase, alteration or reduction of the share capital;
• the issue or allotment of shares or debentures;
• the alteration or amendment of the memorandum of incorporation and/or by-laws of any of the Affected
Companies or AF Pref;
• the sale, transfer or disposal of the whole or a part of the shares of any of the Affected Companies;
• a material change to the business activities of an Affected Company;
• the approval of a new shareholder of the Company, if the new shareholder is a competitor; and
• the appointment and removal of executive directors and independent directors of the Relevant Companies
as contemplated in the TSA.
The Selling Shareholders and the Company have acknowledged that, as between themselves, the TSA will
terminate with effect from Listing and be of no further force and effect.
LCP Members’ Deed
On 21 December 2012, 88 individuals, AFFS Holdings (the “Corporate Member”), LCP and AF International
(the “AF Guarantor”) entered into a members’ deed (the “Deed”) in relation to LCP, being a limited liability
partnership incorporated in the United Kingdom. The Deed is akin to a shareholders’ agreement and governs
the relationship between the parties to the agreement in respect of their interests in the LLP. The 88 individuals
are categorised in the Deed into one of three groups, namely “Senior Equity Members” (22 individuals),
“Junior Equity Members” (61 individuals) and the “LCP Ireland Members” (5 individuals).
The Deed endures indefi nitely until terminated by agreement between the members or until LCP is wound up
in accordance with the provisions of the Limited Liability Partnership Act 2000.
The Deed governs various aspects of the relationship between the parties to it including, among others:
• a process for admission of new members to LCP,
• the benefits and membership rights of the Senior Equity Members, the Junior Equity Members and the
LCP Ireland Members ; and
• the obligations of the members.
The members are required to contribute, in specifi ed proportions, to the working capital of the LLP. The
failure to make the necessary working capital contribution affects the member’s rights in terms of their
ownership percentage in LCP, their profi t share in LCP and any bonus points which may be allocated to them
on the occurrence of certain events.
The Deed sets out various duties which all members owe to LCP, including being just and faithful in relation
to all LCP group transactions, diligently and faithfully engaging oneself on a whole time basis to the business
of the LCP, conducting himself to the greatest advantage of the LCP group and using his best skills and
endeavours to promote the business of the LCP group in compliance with professional standards and all laws.
332
The Deed sets out various restrictions on the activities of the members and in particular, the Corporate Member.
These restrictions have an effect on any merger or acquisition transactions in relation to the LLP as the LLP
is precluded from integrating into an acquiring entity without the requisite board approvals having been
obtained. The Deed also sets out restrictions on the activities of management of the LLP without the requisite
member approvals being obtained.
Various restrictions on outgoing members of LCP are also set out in the Deed. Existing members of LCP are
prohibited from practicing as an actuary under the name of “Lane Clark & Peacock” or a similar name,
interfering with the clients of LCP within a period of 24 months of leaving LCP or poaching employees of
the LLP.
Finally, certain commercial liabilities have been set out in the Deed, which attach to the AF Guarantor in
relation to any liability which may arise out of the property leases of the LLP.
Caveo Shareholders’ Agreement
Peregrine SA Holdings Proprietary Limited and Investment Solutions Holdings entered into a shareholders’
agreement in respect of Caveo effective from 30 April 2013 (the “Caveo Shareholders’ Agreement”). The
Caveo Shareholders’ Agreement replaced a previous shareholders agreement between those parties dated
14 November 2005.
The Caveo Shareholders’ Agreement includes provisions relating to the formation of board committees, the
division of revenue generated by Caveo, the funding of Caveo and restrictions on share transfers. In relation
to the transfer of shares, the Caveo Shareholders’ Agreement includes standard pre-emptive rights, as well as
tag-along and drag-along provisions which apply in relation to transfers of 50% or more of all equity in Caveo.
A change in control of either shareholder without the prior written consent of the others shareholder
constitutes a trigger event which may result in a forced sale of the “defaulting” shareholder’s shares to the
other shareholder.
If Caveo requires further funding, Investment Solutions Holdings has certain funding obligations pursuant
to which it is required to provide not more than R3 000 000 by subscribing for further shares or extending a
loan to Caveo. Funding in excess of R6 000 000 (half of which Investment Solutions Holdings is obliged to
provide) must be procured by Caveo using its reasonable endeavours from outside sources.
Management Payment Agreement
Prior to the Restructure, the Alexander Forbes Management Trust was a holder of Ordinary Shares in the
Company but did not hold any “A” preference shares in the Company. For this reason, the Alexander Forbes
Management Trust held a disproportionate number of Ordinary Shares in the Company compared to the
number of Ordinary Shares held by other ordinary shareholders who also held “A” preference shares. Pursuant
to the Restructure, the Company redeemed all issued “A” preference shares and, in consideration, issued new
Ordinary Shares to the holders of the “A” preference shares, resulting in signifi cant dilution of the Alexander
Forbes Management Trust’s ordinary shareholding in the Company and the effective loss of the inherent
gearing in the Alexander Forbes Management Trust’s investment in the Company.
In order to compensate the Alexander Forbes Management Trust and, indirectly, the benefi ciaries for this loss,
the Company entered into an agreement dated 20 March 2014 with the Alexander Forbes Management Trust
in terms of which the Company agreed to pay the Alexander Forbes Management Trust a compensation
amount (“Compensation Amount”) upon the happening of a “disposal event”, being:
• the disposal by the Alexander Forbes Management Trust and/or the Management SPV of any of the ordinary
shares held in the Company;
• any buy-back, redemption or cancellation by the Company of any of the ordinary shares held by the
Alexander Forbes Management Trust and/or the Management SPV; or
• the receipt by the Alexander Forbes Management Trust and/or the Management SPV of a final dividend
from the Company relating to the disposal by the Company of a whole or a greater part of its assets,
which occurs on or after the occurrence of an “exit event”, which includes:
• an initial public offering of the share capital of any member of the Group and a successful application for
the admission of any part of the share capital of any member of the Group to listing on any financial or
stock exchange; and
• the disposal by the shareholders of the Company of more than 50% of the shares in the issued share capital
of the Company, whether as a single transaction or a series of related transactions.
A payment in terms of this agreement will be triggered by the Listing and the sale of shares pursuant to that
Listing by the Selling Shareholders. The Compensation Amount will be calculated by the calculation agent,
being FirstRand Bank Limited, with reference to the Offer Price achieved pursuant to the Offer. The
Compensation Amount is expected to be between R 46 million and R 81 million based on an Offer Price Range
of between R 7.20 and R 8.10 per Ordinary Share.
333
Relationship Agreement
On 20 June 2014, the Company and Mercer entered into a Relationship Agreement, which will become effective
on the First Closing Date and will govern certain aspects of the relationship between Mercer and the Company.
The First Closing Date is expected to coincide with the Listing Date, but may be delayed if the relevant
regulatory approvals are not obtained by the Listing Date.
The Relationship Agreement was executed simultaneously with the Sale of Shares Agreement .
The key provisions of the Relationship Agreement are summarised below:
Director Nomination Rights
Subject to applicable laws, the Relationship Agreement entitles Mercer to nominate for appointment to the
Company’s board: (i) two non-executive directors or (ii) subject to compliance with the board composition
requirements as set out in the King Code (as they relate to independent directors) , that number of directors
which corresponds to Mercer’s percentage ownership of the Company, whichever is greater.
Otherwise, if at any time Mercer’s interest in the Company falls below (by reason of Mercer or its affi liates
disposing of any of the Shares held by them, as opposed to, among other things, through dilution):
• 20% but is equal to or greater than 10%, Mercer shall be entitled to nominate for appointment to the board :
(i) one non-executive director or (ii) subject to compliance with board composition requirements as they
relate to independent directors as set out in the King Code, that number of directors of the board which
corresponds to Mercer’s percentage ownership of the Company, whichever is greater;
• 10%, Mercer shall not be entitled to nominate any person for appointment to the Company’s board.
For so long as Mercer is entitled to nominate a director or directors for appointment to the board of directors
of the Company, and subject to compliance with applicable laws, Mercer shall be entitled to designate one of
the Mercer nominated directors to be a member of each of the Audit Committee and Nominations Committee
of the Group.
Notwithstanding the provisions above, Mercer shall, with effect from the First Closing Date until the Second
Closing Date, be entitled to nominate for appointment to the Company’s board one, and only one, non-executive
director.
Anti-Dilution
Under the Relationship Agreement, Mercer shall, subject to certain agreed exceptions and subject to applicable
laws (including, without limitation, the JSE Listings Requirements), have the right to participate in any issue
of or grant of a right to subscribe for equity securities of the Company proposed by the Company to such an
extent so as to maintain Mercer’s percentage ownership of the Company and on the same terms and conditions
as other participants in any such issue or grant. Mercer’s right in this regard shall not extend to (i) any issue
in accordance with any management and employee share schemes approved by the Board; (ii) any acquisition
or merger by the Company or any member of the Group in relation to which equity securities form all or part
of the consideration; or (ii) any issue or grant of a right to subscribe for equity securities of the Company in
circumstances where Mercer has already been offered the opportunity on the same terms and conditions and
on a pro rata basis to subscribe, purchase or apply for such number of equity securities to be issued as is in
proportion to Mercer’s ownership percentage.
Ownership Thresholds
In order to adhere to certain regulatory requirements and imperatives, it is important to Mercer that its
ownership percentage in the Company is not equal to or greater than 15 % prior to the Second Closing Date
and that, at no time after the Second Closing Date (save for in circumstances where Mercer purchases, directly
or indirectly, additional Shares), shall Mercer’s ownership percentage in the Company equal to or exceed 35%.
For this reason, the Company has undertaken to use commercial reasonable endeavours not to do, or cause to
be done, without Mercer’s prior written consent, anything which may result in either of these thresholds
being exceeded.
Disposal of Shares
Subject to the occurrence of certain limited events, Mercer may not dispose of its ordinary shares in the
Company to any person (other than an affi liate of Mercer):
• where Mercer is able to complete the acquisition of both tranches of the Shares contemplated above, for a
period of 365 days from the First Closing Date; and
• where Mercer is able to complete the acquisition of the first tranche of 14.9% of the Shares but not the
second tranche of 19.1% of the Shares, for a period of 180 days from the First Closing Date.
After the expiration of the restraint period, if Mercer proposes to dispose Shares that will constitute more that
5% of the Company’s total issued share capital at the time of such disposal, Mercer shall be required to give
the board of directors notice of such disposal and, in these circumstances, the Company will be required to use
commercial reasonable endeavours to cooperate with Mercer to assist Mercer in ensuring an orderly disposal
of such shares.
334
Representations, Warranties and Covenants
The Company has given Mercer certain limited warranties and representations in relation to, among other
things, its capacity and authority to enter into the Relationship Agreement and its compliance with various
money laundering and anti-corruption laws. Similarly, the Company has undertaken to Mercer to: (i) comply
with applicable laws, particularly anti- bribery and an ti-corruption laws; and (ii) provide Mercer with certain
information relating to, among other things, any breaches of applicable laws and certain tax-related matters.
Shareholders’ Side Letter Agreement
On 20 June 2014, a side letter agreement was entered into by each of the Selling Shareholders and the
Company (the “Shareholders’ Side Letter Agreement”). Under the Shareholders’ Side Letter Agreement, each
Selling Shareholder has, in relation to the proposed acquisition by Mercer of 34.0% of the issued ordinary
shares in the Company:
• agreed to waive any and all restrictions pertaining to the disposal by that Selling Shareholder of its Shares
and any pre-emptive right, or right to require any person to acquire its ordinary shares in the Company,
which that shareholder may otherwise have under the TSA;
• acknowledged that, as between the Selling Shareholders and the Company, the TSA shall terminate with
effect from the Listing and be of no further force and effect; and
• undertaken to approve any and all authorities required in relation to, and the execution of any documents
necessary to give effect to, the disposal by that Selling Shareholder of its Shares in the Company pursuant
to the Offer or the acquisition by Mercer.
The Company has undertaken, for the period between the First Closing Date and the Second Closing Date, not
to, without the prior written consent of the Selling Shareholders, implement any corporate action which
would result in the proportion of Shares in the share capital of the Company to be acquired by Mercer on the
Second Closing Date being less than or greater than 19.1%.
In addition, after the First Closing Date and for so long as OTPP owns 10% or more of the issued ordinary
shares of the Company, OTPP shall be entitled to nominate one non-executive director for appointment to the
board of directors of the Company, which appointment the Company shall use commercially reasonable
endeavours to facilitate.
335
Annexure 13
THIRD-PARTY MANAGEMENT
Various aspects of the Group’s business are managed by third parties pursuant to agreements with the parties
as set out in the below table:
Alexander Forbesentity Counterparty
Description of Managed Business Consideration
AFIC DNA Telesales Proprietary
Limited 21 The Broads,
Mulbarton, 2059
DNA Telesales Proprietary
Limited is appointed as a
non-mandated intermediary in
terms of a binder agreement*
in respect of the “Alexander
Forbes Direct 4 in 1 Plan”
policy.
R200 per policy sold
AFIC Seriti Business Solutions
Proprietary Limited Unit 2
Epcon Offi ce Park, 4 Coombe
Street, Rivonia, 2128
Seriti Business Solutions
Proprietary Limited is
appointed for the provision of
services in the following
manner: (i) making AFI’s
services available to AFI-
approved dealers, (ii) those
approved dealers will
subsequently market AFI’s
services to buyers, (iii) once the
buyers’ information is loaded
onto the Seriti system, the
dealer will initiate the lead to
AFI and (iv) once the insurer is
notifi ed, AFI will provide
quotes to the buyer.
Fee in respect of the transfer
of data between the Seriti IT
platform and AFI’s call
centre of R4.50 excluding
VAT per lead sent, subject
annual escalation at CPI on
1 March.
AFIC Signio Proprietary Limited
Southdowns Offi ce Park,
Block B 2nd fl oor, cornerr John
Voster Drive and Karee Street,
0157
Signio Proprietary Limited is
appointed for the provision of
application services and certain
related maintenance and
technical support services.
R100 per successful lead
(ASP Fee) as at 1 January
2013, increased annually on
1 March, by an amount
negotiated between the
parties, but at a minimum
the average CPIX over the
preceding 12 months.
AFIC Thirty by Thirty Marketing
Technology Proprietary Limited
55 Robin Drive, Fourways,
Johannesburg, 2055
Thirty by Thirty Marketing
Technology Proprietary Limited
is appointed to provide the
following services: (i) running
monthly SMS surveys (or as
agreed), based on dialogues and
data provided by AFI, (ii) the
provision of real time reporting
on the SMS surveys, made
available to AFI via the online
analytics tool and (iii) the
conducting of an overall
monthly analysis and
presentation of the same to
AFI. AFI may request the
provision of additional optional
services.
The applicable SMS costs are
R0.25 per message and the
management fees are
R17 200 per month base
cost. The use of the
escalations management
tool will be an additional
10% of the base fee.
336
Alexander Forbesentity Counterparty
Description of Managed Business Consideration
AFIC Outsource Reclaim Specialist
CC G01 Harrogate Park 1237,
Pretorius Street, Hatfi eld, 0028
Outsource Reclaim Specialist
CC is appointed to provide the
following services: (i) payment
of instructed attorney’s fees,
(ii) all correspondents’ fees,
(iii) court fees, (iv) court
appearance fees, (v) tracers’
fees, (vi) all searches,
(vii) payment of recovered fees
to Meridian Brokers
Proprietary Limited,
(viii) reporting to insured
clients and (ix) reporting to
Meridian Brokers Proprietary
Limited on individual matters
on a six-monthly basis.
35% of amounts recovered,
i.e., on capital, interest
and costs.
AFIC First Assist Management
Proprietary Limited (“FAM”)
9 Sturdee Avenue, Rosebank,
Johannesburg, 2196
FAM is appointed to provide
assistance services for Personal
and Commercial Policies.
R5.00 per month per policy,
excluding 14% VAT. R0.45
per policy for Driver Assist
services.
AFIC Pogir Bastion and Associates
Proprietary Limited, PO Box
46368, Orange Grove, 2119
Binder functions:
• varying and renewing policies
on behalf of AFI; and
• determine premiums on
policies.
3% per policy binder fee is
paid to Pogir Bastion and
Associates (Proprietary)
Limited.
AFIC Small Area Repair Technology
Underwriting Managers
Proprietary Limited (SMART)
88 General Hertzog Road
Reveredge Offi ce Park, Three
Rivers, Vereeniging, 1935
Binder functions:
• determining premiums under
the policy;
• determining policy benefi ts;
• determining policy wordings;
and
• settling claims.
10% per policy binder fee is
paid to SMART.
AFIC Alexander Forbes Group &
Technology Services
Proprietary Limited 115 West
Street, Sandown, Sandton, 2196
IT infrastructure and support,
company secretarial services,
Internal audit function, etc.
A monthly fee which is
proportionate to budgeted
costs is paid.
AFIC Alexander Forbes Direct
Proprietary Limited (AFD) 115
West Street, Sandown,
Sandton, 2196
Binder functions:
• enter into, vary or renew a
policy; and
• determine the value of policy
benefi ts under a policy.
0% binder fee is paid
to AFD.
AFIC Alexander Forbes
Administrative Service
Proprietary Limited 115 West
Street, Sandown, Sandton, 2196
Binder functions:
• vary or renew a policy;
• determine the wording of a
policy;
• determine premiums under a
policy;
• determine the value of policy
benefi ts under a policy; and
• settle claims under a policy.
A fee of 11% per policy was
paid to AFAS for fi nancial
year 2014. For fi nancial
year 2015 the fee has been
reduced to 9%.
AFIC Alexander Forbes Financial
Services Proprietary Limited
115 West Street, Sandown,
Sandton, 2196
Ad hoc insurance consulting &
actuarial services (including
IM & SAM-related services).
A fee of R1 ,000 ,000 was
paid for fi nancial year 2014.
337
Alexander Forbesentity Counterparty
Description of Managed Business Consideration
AFIC Docufi le Proprietary Limited
Morkels Close, Capital Hill
Commercial Business Estate,
Le Roux Ave, Halfway House
Midrand, 1682
Off-site fi ling. The amounts paid to
Docufi le for services they
provide are as follows:
Delivery/collection R77.65
Fax search & send R7.83
Box handling fee R7.83
Computer indexing R1.13
New box – location
handling fee R7.83
Pack & index R11.39
Transport new box R6.11
Box location labelœ R1.44
Box rental standardœ R2.50
Docufi le quality
storage box & lid R20.13
Destruction fee R8.91
AFIC Xs-Sure (Proprietary) Limited
187 Gouws Avenue Raslouw,
Wierda Park, 0187
Binder functions
• Determining premium;
• Determining policy; wording;
and
• Settling claims.
0% binders fee is paid to
Xs-Sure (Proprietary)
Limited.
Investment
Solutions
Limited and
Investment
Solutions
Unit Trusts
Limited
Silica Financial Administration
Solutions Proprietary Limited
128 Peter Road, Sandton, 2196
Postnet Suite 361,
Private Bag X9, Benmore,
2010
Silica Financial Administration
Solutions Proprietary Limited
and its subsidiaries are
appointed to provide certain
administration, accounting,
information technology,
compliance support and
ancillary services.
The amounts paid to Silica
depend on the nature of the
work and the specifi c
transaction. The areas of
work include instructions
management, dealing, legal
administration, relationship
management, bulk runs,
instrument charges and
support service. The fees are
split into 2 categories:
(1) fi xed monthly fee for the
rental of the silica
infrastructure including
Web and administration
software and (2) per
transaction depending on
the transaction type. In
addition, further fees are
levied if Investment
Solutions request out of SLA
services for example client
correspondence. In all cases,
the rates are subject to
annual CPI increases. Total
remuneration paid to Silica
in the past fi nancial year is
less than 2% of total
Investment Solutions
operating expenses.
338
Alexander Forbesentity Counterparty
Description of Managed Business Consideration
Investment
Solutions
Limited
Maitland Fund Services
Proprietary Limited
Maitland House 1, River Park,
River Lane, Mowbray,
Cape Town, 7700
Maitland Fund Services
Proprietary Limited is
appointed to provide asset
administration services.
Maitland Fund Services
Proprietary Limited charge
based on 3 levels:
Level 1: Assets under
administration. This is
based on a sliding scale and
is dependent on total assets
under administration.
Level 2: A per portfolio
charge. Depending on the
portfolio type this can range
between R256 per month to
R3 ,073 per month. Total
number of portfolios
administered by Maitland
Fund Services Proprietary
Limited as at 31 March 2014
was 366.
Level 3: Transaction-based
charged for various ad hoc
transactions performed by
Maitland Fund Services
Proprietary Limited. These
range between depending on
transaction type.
The total charge levied by
Maitland Fund Services
Proprietary Limited in the
past fi nancial year was less
than 5% of direct product
costs. This agreement is
currently subject to
renegotiation.
Caveo
Proprietary
Limited
Admiral Hedge Fund Services
(Proprietary Limited)
Maitland House 1, River Park,
Gloucester Road Mowbray,
Western Cape, 7700
Admiral Hedge Fund Services
(Proprietary Limited is
appointed to provide
administration services.
The cost of these services is
incurred by the portfolios
managed by Caveo
Proprietary Limited. The
various services amount to
approx. 0.14% per annum of
AuM managed by Caveo
Proprietary Limited.
339
Alexander Forbesentity Counterparty
Description of Managed Business Consideration
Alexander
Forbes
Fiduciary
Services
Limited
Sanlam Trust Limited
2 Strand Road, Belville, 7532
Sanlam Trust Limited is
appointed to provide fi duciary
services to Alexander Forbes
Fiduciary Services Limited,
which include wills and estates
and trusts. Sanlam Trust
Limited attends to the
administration of deceased
estates, drafting trust deeds
and the management of trusts.
Offshore wills and offshore
trusts referred to Sanlam Trust
Limited are drafted and
administered by a service
provider of Sanlam Trust
Limited in the United Kingdom.
The amounts paid to Sanlam
Trust Limited vary
depending on the services
provided.
The consideration for
drafting wills ranges
between R200 and R19 ,475,
save for offshore wills which
are as advised by the Sanlam
Trusts offshore provider.
The fi rst R10 ,000 of the
executor’s fee and 60% of
the balance of the executor
fee earned after the
deduction of the R10 ,000 is
payable to Sanlam Trust
Limited.
R19 ,475 monthly charge for
rental of the “SanTrust
software” which enables
drafting standard wills
in-house (linked to CPI p.a.
calculated from 2006 –
currently standing at
R30 ,069.81 p.m. including
VAT).
Completion of income tax
returns is charged at a
negotiable hourly tariff.
The consideration for trusts
services ranges between
R342 and R2 ,950.
The fi rst R10 ,000 of the
management fee payable by
the client and 80% of the
balance of the management
fee after the deduction of the
R10 ,000 is payable to
Sanlam Trust Limited.
340
Alexander Forbesentity Counterparty
Description of Managed Business Consideration
Alexander
Forbes
Fiduciary
Services
Limited and
Alexander
Forbes
Financial
Services
Proprietary
Limited
Sentinel International Advisory
Services Proprietary Limited
6th Floor, Mariendahl House,
Newlands-On-Main, Main Road,
Newlands 7700, Cape Town
Sentinel International Advisory
Services Proprietary Limited is
appointed to provide services to
Alexander Forbes Fiduciary
Services Limited and Alexander
Forbes Financial Services
Proprietary Limited, which
include wills, estates and trusts
and accompanying services.
Sentinel International Advisory
Services Proprietary Limited
has the required infrastructure
to provide the identifi ed
services to clients of Alexander
Forbes Fiduciary Services
Limited and Alexander Forbes
Financial Services Proprietary
Limited.
The amounts paid to
Sentinel International
Advisory Services
Proprietary Limited vary
depending on the service
provided.
Estate planning
consultations are charged at
R1 ,700 to R2 ,500 per hour.
A minimum fee of R7 ,000 is
payable for the formation of
trusts.
Registration of a trust at
SARS is R550.
Trustee fees on inter vivos
trusts are charged at a
minimum of R18 ,500.
The administration of trusts
is charged at R12 ,000.
The review of an existing
trust deed is charged at
R6 ,800.
Amending a trust deed is
charge at R600 per hour.
Termination of trusts is
generally charged at R2 ,500
per hour.
Submission of a tax return
for a trust is charged
at R550.
Preparation of annual
fi nancial statements for a
trust is charged a minimum
of R4 ,000.
Individuals personal tax is
charged at R1 ,200 to
R1 ,680, subject to an hourly
rate of R1 ,000.
Wills are charged at between
R1 ,500 to R2 ,000.
* A binder agreement allows a short-term insurer to appoint another person to enter into, vary, determine the
terms and the wording of a policy and to determine the value of the policy and premiums and settle claims
(in terms of Section 48A of the STIA).
341
Annexure 14
MATERIAL DISPOSALS AND ACQUISITIONS
Details of the material disposals and acquisitions by the Company and its subsidiaries during the three years
preceding the date of this pre-listing statement are set out below:
Material Disposals
Sale of all of the issued shares of Guardrisk Group Proprietary Limited by AF Acquisition to MMI Strategic Investments Proprietary Limited
Dates of any such disposal or proposed disposal 3 March 2014
Consideration received, detailing the portion(s)
settled by the receipt of securities, cash or other
means and how any outstanding consideration is to
be settled
R1 ,553 ,240 ,000, plus an adjustment of R13 ,800 ,000
received on 3 March 2014.
Names and addresses of the purchaser(s) of the sold
assets
MMI Strategic Investments Proprietary Limited
(268 West Avenue, Centurion, South Africa).
Any promoter or director’s direct or indirect interest,
or where any promoter or director was a member of
a partnership, syndicate or other association of
persons that had such an interest, the names of any
such promoter of director and the nature of his/her
interest
None.
The merger of the entire business of Alexander Forbes Risk Services Proprietary Limited with Marsh Proprietary Limited
Dates of any such disposal or proposed disposal 1 January 2012
Consideration received, detailing the portion(s)
settled by the receipt of securities, cash or other
means and how any outstanding consideration is to
be settled
R504 ,450 ,000, plus a working capital adjustment of
R15 ,623 ,640.
Names and addresses of the purchaser(s) of the sold
assets
Marsh Proprietary Limited (corner 5th Street and
Fredman Drive, Entrance 1, Building 1, Alice Lane,
Sandton).
Any promoter or director’s direct or indirect interest,
or where any promoter or director was a member of
a partnership, syndicate or other association of
persons that had such an interest, the names of any
such promoter of director and the nature of his/her
interest
None.
The sale of all of the issued shares of and loan account against Alexander Forbes iConnect Proprietary Limited by Alexander Forbes Risk and Insurance Services Proprietary Limited to Marsh Holdings Proprietary Limited
Dates of any such disposal or proposed disposal 1 January 2012
Consideration received, detailing the portion(s)
settled by the receipt of securities, cash or other
means and how any outstanding consideration is to
be settled
R52 ,700 ,000, plus a working capital adjustment
of R375 ,829.
Names and addresses of the purchaser(s) of the sold
assets
Marsh Holdings Proprietary Limited (Corner
5th Street and Fredman Drive, Entrance 1, Building 1,
Alice Lane, Sandton).
342
Any promoter or director’s direct or indirect interest,
or where any promoter or director was a member of
a partnership, syndicate or other association of
persons that had such an interest, the names of any
such promoter of director and the nature of his/her
interest
None.
The sale of all of the issued shares of and loan account against Alexander Forbes Compensation Technologies Administration Proprietary Limited by Alexander Forbes Compensation Technologies Proprietary Limited to Marsh Holdings Proprietary Limited
Dates of any such disposal or proposed disposal 1 January 2012
Consideration received, detailing the portion(s)
settled by the receipt of securities, cash or other
means and how any outstanding consideration is to
be settled
R19 ,300 ,000, plus a working capital adjustment
of R1 ,323 ,608.
Names and addresses of the purchaser(s) of the sold
assets
Marsh Holdings Proprietary Limited (Corner
5th Street and Fredman Drive, Entrance 1, Building 1,
Alice Lane, Sandton).
Any promoter or director’s direct or indirect interest,
or where any promoter or director was a member of
a partnership, syndicate or other association of
persons that had such an interest, the names of any
such promoter of director and the nature of his/her
interest
None.
The sale of 71% of the issued shares of and loan account against Alexander Forbes Risk Services (Botswana) Proprietary Limited by Alexander Forbes Botswana Holdings (Proprietary) Limited to MMC UK Group Limited
Dates of any such disposal or proposed disposal 1 January 2012
Consideration received, detailing the portion(s)
settled by the receipt of securities, cash or other
means and how any outstanding consideration is to
be settled
R17 ,900 ,000, plus a working capital adjustment
of R1 ,174 ,185.
Names and addresses of the purchaser(s) of the sold
assets
MMC UK Group Limited (1 Tower Place West, Tower
Place, London, EC3R 5BU).
Any promoter or director’s direct or indirect interest,
or where any promoter or director was a member of
a partnership, syndicate or other association of
persons that had such an interest, the names of any
such promoter of director and the nature of his/her
interest
None.
The sale of all of the issued shares of Alexander Forbes Insurance Management Services Namibia (Proprietary) Limited by Alexander Forbes Namibia Holdings (Proprietary) Limited to Marsh Holdings Proprietary Limited
Dates of any such disposal or proposed disposal 1 January 2012
Consideration received, detailing the portion(s)
settled by the receipt of securities, cash or other
means and how any outstanding consideration is to
be settled
N$3 ,500 ,000, plus a working capital adjustment
of R847 ,865.
Names and addresses of the purchaser(s) of the sold
assets
Marsh Holdings Proprietary Limited (Corner
5th Street and Fredman Drive, Entrance 1, Building 1,
Alice Lane, Sandton).
Any promoter or director’s direct or indirect interest,
or where any promoter or director was a member of
a partnership, syndicate or other association of
persons that had such an interest, the names of any
such promoter of director and the nature of his/her
interest
None.
343
The sale of the entire short-term insurance broking business of Alexander Forbes Group Namibia (Proprietary) Limited to Marsh (Namibia) (Proprietary) Limited
Dates of any such disposal or proposed disposal 1 January 2012
Consideration received, detailing the portion(s)
settled by the receipt of securities, cash or other
means and how any outstanding consideration is to
be settled
N$105 ,000 ,000, plus a working capital adjustment
of R4 ,037 ,556.
Names and addresses of the purchaser(s) of the
sold assets
Marsh (Namibia) Proprietary Limited (Namdeb
Building, 10 Dr. Frans Oupa Indong Street,
Windhoek, Namibia).
Any promoter or director’s direct or indirect interest,
or where any promoter or director was a member of
a partnership, syndicate or other association of
persons that had such an interest, the names of any
such promoter of director and the nature of his/her
interest
None.
The sale of 51% of the issued shares of Alexander Forbes Malawi Limited by Alexander Forbes AfriNet Investments Proprietary Limited to MMC UK Group Limited
Dates of any such disposal or proposed disposal 29 June 2012
Consideration received, detailing the portion(s)
settled by the receipt of securities, cash or other
means and how any outstanding consideration is to
be settled
R12 ,750 ,000, plus a working capital adjustment
of R293 ,574.
Names and addresses of the purchaser(s) of the
sold assets
MMC UK Group Limited (1 Tower Place West, Tower
Place, London, EC3R 5BU).
Any promoter or director’s direct or indirect interest,
or where any promoter or director was a member of
a partnership, syndicate or other association of
persons that had such an interest, the names of any
such promoter of director and the nature of his/her
interest
None.
The sale of 60% of the issued shares of Femi Johnson & Company Limited by Alexander Forbes AfriNet Investments Proprietary Limited to MMC UK Group Limited
Dates of any such disposal or proposed disposal 13 June 2013
Consideration received, detailing the portion(s)
settled by the receipt of securities, cash or other
means and how any outstanding consideration is to
be settled
R17 ,850 ,000
Names and addresses of the purchaser(s) of the
sold assets
MMC UK Group Limited (1 Tower Place West, Tower
Place, London, EC3R 5BU).
Any promoter or director’s direct or indirect interest,
or where any promoter or director was a member of
a partnership, syndicate or other association of
persons that had such an interest, the names of any
such promoter of director and the nature of his/her
interest
None.
The sale of 55% of the issued shares of Alexander Forbes Uganda Limited by Alexander Forbes AfriNet Investments Proprietary Limited to MMC UK Group Limited
Dates of any such disposal or proposed disposal 29 May 2012
Consideration received, detailing the portion(s)
settled by the receipt of securities, cash or other
means and how any outstanding consideration is to
be settled
R22 ,950 ,000, plus a working capital adjustment
of R912 ,177.
344
Names and addresses of the purchaser(s) of the sold
assets
MMC UK Group Limited (1 Tower Place West, Tower
Place, London, EC3R 5BU).
Any promoter or director’s direct or indirect interest,
or where any promoter or director was a member of
a partnership, syndicate or other association of
persons that had such an interest, the names of any
such promoter of director and the nature of his/her
interest
None.
The sale of 70% of the issued shares of Alexander Forbes Zambia Limited by Alexander Forbes AfriNet Investments Proprietary Limited to MMC UK Group Limited
Dates of any such disposal or proposed disposal 14 December 2012
Consideration received, detailing the portion(s)
settled by the receipt of securities, cash or other
means and how any outstanding consideration is to
be settled
R14 ,280 ,000, plus a working capital adjustment
of R2 ,957 ,248.
Names and addresses of the purchaser(s) of the sold
assets
MMC UK Group Limited (1 Tower Place West, Tower
Place, London, EC3R 5BU).
Any promoter or director’s direct or indirect interest,
or where any promoter or director was a member of
a partnership, syndicate or other association of
persons that had such an interest, the names of any
such promoter of director and the nature of his/her
interest
None.
Sale of all of the issued shares of Euroguard Insurance Company PCC Limited by AF International and Alexander Forbes Group Jersey Limited to Momentum Global Investment Management Limited
Dates of any such disposal or proposed disposal 3 March 2014
Consideration received, detailing the portion(s)
settled by the receipt of securities, cash or other
means and how any outstanding consideration is to
be settled
The payment by Momentum Global Investment
Management Limited of R40 ,000 ,000, comprising
R38 ,000 ,000 for 1 ,500 ,000 Class A Voting Ordinary
Shares payable to Alexander Forbes Group Jersey
Limited and R2 ,000 ,000 for 10 ,000 Class B Non-
Voting Ordinary Shares payable to AF International
(all amounts being the pound sterling equivalent
amount, as determined in accordance with the
agreement) on 3 March 2014.
Names and addresses of the purchaser(s) of the sold
assets
Momentum Global Investment Management Limited,
286 West Street, Centurion.
Any promoter or director’s direct or indirect interest,
or where any promoter or director was a member of
a partnership, syndicate or other association of
persons that had such an interest, the names of any
such promoter of director and the nature of his/her
interest
None.
The sale of all of the issued shares in LCP Libera AG by LCP Europe Limited to Libera Holding AG
Dates of any such disposal or proposed disposal 6 November 2013
Consideration received, detailing the portion(s)
settled by the receipt of securities, cash or other
means and how any outstanding consideration is to
be settled
CHF18 ,709 ,000 in cash.
Names and addresses of the purchaser(s) of the sold
assets
Libera Holding AG (Zugerstrasse 8a, 6340 Baar,
Switzerland).
345
Any promoter or director’s direct or indirect interest,
or where any promoter or director was a member of
a partnership, syndicate or other association of
persons that had such an interest, the names of any
such promoter of director and the nature of his/her
interest
None.
The sale of all of the issued shares of Investment Solutions Group Limited by AF International to Thessaly Limited
Dates of any such disposal or proposed disposal 21 January 2014
Consideration received, detailing the portion(s)
settled by the receipt of securities, cash or other
means and how any outstanding consideration is to
be settled
£6 ,610 ,000 in cash.
Names and addresses of the purchaser(s) of the sold
assets
Thessaly Limited (1 Royal Exchange, London, EC3V
3LN, United Kingdom).
Any promoter or director’s direct or indirect interest,
or where any promoter or director was a member of
a partnership, syndicate or other association of
persons that had such an interest, the names of any
such promoter of director and the nature of his/her
interest
None.
The sale of all of the issued shares of each of Alexander Forbes Consultants & Actuaries Limited and Alexander Forbes Services Limited by AF International to JLT EB Holdings Limited
Dates of any such disposal or proposed disposal 7 December 2012
Consideration received, detailing the portion(s)
settled by the receipt of securities, cash or other
means and how any outstanding consideration is to
be settled
• The consideration receivable in the event of no
adjustment to the purchase price is £17 ,000 ,000.
• £15 ,500 ,000 was received on 7 December 2012
and £1 ,500 ,000 was paid into a retention account
to cater for an adjustment to the purchase price
and any relevant ongoing claims made by JLT EB
Holdings Limited in respect of any payment
obligation of AF International after 7 December
2012.
• In addition, £1 ,512 ,299 was received as a working
capital adjustment to the purchase price on
7 May 2013.
• £1 ,250 ,000 of the retention amount was received
between 7 March 2013 and 7 April 2014. The
remaining £250 ,000, less the amount of any
relevant claim, is to be received on the third
retention release date (31 March 2015).
Names and addresses of the purchaser(s) of the sold
assets
JLT EB Holdings Limited (6 Crutched Friars,
London, EC3N 2PH).
Any promoter or director’s direct or indirect interest,
or where any promoter or director was a member of
a partnership, syndicate or other association of
persons that had such an interest, the names of any
such promoter of director and the nature of his/her
interest
None.
Material Acquisitions
None.
346
Annexure 15
CORPORATE GOVERNANCE
Introduction
The Company subscribes to corporate governance laws and applies the principles of good governance as
contained in the King Code. To ensure that the Group’s operations are executed in accordance with these
requirements, the management system includes a code of ethics, as well as policies and protocols to govern
processes and operations. In fi nancial years 2012 and 2013, the Company focused on embedding the Group’s
governance principles and practices further down the organisation into the constituent businesses. To this
end, a fi t and proper policy was adopted to regulate and formalise the appointment of all directors in the
Group and the committees’ terms of reference were aligned to the King Code. In addition, risk committees
within the insurance-regulated subsidiaries of the Company were elevated to committees of the respective
boards to ensure the boards have greater oversight on governance, risk and compliance issues.
Governance Structures
Board Charter
The purpose of the board charter is to regulate how the board of the Company conducts business in accordance
with the principles of good corporate governance. It sets out the specifi c responsibilities board members have
to fulfi l collectively and the individual roles expected from them. The board charter complies with the
requirements of Section 7.F.6 of the Listings Requirements, save as specifi cally identifi ed and explained by
the Company, and contains a policy evidencing a clear balance of power and authority at board of directors
level, to ensure that no one director has unfettered powers of decision-making.
In terms of the board charter, a clear division of responsibilities at the head of the Company is required to
ensure a balance of power and authority, such that no one individual has unfettered powers of decision-
making. The board should provide leadership and vision to the Company in a way that will enhance shareowner
value and ensure that Company’s long-term organisational health. In particular:
• the board should allow every board member to play a full and constructive role in its affairs;
• a board member should be prepared, and able, where necessary, to express disagreement with colleagues
on the board including the chairman and the chief executive officer; and
• if a board member is in doubt as to whether a proposed course of action is consistent with his or her
fiduciary duties and responsibilities, then that course of action should rather not be supported.
The full charter is available on the Company’s website at
http://www.alexanderforbes.co.za/about-us/Investor%20Relations/2013/EquityCo%20Board%20Charter.PDF.
Governance Framework
The Group functions in accordance with a pre-defi ned system of governance arrangements informed by the
King Code and leading corporate governance practices. The framework is applicable to all of the Group’s
subsidiaries in addition to those policies and procedures that are specifi c to certain subsidiaries.
Board Committees
The board committee structure is designed to assist the board of the Company to perform its duties and
responsibilities. Although the board of the Company delegates certain functions to these committees, it retains
ultimate responsibility for their activities. The board of the Company has fi ve standing board committees:
• an Audit Committee;
• a Nominations Committee;
• a Remuneration Committee;
• a Social, Ethics and Transformation Committee; and
• a Retail sub-committee.
Each board committee has formal written terms of reference that are reviewed every year and, at a minimum,
effectively delegate is certain of the board’s responsibilities. The full terms of reference for each committee are
available on the Company’s website (www.alexanderforbes.co.za). The committees are empowered to get
outside or other professional advice, as the members consider necessary, to carry out their duties.
347
The board continually assesses the need for additional committees to assist it in carrying out its duties and
meeting its statutory and legislative requirements.
To maintain the Group’s commitment to corporate governance, the Company continues to participate as a
founding partner in the Institute of Directors’ governance assessment instrument. This is an automated web-
based tool that measures on a real-time basis the Company’s compliance with the King Code. The Company and
its major subsidiaries use the tool and have, in doing so, performed a detailed analysis of their application of
the King Code principles. The Group continues to improve the application of the King Code to improve the
level of governance maturity into the future. In fi nancial years 2012 and 2013, the Company made the
following improvements to its practices in line with the King Code:
• implemented a fit and proper policy in respect of the appointment of all directors;
• agreed the immediate succession plan in respect of the chairman; and
• aligned committee terms of reference with the King Code.
In fi nancial years 2012 and 2013, the internal audit unit completed an internal audit review to determine the
extent of conformity with the requirements of the Companies Act, the King Report on Governance for South
Africa and the King Code.
Audit Committee
The Audit Committee comprises three independent directors, one of whom chairs the committee. Dr Deenadayalen
Konar, Mark Collier and Barend Petersen were appointed to the committee as chairman and members,
respectively, by the shareholders at the Company’s annual general meeting held on 12 September 2013.
The internal and external auditors, management of the operations for which the committee is responsible, the
Group fi nance director, the Group chief risk offi cer, the Group IT executive and other board members and
invitees, as considered appropriate by the committee’s chairman, attend these meetings. The Audit Committee
has reviewed the competence, qualifi cations, performance, appropriateness, expertise and experience of the
fi nancial director, Deon Viljoen, and has confi rmed his suitability in terms of the Listings Requirements.
Dr Deenadayalen Konar, the chairman of the Audit Committee, is not the chairman of the board. The committee
meets at least four times per year.
During each of fi nancial year 2012 and fi nancial year 2013, the Audit Committee held four meetings as
scheduled and a summary of some of the matters it deliberated is included below. The committee:
• ensured the application of the combined assurance model to provide a coordinated approach to all assurance
activities;
• reviewed the annual integrated reporting and a number of aspects in relation thereto;
• was responsible for overseeing internal audit including its objectives, resources and the coverage of its
plans, reviewed the coordination with the external audit function and other assurance providers, considered
the results of internal audit work performed and the adequacy of management corrective action taken in
response to significant internal audit findings;
• was responsible for overseeing the external audit process and work, nominating the external auditor’s
appointment, agreeing the scope of audit and related matters and considered the external auditor’s
independence;
• ensured the formal risk management and assessment processes were in place, reviewed the Company’s
significant accounting and financial risks and steps being taken to mitigate these;
• received and considered tax status reports; and
• considered governance and reviewed regular IT governance reports.
Additional audit committees have been constituted at subsidiary board level. These additional audit committees
are mandated to review the operations of the subsidiary group. The Group Audit Committee reviews their
reports.
The Audit Committee of the Company has an independent role and its responsibilities include oversight of the
following:
• risk management, control and governance, including ensuring that a combined assurance model is
applied to provide a coordinated approach to all assurance activities and oversight of the development and
implementation of a policy and a plan for a systematic, disciplined approach to evaluate and improve the
effectiveness of risk management processes within the Company;
• the quality and integrity of the Company’s reporting practices and controls and the integrated reporting
(including financial statements) of the Company;
348
• the external auditor’s qualifications, independence, and performance, recommending the appointment of
the external auditor, developing and recommending to the board the Company’s policy regarding rotation
of external audit partners, assisting with the resolution of any differences of opinion between the external
auditors and management;
• the performance of the internal audit function, including satisfying itself that the internal audit coverage
plans and approach are informed by and addresses the strategy and risks of the Company and reviewing
the cooperation and coordination between the internal and external audit functions, and other assurance
providers, as well as risk management and compliance functions;
• the Company’s process for monitoring compliance with laws and regulations and the code of ethics;
• integrated reporting with regard to all factors and risks that may impact on the integrity of the integrated
report;
• reviewing developments in corporate governance and best practice and considering their impact and
implication for the Group processes and structures;
• IT governance;
• reporting of sustainability which has been delegated by the board to it;
• monitoring the ethical conduct of the Company, its executives and senior officials; and
• receiving and reviewing any status reports from the General Manager Tax and considering any significant
issues as may be required.
Nominations Committee
The Nominations Committee of the Company is chaired by the lead independent director, Mark Collier, with
additional members comprising an independent director (Hilgard Meyer) and the non-executive chairman of
the Company (Sello Moloko).
During each of fi nancial year 2012 and fi nancial year 2013, the Nominations Committee held four meetings
as scheduled and:
• adopted a fit and proper policy for application in respect of prospective director appointments;
• approved the profile for certain senior positions under consideration;
• interviewed candidates for executive positions and director appointments;
• considered the appointment of directors, taking into consideration fit and proper reports and the
requirements of its terms of reference, and made recommendations to the relevant boards in respect of
such director appointments; and
• conducted self-assessments and considered feedback therefrom.
The Nominations Committee has an independent role and its responsibilities include the following:
• making recommendations to the board on the appointment of new executive, non-executive and independent
directors, including making recommendations on the composition of boards in the Group generally and
the balance between executive, non-executive and independent directors appointed to the boards;
• regularly reviewing the board structures, size and composition and making recommendations to the
boards with regard to any adjustments deemed necessary;
• identifying, evaluating and nominating suitable candidates for appointment to subsidiary boards and
recommending, for the approval of the relevant board, to fill board vacancies as and when they arise;
• putting in place plans for succession, in particular for the Group chairman and Group chief executive;
• recommending directors that are retiring by rotation, for re-election, if evaluation of such directors deems
this to be appropriate;
• having due regard to the principles of governance and codes of best practice and considering all potential
candidates are to be considered in accordance with the fit and proper policy for directors; and
• making recommendations to a board for the continuation (or not) in service of any director that has
reached the age of 70.
Remuneration Committee
The Remuneration Committee of the Company is chaired by an independent non-executive chairman, Mark
Collier, with additional members comprising an independent director (Hilgard Meyer) and a non-executive
director (Sello Moloko). The chairman of the board is a member of the Remuneration Committee but does not
chair the committee.
349
During each of fi nancial year 2012 and fi nancial year 2013, the Remuneration Committee held four meetings
as scheduled and:
• considered the valuation of the Company and of the Alexander Forbes Management Trust and Alexander
Forbes Management Co-Investment Trust and made a recommendation in this regard to the board;
• considered and agreed the overall payroll increase to be applied for the year;
• considered the independent director fee increase for recommendation to shareholders at the Company’s
annual general meeting;
• approved the bonus pools available for each main business unit, executive annual bonuses and annual
increases;
• performed the annual review of its terms of reference and approved same;
• received updates and discussed the existing incentive schemes in place and any potential special incentives;
• approved performance contracts applicable to the Group and executives;
• considered director fee proposal adjustments, within the range of fees approved by shareholders;
• performed its annual self-assessment and received and considered the report in this regard;
• considered and approved its annual work plan.
Social, Ethics and Transformation Committee
The Social, Ethics and Transformation Committee of the Company is chaired by a non-executive chairman,
Sello Moloko, with additional members comprising Yvonne Themba and two non-executive directors (Lori
Hall-Kimm and Ngetha Waithaka). The committee is chaired by the chairman of the board.
During each of the 2012 and 2013 fi nancial years, the Social, Ethics and Transformation Committee held four
meetings as scheduled and:
• received reports on the Group and business units’ performance on B-BBEE verification by an independent
rating agency;
• reviewed transformation progress reports;
• received updates on the ethics programme and workplan;
• received reports on sponsorship and donations throughout the Group;
• reviewed reports on Occupational Health and Safety issues;
• received Treating Customers Fairly updates;
• reviewed fraud and whistle-blower reports;
• considered the responsible investing initiative;
• considered business unit social, ethics and transformation reports;
• considered the results of a staff employment equity survey;
• considered the functions and scope of the Social and Ethics Committee and oversaw a gap analysis in this
regard;
• discussed social and ethics matters to be reviewed by the committee and how to deal with overlap in respect
of the Audit Committee;
• adopted a work plan and terms of reference for the committee;
• considered the impact of the revised B-BBEE codes of good practice and the developments in respect of the
Financial Sector Charter.
The Social, Ethics and Transformation Committee has an independent role and its responsibilities include the
following:
• social and economic development, including the Group’s standing relative to the UN Global Compact
Principles, the OECD (Organisation for Economic Cooperation and Development) recommendations
regarding the combating of corruption, and the Employment Equity Act and the B-BBEE Act;
• good corporate citizenship, including the Group’s positioning and efforts in promoting equality,
preventing unfair discrimination and combating corruption, the Group’s contribution to the development
of communities in which it operates or markets its goods, as well as the Group’s record of sponsorships,
donations and charitable giving;
350
• the environment, health and public safety, including the impacts of the Group’s activities and products on
the environment and society;
• consumer relationships, including the Group’s advertising, public relations and compliance with consumer
protection laws;
• labour and employment, including the Group’s standing relative to the International Labour Organisation
(ILO) protocol on decent work and working conditions, as well as the Group’s employment relationships
and contribution to the educational development of its employees; and
• generally, the monitoring of the social, ethics, economic, governance, employment and environmental
activities of the Group.
Retail Sub- Committee
The Retail sub-committee of the Company comprises an independent director as its chairman (Mark Collier),
the Group chief executive as the deputy chairman (Edward Kieswetter) the Business Unit Leaders (being the
managing directors or chief executives, as appropriate, of AFFS Holdings, Investment Solutions Holdings,
AFIC), the managing director of AF Life, the Group Retail executive, the Group IT executive and the head of
business strategy and development.
During each of fi nancial year 2012 and fi nancial year 2013, the Retail sub-committee held seven meetings
and:
• adopted terms of reference;
• took responsibility for overseeing the development of Group retail business unit strategic plans and tactics
contained in the 2014 plan;
• conducted a Group-wide retail strategy review within the AFFS Holdings, Investment Solutions Holdings
and AFIC businesses;
• considered new market strategies and business proposals in support of the Group’s retail growth strategy;
• reviewed ways in which to maximise new business opportunities;
• received a briefing on technology enablement, resourcing and how Group information technology services
the existing businesses’ potential future enablement;
• conducted research updates;
• reviewed new retail opportunities and plans.
It worked with the retail businesses’ management teams to take the necessary steps to create an industry-
leading retail business. To date, these efforts have delivered a range of tactical and strategic new business
initiatives designed to create momentum in the retail arena.
The ultimate goal of the retail sub-committee is to ascertain what is required in order to propel Alexander
Forbes into the frontline of retail fi nancial services in South Africa and, by working closely with the managing
directors of the individual business units, move quickly to secure sustainable and profi table leadership
positions in a number of market sectors. The retail sub-committee has an independent role and its responsibilities
include the following:
• the co-ordination of the Group-wide retail growth strategy;
• collective leadership, vision and to build an understanding and consensus on all retail matters within the
Group’s South African businesses;
• oversight of the approach to analysis and interpretation of markets, customer needs, trends, competitive
activities and the development of coherent strategic plans, enhanced shareholder value through the
effective delivery of successful business growth initiatives that lead to stronger and more dynamic high
growth retail enterprises across the Group;
• improvement of cross-selling across the Group;
• increasing distribution networks and channels; and
• expanding product ranges.
351
Compliance with the King Code by the Company
The King Code principles were applied as follows during the year under review:
Principle Description Applied/Explained
Compliance Status
CHAPTER 1: ETHICAL LEADERSHIP AND CORPORATE CITIZENSHIP
1.1 The board should provide
effective leadership on an
ethical foundation.
Explained The board leads the organisation in accordance with
principles based on transparency, accountability,
integrity and ethical leadership. The principles are
incorporated in the approved board charters, code of
ethics, directors’ code of conduct, committee terms
of reference and established policies and practices
demonstrate a sound framework for effective
leadership premised on an ethical foundation.
The Company subscribes to being a responsible
corporate citizen. This is articulated in detail in the
integrated annual report under the sustainability
section (“Integrated Annual Report”).
Many of the principles of the Group’s ethical
foundation are integrated into the performance
management system that is reviewed annually.
The Company will be reviewing the ethics policy in
2014. An assessment on how the board has carried
out its mandate will be conducted towards the later
part of 2014.
1.2 The board should ensure that
the company is and is seen to
be a responsible corporate
citizen.
Applied The Social, Ethics and Transformation Committee
under delegated authority of the board is responsible
for ensuring that the Group protects, enhances and
invests in the wellbeing of the economy, society and
natural environment, and the Group is involved in a
number of corporate social investment initiatives via
the a separately established Community Trust. The
Integrated Annual Report for 2012/2013 outlines
the Group’s performance in this regard.
1.3 The board should ensure that
the Company’s ethics are
managed effectively.
Applied The Social, Ethics and Transformation Committee is
mandated to exercise oversight over ethics
management within the Group and to ensure that
the board has full oversight of ethics related matters,
regular reports on the Group’s ethics policy are
tabled to the committee on a quarterly basis. In
February 2014 the Social, Ethics and Transformation
Committee approved an ethics programme for the
Group. The programme is designed to further
entrench and integrate the requirements of good
corporate governance throughout the Group.
CHAPTER 2: BOARD AND DIRECTORS
2.1 The board should act as a focal
point for and custodian of
corporate governance.
Applied The board charter specifi cally emphasises this
responsibility. Through its meetings and interaction
with management, the board ensures that applicable
principles are implemented and a high level of
compliance maintained.
2.2 The board should appreciate
that strategy, risk, performance
and sustainability are
inseparable.
Applied In assessing performance and strategy, the board
takes cognisance of sustainable development and
risk management. This performance is assessed by
the Audit and Risk Committee and feedback is
minuted at the main board.
2.3 The board should provide
effective leadership based on
an ethical foundation.
Applied The Social, Ethics and Transformation Committee is
responsible for giving direction and providing
oversight over ethical leadership within the Group.
352
2.4 The board should ensure that
the Company is and is seen to
be a responsible corporate
citizen.
Applied The board is responsible for ensuring that the Group
protects, enhances and invests in the well-being of
the economy, society and natural environment. The
Alexander Forbes Community Trust has been
established as the facilitating agent and reports on
its progress to the Group Social, Ethics and
Transformation Committee on a quarterly basis.
2.5 The board should ensure that
the Company’s ethics are
managed effectively.
Applied The management of ethics forms an important
aspect of the board’s responsibility and focus.
Quarterly reports are made to the Social, Ethics and
Transformation Committee.
2.6 The board should ensure that
the Company has an effective
and Independent audit
committee.
Applied The Group’s Audit Committee consists of three
independent non-executive directors, with the
collective skills and experience required to perform
their duties and appropriate to the Company. The
chairman of the board is not a member of the Audit
Committee. An annual performance review is
performed to ensure that the independence and
effectiveness of the committee is assessed and
actions taken to improve on identifi ed defi ciencies.
2.7 The board should be responsible
for the governance of risk.
Applied The Audit Committee together with Group capital
committee assists the board to execute its
responsibility in this regard and oversees and
monitors risks within the Group.
2.8 The board should be responsible
for technology governance.
Applied The Group CIO reports to the Audit Committee on a
quarterly basis. An IT governance framework which
defi nes the structures, processes and responsibilities
for IT governance has been adopted.
2.9 The board should ensure that
the Company complies with
applicable laws and considers
adherence to non-binding rules,
codes and standards.
Applied The board is responsible for ensuring that the Group
complies with applicable laws, considers adhering to
non-bindings rules, codes and standards and
recognises the fact that the Group’s operations are
located in various jurisdictions which are at different
levels of maturity and in which the rule of law exists
in varying degrees. The various board sub-
committees, i.e., the Audit and the Social, Ethics and
Transformation Committees assist the board in
monitoring such compliance. The Company
secretary monitors governance compliance.
2.10 The board should ensure that
there is an effective risk-based
internal audit.
Applied The board, through the Audit Committee, has
established a Group-wide risk-based internal audit
function whose purpose, authority and
responsibilities are defi ned in a board-approved
internal audit charter and which is consistent with
the principles of King III.
2.11 The board should appreciate
that stakeholders’ perceptions
affect the Company’s
reputation.
Applied The Company engages its stakeholders on multiple
levels and this allows the Company to manage issues
effectively and timeously and also mitigate/reduces
the likelihood of reputational risks.
2.12 The board should ensure the
integrity of the Company’s
integrated report.
Applied The chairman of the Group’s the Social, Ethics and
Transformation Committee and the Group chief
executive review the Integrated Annual Report
before submission to the board for approval.
2.13 The board should report on the
effectiveness of the Company’s
system of internal controls.
Applied A written assessment of the effectiveness of the
Company’s system of internal controls and risk
management is made in the Integrated Report
annually in the form of positive or negative
assurance.
353
2.14 The board and its directors
should act in the best interests
of the company.
Applied Directors are appointed in terms of the Company’s
memorandum of incorporation and the Act, and act
according to their fundamental duties. Confl icts of
interests are disclosed and appropriately managed.
A policy on directors’ dealings is in place and is
communicated to directors offi cers and select
employees before closed and sensitive periods.
2.15 The board should consider
business rescue proceedings or
other turnaround mechanisms
as soon as the Company is
fi nancially distressed as defi ned
in the Act.
Applied The Audit Committee reviews fi nancial information
in detail and recommends any special action to the
board if required. In this regard the Group’s cash
position and going concern status are reviewed on a
regular basis. Appropriate measures will be taken if
the Group suffers fi nancial distress at any stage.
2.16 The board should elect a
chairman of the board who is
an independent, non-executive
director. The CEO of the
Company should not also fulfi l
the role of chairman of the
board.
Applied Mr MS Moloko was the executive chairman of the
board and Mr EC Kieswetter the Group chief
executive offi cer. The roles of the chairman and
Group chief executive offi cer are thus separate and
clearly defi ned.
With effect from 1 July 2014, the chairman role was
changed to that of a non-executive chairman, still
held by Mr MS Moloko and M Collier has been
identifi ed from the current body of independent
directors to be appointed as the lead independent
director from the same date.
2.17 The board should appoint the
chief executive offi cer and
establish a framework for the
delegation of authority.
Applied Mr EC Kieswetter has been appointed as the Group
chief executive offi cer. The board has delegated to
the Group chief executive offi cer and other executive
directors the authority in the form of a “delegations
of authority” framework to run the day-to-day
business of the Group subject to an annual review
and approval.
2.18 The board should comprise a
balance of power, with a
majority of non-executive
directors. The majority non-
executive directors should be
independent.
Explained Due to the current private equity holding structure
and the shareholders’ agreement in place, it is not
feasible for the board to comprise more independent
non-executive directors than non-executive
directors. However, the board’s terms of reference
states: “There should be a clear division of
responsibilities at the head of the company to ensure
a balance of power and authority, such that no one
individual has unfettered powers of decision-
making” and includes a clause that addresses the
matter of balance of powers that provides, inter alia,
that every board member is to play a full and
constructive role in the board’s affairs, stating that
a board member should be prepared, and able, where
necessary to express disagreement with colleagues
on the board including the chairman and the chief
executive offi cer. This composition will be amended
in line with the Listings Requirements in the event
of a listing.
2.19 Directors should be appointed
through a formal process.
Sections 3.84(a) and (e) of the
JSE Listings Requirements.
Explained The Group has a Nominations Committee where the
identifi cation and evaluation of potential candidates
for appointment to the board forms part of its
mandate. The authority to appoint directors however
remains a function of the board and shareholders,
where necessary. The selection process considers the
existing balance of skills and experience required as
well as a continual process of assessing the needs of
the Group.
The Nominations Committee comprises two
independent directors and is chaired by the non-
executive chairman of the board.
354
2.20 The induction of an ongoing
training and development of
directors should be conducted
through formal processes.
Applied Both formal and informal induction are conducted
in accordance with an established programme and
based on the needs of each new director. Regular
updates are provided on governance and regulations
by the Company secretary. All directors have access
to key management members for information on the
Group’s operations.
2.21 The board should be assisted by
a competent, suitably qualifi ed
and experienced company
secretary.
Sections 3.84 (i) and (j) of the
Listings Requirements
Applied The board selects and appoints the Company
secretary and recognises the important role to be
played by this person in entrenching good corporate
governance. Ms Janice Salvado is the Group
Company secretary and was appointed with effect
from 1 July 2003.
2.22 The evaluation of the board, its
committees and the individual
directors should be performed
every year.
Explained A self-evaluation of the performance of the board
and its committees as a whole is performed annually.
The results of such evaluations are considered and
action plans implemented where required.
Independent directors were assessed as was the
board as a whole. (a decision was taken not to assess
non-executives as they represent private equity
shareholders). The board’s Nominations Committee,
Remuneration Committee and Audit Committees
were assessed.
2.23 The board should delegate
certain functions to well-
structured committees but
without abdicating its own
responsibilities.
Section 3.84(d) of the Listings
Requirements
Applied The board committees assist the board in executing
its duties, powers and authorities. The required
authority is delegated by the board to each committee
to enable it to fulfi l its respective functions through
formally approved terms of reference.
Delegating authority to board committees or
management, other than the specifi c matters for
which the Audit Committee carries ultimate
accountability in terms of the Companies Act, does
not mitigate or discharge the board and its directors
of their duties and responsibilities and the board
fully acknowledges this fact.
The board has established the following committees:
• Audit;
• Capital and Risk;
• Social Ethics and Transformation;
• Remuneration;
• Nominations; and
• Retail.
Formal terms of reference have been adopted by
each committee and are reviewed on an annual basis.
Committee chairpersons report back to the board at
each board meeting.
2.24 A governance framework
should be agreed between the
Group and its subsidiary
boards.
Explained Each subsidiary operates with a separate board of
directors but the main board and its committees
oversee all signifi cant aspects and transactions of
subsidiaries which are also governed in terms of
limits of authority.
2.25 Companies should remunerate
directors and executives fairly
and responsibly.
Applied The board believes that the Group’s remuneration
policy and strategy are designed to ensure that
executives are appropriately remunerated, with an
acceptable balance between guaranteed and
performance-based elements, as well between short-
and long-term incentives. Full details are disclosed
in the 2013 Integrated Report.
355
2.26 Companies should disclose the
remuneration of each
individual director and certain
senior executives.
Applied See 2.25 above.
2.27 Shareholders should approve
the Company’s remuneration
policy.
Applied Shareholders are asked to endorse the company’s
remuneration policy at the Company’s annual
general meeting (“AGM”), and last did so by ordinary
resolution at the company’s AGM held on
12 September 2013.
CHAPTER 3: AUDIT COMMITTEE
3.1 The board should ensure that
the Company has an effective
and independent non-executive
audit committee.
Section 3.84(d) of the JSE
Listings Requirements
Applied The Group Audit Committee compromises three
independent non-executive directors duly appointed
by shareholders at its annual general meeting.
The members are Dr D Konar, Mr M Collier and
Mr B Petersen.
3.2 Audit Committee members
should be suitably skilled,
experienced and independent,
non-executive directors.
Applied The Company’s Audit Committee comprises
fi nancially literate, professionally qualifi ed and
commercially astute members and is constituted
only by independent non-executive directors. The
chairman is a Chartered Accountant.
3.3 The Audit Committee should be
chaired by an independent,
non-executive director.
Applied Dr D Konar is the independent chairman of the
Audit Committee.
3.4 The Audit Committee should
oversee integrated reporting.
Explained The Integrated Annual Report is presented to the
chairman of the main board and the Group chief
executive for approval prior to it being tabled at the
main board. The Audit Committee oversees the
fi nancial statements and its report prior to the main
board’s approval of the Integrated Annual Report.
3.5 The Audit Committee should
ensure that a combined
assurance model is applied to
provide a coordinated approach
to all assurance activities.
Applied An assurance framework is adopted in a piecemeal
basis with full implementation anticipated to be
completed in 2014/2015.
3.6 The Audit Committee should
satisfy itself of the expertise,
resources and experience of the
company’s fi nance function.
Applied The expertise and experience of the fi nancial
director, Mr DM Viljoen, as well as the level of
fi nancial experience and qualifi cations of the Group
fi nancial department is evaluated informally on an
annual basis by the Audit Committee.
3.7 The Audit Committee should
oversee the internal audit
function.
Applied The expertise, resources and experience of the
Group’s internal audit function and the internal
audit plan is assessed on a regular basis. The Audit
Committee approves the annual internal audit plan
and monitors performance against the plan. Reports
are submitted by the chief audit executive on a
quarterly basis.
3.8 The Audit Committee should be
an integral component of the
risk management process.
Applied The Audit Committee oversees the enterprise risk
management process and is therefore an integral
part of the strategy and framework developments in
relation to risk management.
356
3.9 The Audit Committee is
responsible for recommending
the appointment of the external
auditor and overseeing the
external audit process.
Applied Annually, the Audit Committee reviews the
independence of the external auditors, including
the professional suitability of the lead auditor, and
recommends the appointment to the board and
shareholders for the forthcoming fi nancial year. The
current external auditor is PricewaterhouseCoopers
Incorporated with Mr. J Gross kopf as the lead auditor
as approved by shareholders at the 2013 Annual
General Meeting.
3.10 The Audit Committee should
report to the board and
shareholders on how it has
discharged its duties.
Applied The chairman of the Audit Committee reports to the
board verbally at each meeting and such feedback is
recorded in the minutes.
CHAPTER 4: THE GOVERNANCE OF RISK
4.1 The board should be responsible
for the governance of risk.
Applied The governance of risk within the Group is the
board’s responsibility. The Audit Committee reviews
the Group’s risk assessment and satisfi es itself of
the adequacy of responses and mitigations.
4.2 The board should determine the
levels of risk tolerance.
Applied The risk tolerance of the Group is in the process of
considering re-considered in light of the solvency
assessment and management currently being
implemented by the regulator. All previous
tolerances were defi ned in the authorities matrix of
the Group.
4.3 The Risk or Audit Committee
should assist the board in
carrying out its risk
responsibilities.
Applied The Audit Committee reviews all aspects of the risk
function for which the board is responsible.
A governance, risk and compliance forum consisting
of key management assists the audit committee in
this regard. The forum meets a minimum of three
times a year and the chairperson of the forum
reports to the Audit Committee subsequent to each
meeting. In addition the board has approved the
establishment of a Risk Committee in each of its
subsidiaries which is chaired by the Group chief
risk offi cer who is also responsible for preparing a
consolidated report on signifi cant issue to the Group
board.
4.4 The board should delegate to
management the responsibility
to design, implement and
monitor the risk management
plan.
Applied Management is accountable to the board through a
formal risk and the Audit Committee for embedding
the risk management process in the Group. The
Group’s risks are reviewed and assessed quarterly,
at a minimum by management. Risks are updated
and progress on mitigation plans are reported to the
risk and audit committees.
4.5 The board should ensure that
risk assessments are performed
on a continual basis.
Applied The risk assessment process is continuous but at a
minimum performed every quarter and assesses
current risks and potential emerging risks within a
formalised framework adopted by the board.
4.6 The board should ensure that
frameworks and methodologies
are implemented to increase the
probability of anticipating
unpredictable risks.
Applied The enterprise risk management framework
establishes formal governance, procedures and
processes for all risks. Workshop methodology has
been used as a basis upon which risk assessments
are conducted and ensures that unpredictable risks
are identifi ed.
4.7 The board should ensure that
management considers and
implements appropriate risk
responses.
Applied Risks are monitored by management and the Group
risk forum on a continuous basis. Progress of the
Group in managing its risks is reported to the Audit
Committee.
357
4.8 The board should ensure
continual risk monitoring by
management.
Applied See 4.7.
4.9 The board should receive
assurance regarding the
effectiveness of the risk
management process.
Applied The Audit Committee is provided with the assurance
of the effectiveness of the Group’s risk management
process through the Group internal audit function
under oversight by the Group’s chief audit executive
as well as the Group’s external auditors.
4.10 The board should ensure that
there are processes in place
enabling complete, timely,
relevant, accurate and
accessible risk disclosure to
stakeholders.
Applied The Audit Committee is provided with the assurance
of the effectiveness of the Group’s risk management
process through the Group internal audit function
under oversight by the Group’s chief audit executive
as well as the Group’s external auditors.
CHAPTER 5: THE GOVERNANCE OF INFORMATION TECHNOLOGY
5.1 The board should be responsible
for information technology
governance.
Applied The board has assumed the responsibility for IT
governance but has delegated the establishment of
an appropriate IT policies, frameworks and strategy
to management.
Information technology is represented at risk
committee, audit committee and board level.
5.2 IT should be aligned with the
performance and sustainability
objectives of the Company.
Applied It is fully integrated into the Group strategic
planning process which ensures alignment in the
achievement of the Group’s business objectives.
5.3 The board should delegate to
management the responsibility
for the implementation of an IT
governance framework.
Applied The Group CIO is mandated by the board to guide IT
governance within the Group. IT steering committees
have been established to assist with the
implementation of IT governance.
5.4 The board should monitor and
evaluate signifi cant IT
investments and expenditure.
Applied The IT steering committee monitors and evaluates
signifi cant IT investments and expenditure. A report
in this regard is tabled on a quarterly basis to the
Audit Committee.
5.5 IT should form an integral part
of the Company’s risk
management.
Applied The IT risk management framework includes the
assessment and management of all signifi cant IT
risks. The Audit Committee monitors disaster
recovery and other IT practices. Reports in this
regard are also presented to the board.
5.6 The board should ensure that
information assets are
managed effectively.
Applied Reports in the regard are presented to the board.
5.7 The risk and audit committees
should assist the board in
carrying out its IT
responsibilities.
Applied IT reports on a quarterly basis to the Audit
Committee. The Group CIO also reports to the
divisional and main boards in this regard.
CHAPTER 6: COMPLIANCE WITH LAWS, RULES, CODES AND STANDARDS
6.1 The board should ensure that
the Company complies with
applicable laws and considers
adherence to non-binding rules,
codes and standards.
Applied Legislative and regulatory compliance is monitored
by the Group Company secretary and Group chief
risk offi cer and reports on a quarterly basis to the
Audit Committee.
358
6.2 The board and each individual
director should have a working
understanding of the effect of
the applicable laws, rules, codes
and standards on the Company
and its business.
Applied The board is continually informed of material
legislation, rules, codes, standards and changes
thereto. Information on laws, rules and codes are
shared with directors regularly through
documentation and training sessions.
6.3 Compliance risk should form
an integral part of the
Company’s risk management
process.
Applied The Group’s enterprise risk management framework
covers compliance risk management a signifi cant
risk category and compliance is performed within
the confi nes of an approved Compliance Framework.
6.4 The board should delegate to
management the
implementation of an effective
compliance framework and
processes.
Applied The Group’s businesses all function under an
approved compliance framework approved by the
Group Audit Committee. The framework clearly
articulates the governance structures and
procedures for performing compliance audits/
reviews.
See response in 6.1.
CHAPTER 7: INTERNAL AUDIT
7.1 The board should ensure that
there is an effective risk-based
internal audit function.
Applied An effective risk-based internal audit function
exists. The purpose, authority and responsibilities
of the internal audit function are defi ned in the
board-approved internal audit charter.
7.2 Internal audit should follow a
risk-based approach in its plan.
Applied A risk-based approach to internal audit planning is
adopted in assessing the Group’s control environment
and is aligned to the risk assessment process.
7.3 Internal audit should provide a
written assessment of the
effectiveness of the Company’s
system of internal control and
risk management.
Applied A written assessment regarding the effectiveness of
the Group’s internal controls and risk management
is tabled on an annual basis to the Audit Committee.
7.4 The Audit Committee should
be responsible for overseeing
internal audit.
Applied The Group’s chief audit executive reports
functionally to the Audit Committee and
administratively to the Group’s chief risk offi cer
ensuring the high level of independence associated
with the function. The chief audit executive presents
an independent report on a quarterly basis to the
Audit Committee. The Audit Committee approves
the annual internal audit work plan and monitors
the performance of internal audit.
7.5 Internal audit should be
strategically positioned to
achieve its objectives.
Applied The chief audit executive has unrestricted access to
members of the chairman, board, Audit Committee
and executives of the Group. This function is
adequately skilled and resourced to discharge its
responsibilities.
CHAPTER 8: GOVERNING STAKEHOLDER RELATIONSHIPS
8.1 The board should appreciate
that stakeholders’ perceptions
affect a company’s reputation.
Applied Engagement with stakeholders is aimed at the
establishment of open, interactive relationships.
8.2 The board should delegate to
management to pro-actively
deal with stakeholder
relationships.
Applied The board has delegated the management of the
Group’s various stakeholders to management.
Stakeholder engagement is managed at various
levels within the Group by utilising different
platforms. An external communication strategy has
also been adopted.
359
8.3 The board should strive to
achieve the appropriate balance
between its various stakeholder
groupings, in the best interests
of the Company.
Applied The Group has identifi ed its stakeholder groups and
executive management are assigned to manage
relationships with stakeholders. The board realises
that there is a broad range of stakeholders who have
a genuine stake in or are affected by the Group and
its various activities.
8.4 Companies should ensure the
equitable treatment of
shareholders.
Applied Consistent and timeous information is disseminated
to all shareholders including the development and
presentation of an Integrated Annual Report.
8.5 Transparent and effective
communication with stake-
holders is essential for building
and maintaining their trust
and confi dence.
Applied The Group, through the Group chief executive
offi cer, maintains a dialogue with all stakeholders.
Regular market notifi cations of key fi nancial
information and material changes in the Group’s
operations are published.
The Group’s promotion of access to information
manual is available on its website.
8.6 The board should ensure that
disputes are resolved as
effectively, effi ciently and
expeditiously as possible.
Applied The chairman of the board does not have a deciding
vote. All matters are decided by consensus,
but where necessary a vote will be called. It is
the chairman’s role to ensure that genuine
disagreements are aired and resolved.
CHAPTER 9: INTEGRATED REPORTING AND DISCLOSURE
9.1 The board should ensure the
integrity of the Company’s
integrated report.
Explained The Integrated Annual Report is presented to the
chairman of the main board and the Group chief
executive offi cer for approval prior to it being tabled
at the main board. Certain elements contained in the
report are independently assured by independent
assurance functions situated at a Group level.
9.2 Sustainability reporting and
disclosures should be
integrated with the Company’s
fi nancial reporting.
Applied An Integrated Annual Report is produced which,
together with complementary reports, addresses the
sustainability of the Group, including fi nancial and
non-fi nancial aspects such as risk, environment,
social and governance issues. Reporting is prepared
in line with recognised guidelines that include
International Financial Reporting Standards
(“IFRS”), International Integrated Reporting Council
(“IIRC”) and King III.
9.3 Sustainability reporting and
disclosure should be
independently assured.
Explained The fi nancial section of the Integrated Annual
Report is independently audited by PWC. In the non-
fi nancial section, our B-BBEE is independently
assured by a recognised verifi cation agency. Other
elements are not independently reviewed.
A detailed schedule of compliance with the King Code is available on the Company’s website:
(http://www.alexanderforbes.co.za).
360
Annexure 16
SUMMARY OF NEW LONG-TERM INCENTIVE SHARE PLAN
Introduction and Purpose
Following the successful listing of Alexander Forbes Group Holdings Limited (“Alexander Forbes” or the
“Company”) on the JSE, the existing Alexander Forbes Management Trust will no longer be used. As a result,
the Company will require a new long-term incentive plan. In line with global and local best practice, the
Company has adopted the Alexander Forbes Long-term Incentive Share Plan (the “Plan”) which will be
implemented subject to the listing of the Company. The Plan is primarily a performance-driven long-term
incentive plan whereby awards are subject to appropriately stretching performance conditions and settled in
Company shares (“Shares”). The Plan may also be used for broad-based employee ownership purposes, as well
as retention and sign-on requirements. The Plan will therefore provide for the alignment of the interests of
participants and shareholders. Non-executive directors of the Company are not eligible to participate in the
Plan.
The salient features of the proposed Plan are detailed below:
Participants
The Plan will target executives, senior managers and key roles of the Group (“Participants”) for performance-
related awards. Other employees may receive awards that are not linked to Company performance conditions
to address broad-based employee share ownership requirements. The Remuneration Committee of Alexander
Forbes (the “Remco”) may, in its discretion, invite any person holding permanent salaried employment or
offi ce with any Company in the Group to participate in the Plan.
Nature of Instruments
In order to provide fl exibility and to respond to regulatory and funding considerations at the time of making
an award (“Award”), the Plan will provide for the following categories of Awards to be made to Participants:
• Forfeitable Shares: Participants will become owners of Shares on the settlement date, shortly after the
Award is made, and will have all shareholder rights in relation to the Shares; but the Shares will be
forfeited if certain conditions are not met.
• Conditional Shares: Participants will receive conditional rights to receive Shares. The Award will only be
settled after the vesting date and the Participant will not have any shareholder or voting rights prior to the
vesting date. The Company may elect to pay “dividend equivalents” in cash or in Shares on the vesting date.
In addition, Awards may comprise:
• Restricted Shares: Shares that are subject to the fulfilment of the condition that the Participants remain
employed with the Group (“Employment Condition”) for a set period of three to five years (“Employment
Period”).
• Performance Shares: Shares that are subject to the fulfilment of both an Employment Condition and
Company-related performance conditions (“Performance Condition”), which will be assessed over a set
period of three years, which will be aligned with the financial years of the Company (“Performance Period”).
Basis of Awards and Award Levels
Performance Shares
In line with the requirements of King III and best practice requirements, regular annual Awards of Performance
Shares will be made to Participants. Award levels for Performance Shares will be set by reference to the
Participants’ salary, grade, individual performance, retention requirements and market benchmarks. The
Award levels will be determined by the Remco each time that Awards are made, by taking into account the
particular circumstances at that time. Annual allocations will be benchmarked and set at a market-related
level of remuneration whilst considering the overall affordability thereof to the employer company. The
maximum face value of an Award will be 200% of the Participant’s total guaranteed pay with the further
restriction that the maximum number of Shares that may be Awarded to a Participant under the Plan in
respect of all Awards to that Participant (regardless of whether or not such Awards have Vested, but excluding
Awards which have been forfeited) shall not exceed 13 ,000 ,000 Shares which is approximately 1% of the
number of issued Shares at the date of adoption of the Plan. The exact quantum of the Award levels will be
fi nalised at the time of making the fi rst Award.
Each Award will be adjusted based on the Participant’s individual performance.
361
Restricted Shares
Awards of Restricted Shares may be made to employees to address broad-based employee share ownership
requirements.
In addition, Awards of Restricted Shares may be made on an ad hoc basis to address serious retention risks as
identifi ed by the Remco. These will only be made in exceptional circumstances based on the sustainable
individual performance of specifi c employees. From time to time, the Company may use a “sign-on payment”
to attract new employees. In order to align the interests of new employees with those of shareholders and to
address retention risks, the Plan may also be used to make an Award of Restricted Shares to address sign-on
requirements as identifi ed by the Remco. The Plan may also be used to defer a portion of the annual cash
incentive into an Award of Restricted Shares, if such bonus deferral is adopted as a remuneration policy.
Employment Condition
All Awards will be subject to the Employment Condition, i.e., the condition of continued employment measured
over the Employment Period. In line with market practice, the Employment Period in respect of annual Awards
of Performance Shares will be three years from the award date.
Restricted Shares will have a longer Employment Period of three to fi ve years.
If the Plan is used for bonus deferrals, an appropriate Employment Period will be set by the Remco taking into
consideration the level of the employee.
Performance Condition
The Performance Condition will be determined by the Remco for each annual Award of Performance Shares at
the relevant time in consultation with shareholders (where considered necessary). The Performance Condition
will be required to be fulfi lled over the Performance Period, which will be aligned to three fi nancial years.
In line with King III, vesting will occur on a sliding scale and to this end the Company intends to set a
“threshold” and “stretch” target for the Performance Condition. These targets will represent the levels of
achievement required for certain portions of the Performance Shares to become free of restrictions and vest
(“Vest”) and will be set in the context of the prevailing business environment. Threshold performance will act
as a “gatekeeper” and will represent the minimum performance that is required before Performance Shares
will Vest. Stretch performance relates to exceptional performance in the context of the prevailing business
environment. 30% of the Performance Shares will Vest at threshold performance and 100% will Vest at stretch
performance. Linear Vesting will occur between these points.
A Headline Earnings per Share (“HEPS”) condition is proposed for the fi rst Award of Performance Shares.
Over time as the Company is established as a listed company and as the impact of the Solvency and Assessment
Management (“SAM”) guideline is clarifi ed, two other performance conditions, will be considered: namely
Total Shareholder Return and Return on Capital Employed. The intended HEPS targets, for the fi rst Award of
Performance Shares will be as follows:
Condition Weighting Threshold Stretch
HEPS as defi ned in the annual
fi nancial statements of the
Company but will exclude any
accounting impact due to the
implementation of the Plan.
100% for
fi rst Award
The cumulative HEPS over the
Performance Period equal to
the sum of the base year HEPS
grown by the Consumer Price
Index (“CPI”) + real Gross
Domestic Product (“GDP”) per
annum over the Performance
Period.
The cumulative HEPS over
the Performance Period equal
to the sum of the base year
HEPS grown by CPI + real
GDP + 10% per annum over
the Performance Period.
In line with good corporate governance principles, the Performance Condition will not be retested if it is not
met at the end of the Performance Period. To the extent that the Performance Condition is not satisfi ed at the
end of the Performance Period, the Award of Performance Shares will be forfeited.
Settlement of Shares
The Company intends to settle the Plan by way of a market purchase of Shares. This will cause no dilution to
shareholders. The rules of the Plan will, however, be fl exible in order to allow for settlement of shares through:
• the purchase of Shares on the open market; or
• the use of treasury Shares; or
• the issue of new Shares (“New Shares”).
362
Dilution Limits and Adjustments
The maximum aggregate number of Shares which may at any one time be allocated under the Plan shall not
exceed 64, 000 ,000 Shares (“Overall Limit”) which equates to approximately 5% of the Company’s issued Share
capital.
New Shares that are issued and Shares held in treasury that are used to settle Awards will be included in the
Overall Limit. Shares purchased in the open market, which are used to settle Awards and Shares which are
Awarded and are subsequently forfeited, will be excluded from the Overall Limit.
If necessary, the Remco will adjust the Overall Limit (without the prior approval of shareholders in general
meeting), to take account of a sub-division or a consolidation of the Shares to ensure the same proportion of
equity capital before and after the event.
The maximum number of Shares, which may be allocated to a single Participant in respect of all Awards to
that Participant (regardless of whether or not such Awards have Vested, but excluding Awards which have
been forfeited) may not exceed 13 ,000 ,000 Shares (“Individual Limit”), which equates to approximately 1% of
the Company’s issued Share capital.
If necessary, the Remco will adjust the Individual Limit to take account of a capitalisation issue, a special
dividend, a rights issue or a reduction of Shares.
The auditors, or another independent advisor acceptable to the JSE, shall confi rm to the JSE in writing that
any adjustment to the Overall Limit or the Individual Limit has been properly calculated on a reasonable and
equitable basis, in accordance with the rules of the Plan. Any adjustment must be reported on in the Company’s
fi nancial statements in the year during which the adjustment is made. The issue of Shares as consideration
for an acquisition, and the issue of Shares for a vendor consideration placing will not be regarded as
circumstances that require any adjustment to the Overall Limit or the Individual Limit.
Consideration
The Participant will give no consideration for the making or settlement of an Award.
Cessation of Employment
Participants who cease to be employed by an employer company as a result of:
• resignation or dismissal on grounds of misconduct, proven poor performance, proven dishonest or
fraudulent conduct, or abscondment will be classified as “fault leavers” and will forfeit all unvested Shares;
• retirement, retrenchment, ill-health, disability, injury, the employer company ceasing to be part of the
Group or any other reason as determined by the Remco, will be classified as “no fault leavers” and the
Participant will continue to participate in the Plan. The portion of the Award, which shall Vest on the
normal vesting date will reflect the number of complete months served between the award date and the
date on which the Participant ceased to be employed by the employer company (the “date of cessation
of employment”), divided by the total number of months in the Employment Period, and in the case of
Performance Shares, the extent to which the Performance Conditions have been met at the end of the
Performance Period;
• death will also be treated as a “no fault leavers” and a portion of the Award will Vest on the date of cessation
of employment. The portion of the Award which shall Vest will reflect the number of complete months served
between the award date and the date of cessation of employment, divided by the total number of months
in the Employment Period, and in the case of Performance Shares, the extent to which the Performance
Conditions have been met on the date of cessation of employment with reference to immediately preceding
financial year.
Change of Control
In the event of a change of control of the Company occurring before the Vesting Date, a portion of the Award
will Vest. This portion will be calculated by reference to the number of complete months served since the
award date divided by the total number of months in the Employment Period, and in the case of Performance
Shares, the extent to which the Performance Conditions have been met.
The portion of the Award, which does not Vest as a result of the change of control, will continue to be subject
to the terms of the Award, unless the Remco determines otherwise, in which event the Remco will make such
adjustments to the awards or convert awards into awards in respect of shares in one or more other companies;
provided the Participants are no worse off as a result of such adjustment or conversion.
Awards will not Vest as a consequence of an internal reconstruction or similar event which does not result in
a change of control as defi ned in the rules. In this case the Remco shall make such adjustment to the number
of Awards or convert Awards into awards in respect of shares in one or more other companies; provided the
Participants are no worse off as a result of such adjustment.
363
Variation in Share Capital
In the event of a variation in share capital such as a capitalisation issue, sub-division of shares, consolidation
of shares, rights issue (only in the case of conditional shares), the Company entering into a scheme or
arrangement defi ned in Section 114 of the Companies Act or the Company making distributions other than an
ordinary dividend, Participants shall continue to participate in the Plan. However, the Remco will be entitled
to make such adjustment to the Award or take such other action as may be necessary to ensure Participants
are no worse off.
In the event of a rights issue (in relation to forfeitable shares) Participants will be allowed to follow their
rights as shareholders.
In the event of the liquidation of the Company, otherwise than for the purposes of a reorganisation, the
Awards will lapse.
Amendments
Subject to the provisions of the Listings Requirements, the Remco may amend the rules of the Plan from time
to time as it sees fi t, provided that such amendments do not negatively affect the rights of Participants under
existing Awards. Amendments to the following provisions will require shareholder approval:
• the category of persons who are eligible to participate in the Plan;
• the number of Shares, which may be utilised for purposes of the Plan;
• the Individual Limit entitlements under the Plan;
• the basis upon which Awards are made;
• the amount (if any) payable upon the settlement of an Award;
• the voting, dividend, transfer and other rights attached to the Awards, including those arising on a
liquidation of the Company;
• the adjustment of Awards in the event of a variation of capital or change of control of the Company or other
corporate actions; and
• the procedure to be adopted in respect of the Vesting of Awards in the event that a Participant ceases to be
employed by an employer company.
364
Annexure 17
SELLING SHAREHOLDERS
Name of Selling Shareholder
Number of Sale Shares
sold in the Offer(1)
Number of Overallotment
Shares(1)
Ontario Teachers’ Pension Plan Board 101,269,344 16,918,419
Actis AF Holdings Limited 48,410,110 8,087,566
Actis Investment Holdings No 86 Limited 22,181,379 3,705,701
Actis Executive Co-Investment Plan L.P. 292,152 48,808
Ethos Capital V (GP) (Jersey) Limited(2) 37,967,693 6,343,019
Ethos Capital V GP (SA) (Pty) Limited(3) 13,849,420 2,313,734
Ethos Fund V Co-Investment Trust 679,607 113,538
Caisse de dépôt et placement du Québec 52,190,944 8,719,206
HarbourVest International Private Equity Partners V – Direct Fund L.P 6,760,527 1,129,438
HarbourVest Partners 2004 Direct Fund L.P 6,760,527 1,129,438
Dream World Investments 518 Proprietary Limited 17,704,056 2,957,703
Golden Falls Trading 485 Proprietary Limited 15,927,216 2,660,858
K2013116223 Proprietary Limited 12,900,728 2,155,242
Alexander Forbes BEE Funding SPV Proprietary Limited 11,303,265 1,888,364
Born Free Investments 580 Proprietary Limited 8,633,328 1,442,315
AF MST Funding SPV Proprietary Limited 16,289,719 2,721,419
Alexander Forbes Management Trust 13,992,459 2,337,630
Alexander Forbes Management Co-Investment Trust 710,420 118,685
Total 387,822,895 64,791,081
(1) Assuming an Offer Price at the mid-point of the Offer Price Range.
(2) acting as general partner for and on behalf of the following holders of Shares:
Ethos US Dollar Fund V (non-Opic-Jersey) LP
Ethos US Dollar Fund V-B (non-Opic-Jersey) LP
Ethos SA Rand Fund V (non-Opic-Jersey) LP
Ethos US Dollar Fund V (Opic-Jersey) LP
Ethos US Dollar Fund V-B (Opic-Jersey) LP
Ethos SA Rand Fund V (Opic-Jersey) LP
(3) acting as general partner for and on behalf of the following holders of Shares:
Ethos Fund V (Non-Opic-Investments) Partnership SA
Ethos Fund V (OPIC-Investments) Partnership SA
365
APPENDIX A
FORM OF U.S. INVESTMENT LETTER
To: Alexander Forbes Group Holdings Limited
115 West Street
Sandton 2196
Johannesburg, South Africa
(the “Company”)
Deutsche Bank AG, London Branch
Winchester House
1 Great Winchester Street
London EC2N 2DB
United Kingdom
Morgan Stanley & Co. International plc
25 Cabot Square
Canary Wharf
London E14 4OA
United Kingdom
Rand Merchant Bank, a division of FirstRand Bank Limited
1 Merchant Place
Rivonia Road
Sandton 2196
Johannesburg, South Africa
(the “Joint Bookrunners”)
Ladies and Gentlemen:
This letter (a “U.S. Investment Letter”) relates to the: (a) offering (the “Offering”) of Shares (the “Shares”) of
Alexander Forbes Group Holdings Limited (the “Company”) acquired from the Joint Bookrunners (or their
affi liates) or (b) subsequent transfer of such Shares. In any case, this letter is to be delivered on behalf of the
person acquiring benefi cial ownership of the Shares by the investor named below or the accounts listed on the
attachment hereto (each, an “Investor”). Unless otherwise stated, or the content otherwise requires, capitalised
terms in this letter shall have the same meaning as is given to them in the pre-listing statement relating to
the offering of the Shares described therein published by the Company on 7 July 2014 (the “Pre-Listing
Statement”).
The Investor agrees, acknowledges, represents and warrants, on its own behalf or on behalf of each account
for which it is acting that:
1. the Investor has received a copy of the Pre-Listing Statement and understands and agrees that the Pre-
Listing Statement speaks only as of its date and that the information contained therein may not be correct
or complete as of any time subsequent to that date;
2. the Investor is a “Qualifi ed Institutional Buyer” (“Qualifi ed Institutional Buyer”) as defi ned in
Rule 144A (“Rule 144A”) under the U.S. Securities Act of 1933, as amended (the “Securities Act”), and a “Qualifi ed Purchaser” (“Qualifi ed Purchaser”) as defi ned in Section 2(a)(51) and related rules of the
U.S. Investment Company Act of 1940, as amended (the “Investment Company Act”);
3. the Investor is not a broker-dealer which owns and invests on a discretionary basis less than US$25
million in securities of unaffi liated issuers;
4. the Investor is not subscribing to, or purchasing, the Shares with a view to, or for offer or sale in
connection with, any distribution thereof (within the meaning of the Securities Act) that would be
in violation of the securities laws of the United States or any state thereof;
5. the party signing this U.S. Investment Letter was not formed for the purpose of investing in the Company
and is acquiring the Shares for its own account or for the account of one or more Investors (each of which
is a Qualifi ed Institutional Buyer and a Qualifi ed Purchaser) on whose behalf the party signing this
U.S. Investment Letter is authorised to make the acknowledgments, representations and warranties, and
enter into the agreements, contained in this U.S. Investment Letter;
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6. the Investor is not a participant-director employee plan, such as a plan described in subsection (a)(1)(i)(D), (E)
or (F) of Rule 144A;
7. no portion of the assets used by the Investor to purchase, and no portion of the assets used by the Investor
to hold, the Shares or any benefi cial interest therein constitutes or will constitute the assets of: (i) an
“employee benefi t plan” that is subject to Title I of the US Employee Retirement Income Security Act of
1974, as amended (“ERISA”); (ii) a plan, individual retirement account or other arrangement that is
subject to Section 4975 of the U.S. Internal Revenue Code of 1986, as amended (the “Tax Code”);
(iii) entities whose underlying assets are considered to include “plan assets” of any plan, account or
arrangement described in preceding clause (i) or (ii); or (iv) any governmental plan, church plan, non-U.S.
Plan or other investor whose purchase or holding of Shares would be subject to any state, local, non-U.S.
or other laws or regulations similar to Title I of ERISA or Section 4975 of the Tax Code or that would have
the effect of the regulations issued by the U.S. Department of Labor set forth at 29 CFR Section
2510.3-101, as modifi ed by Section 3(42) of ERISA (each entity described in preceding clause (i), (ii), (iii)
or (iv), a “Plan Investor”);
8. (i) no transfers of the Shares or any interest therein to a person using assets of a Plan Investor to
purchase or hold such Shares or any interest therein will be permitted, and (ii) if the ownership of Shares
by an investor will or may result in the Company’s assets being deemed to constitute “plan assets” under
the Plan Asset Regulations, the Directors may serve a notice upon the holder of such Shares requiring
the holder to transfer the Shares to an eligible transferee within 30 days, and if within 30 days, the
transfer notice has not been complied with, the Company may seek, subject to applicable laws and
regulations, t o sell the relevant Shares on behalf of the holder by instructing a member of the JSE to sell
them to an eligible transferee;
9. the Shares are being offered in a transaction not involving any public offering within the United States
within the meaning of the Securities Act and that the Shares have not been and will not be registered
under the Securities Act or with any securities regulatory authority of any state or other jurisdiction of
the United States;
10. the Company has not been and will not be registered, as an investment company under the Investment
Company Act pursuant to Sections 7(d) and 3(c)(7) thereof and that the Company has elected to impose
the transfer and selling restrictions with respect to persons in the United States and U.S. Persons described
herein so that the Company will qualify for the exemption provided under Section 3(c)(7) of the Investment
Company Act and will have no obligation to register as an investment company even if it were otherwise
determined to be an investment company;
11. if in the future the Investor decides to offer, resell, transfer, assign, pledge or otherwise dispose of any
Shares, such Shares will be offered, resold, transferred, assigned, pledged or otherwise disposed of by the
Investor solely in a transaction (a “Disposition”) executed in, on or through the facilities of the JSE, and
neither the Investor nor any person acting on its behalf will pre-arrange such Disposition with a buyer
in the United States or known to be a U.S. person;
12. notwithstanding anything to the contrary in this letter, the Shares may not be deposited into any
unrestricted depositary receipt facility in respect of the Company’s securities, established or maintained
by a depositary bank;
13. the Investor is knowledgeable, sophisticated and experienced in business and fi nancial matters and it
fully understands the limitations on ownership and transfer and the restrictions on sales of such Shares;
14. the Investor is able to bear the economic risk of its investment in the Shares and is currently able to afford
the complete loss of such investment and the Investor is aware that there are substantial risks incidental to
the purchase of the Shares, including those summarised under “Risk Factors” in the Pre-Listing Statement;
15. the Investor understands and acknowledges that, to the extent permitted by applicable law and regulation:
(i) the Company and its agents will not be required to accept for registration of transfer any Shares
acquired by the Investor made other than in compliance with the restrictions set forth in this U.S.
Investment Letter; (ii) the Company may seek to require any U.S. person or any person within the United
States who was not a Qualifi ed Purchaser at the time it acquired any Shares or any benefi cial interest
therein (which for the avoidance of doubt does not include any investor signing this letter who has
truthfully made the representations, warranties and agreements herein) to transfer the Shares or any
such benefi cial interest immediately in a manner consistent with the restrictions set forth in this U.S.
Investment Letter and (iii) if the obligation to transfer is not met, the Company is irrevocably authorised,
without any obligation, to transfer the Shares, as applicable, in a manner consistent with the restrictions
set forth in this U.S. Investment Letter and, if such Shares are sold, the Company shall be obliged to
distribute the net proceeds to the entitled party;
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16. the Investor became aware of the offering of the Shares by the Company and the Shares were offered to
the Investor solely by means of the Pre-Listing Statement and the Investor did not become aware of, nor
were the Shares offered to the Investor by any other means, including, in each case, by any form of
general solicitation or general advertising, and in making the decision to purchase or subscribe to the
Shares, the Investor relied solely on the information set forth in the Pre-Listing Statement;
17. (i) none of the Joint Bookrunners or their affi liates have made or will make any representation or warranty
as to the accuracy or completeness of the information in the Pre-Listing Statement or any other information
provided by the Company; (ii) the Investor has not relied and will not rely on any investigation by any
Joint Bookrunner, its affi liates or any person acting on its behalf may have conducted with respect to the
Company, or the Shares and (iii) none of the Joint Bookrunners makes any representation as to the
availability of an exemption from the Securities Act for the transfer of the Shares;
18. upon a proposed transfer of the Shares, the Investor will notify any purchaser of such Shares or the
executing broker, as applicable, of any transfer restrictions that are applicable to the Shares being sold;
19. neither the Investor, nor any of the Investor’s affi liates, nor any person acting on the Investor’s or their
behalf, will make any “directed selling efforts” as defi ned in Regulation S under the Securities Act in the
United States with respect to the Shares;
20. it understands that the Shares (to the extent they are in certifi cated form), unless otherwise determined
by the Company in accordance with applicable law, will bear a legend substantially to the following effect:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR WITH ANY
SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED
STATES, AND THE COMPANY HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S.
INVESTMENT COMPANY ACT OF 1940, AS AMENDED (THE “INVESTMENT COMPANY ACT”). THE
SHARES REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT: (1) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR
RULE 904 OF REGULATION S UNDER THE SECURITIES ACT (“REGULATION S”) OUTSIDE THE
UNITED STATES TO A PERSON NOT KNOWN BY YOU TO BE A U.S. PERSON (AS DEFINED IN
REGULATION S), BY PRE-ARRANGEMENT OR OTHERWISE OR (2) TO THE COMPANY OR A
SUBSIDIARY THEREOF. EACH HOLDER, BY ITS ACCEPTANCE OF SHARES, REPRESENTS THAT IT
UNDERSTANDS AND AGREES TO THE FOREGOING RESTRICTIONS.
THE COMPANY AND ITS AGENTS WILL NOT BE REQUIRED TO ACCEPT FOR REGISTRATION OF
TRANSFER ANY SHARES MADE OTHER THAN IN COMPLIANCE WITH THESE RESTRICTIONS. THE
COMPANY MAY REQUIRE ANY U.S. PERSON OR ANY PERSON WITHIN THE UNITED STATES WHO
WAS NOT A QUALIFIED PURCHASER (AS DEFINED IN SECTION 2(A)(51) OF THE INVESTMENT
COMPANY ACT) AT THE TIME IT ACQUIRED ANY SHARES OR ANY BENEFICIAL INTEREST THEREIN
TO TRANSFER THE SHARES OR ANY SUCH BENEFICIAL INTEREST IMMEDIATELY IN A MANNER
CONSISTENT WITH THESE RESTRICTIONS, AND IF THE OBLIGATION TO TRANSFER IS NOT MET,
THE COMPANY IS IRREVOCABLY AUTHORISED, WITHOUT ANY OBLIGATION, TO TRANSFER THE
SHARES, AS APPLICABLE, IN A MANNER CONSISTENT WITH THESE RESTRICTIONS AND, IF SUCH
SHARES ARE SOLD, THE COMPANY SHALL BE OBLIGED TO DISTRIBUTE THE NET PROCEEDS TO
THE ENTITLED PARTY;
21. each of the Joint Bookrunners, the Company and their respective affi liates are irrevocably authorised to
produce this U.S. Investment Letter or a copy hereof to any interested party in any administrative or legal
proceeding or offi cial inquiry with respect to the matters covered hereby; and
22. no agency of the United States or any state thereof has made any fi nding or determination as to the
fairness of the terms of, or any recommendation or endorsement in respect of, the Shares.
The Investor hereby consents to the actions of each of the Joint Bookrunners, and hereby waives any and all
claims, actions, liabilities, damages or demands it may have against each Joint Bookrunner in connection
with any alleged confl ict of interest arising from the engagement of each of the Joint Bookrunners with
respect to the sale by the applicable Joint Bookrunner of the Shares to the Investor.
The Investor acknowledges that each of the Joint Bookrunners, the Company and their respective affi liates
and others will rely on the acknowledgments, representations and warranties contained in this U.S. Investment
Letter as a basis for exemption of the sale of the Shares under the Securities Act, the Investment Company Act,
under the securities laws of all applicable states, for compliance with ERISA and for other purposes. The party
signing this U.S. Investment Letter agrees to notify promptly to the Company if any of the acknowledgments,
representations or warranties set forth herein are no longer accurate.
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This U.S. Investment Letter shall be governed by and construed in accordance with the laws of the State of
New York.
Where there are joint applicants, each must sign this U.S. Investment Letter. Applications from a corporation
must be signed by an authorised offi cer or be completed otherwise in accordance with such corporation’s
constitution (evidence of such authority may be required).
Very truly yours,
NAME OF PURCHASER:
By: ________________________________________
Name:
Title:
Address:
Date:
369 PRINTED BY INCE (PTY) LTD REF. JOB002805
Alexander Forbes Group Holdings Limited(previously Alexander Forbes Equity Holdings Proprietary Limited)
(Incorporated in the Republic of South Africa)(Registration number 2006/025226/06)
JSE share code: AFH ISIN: ZAE000191516
PRIVATE PLACING APPLICATION FORM
Private placing by way of an offer for subscription of 44,117,647 shares to be issued in the share capital of Alexander Forbes at a subscription price between R 6. 90 and R8. 05 per share and of 387,822,895 existing ordinary shares in the share capital of Alexander Forbes to be sold by the Selling Shareholders at a subscription price between R 6.90 and R8. 05 per share to qualifying investors in terms of the pre-listing statement which was issued on Monday 7 July (“the pre-listing statement”).
The final price will be determined based on an analysis of market demand and will be released on SENS on Friday, 18 July 2014 and published in the South African press on Monday, 21 July 2014.
Please refer to the instructions below before completing this application form.
Dematerialised shares
The allocated shares will be transferred to successful qualifying investors in dematerialised form only. Accordingly, all successful qualifying investors must appoint a Central Securities Depository Participant (“CSDP”) directly, or a broker, to receive and hold the dematerialised shares on their behalf. Should a shareholder require a physical share certificate for its Alexander Forbes shares, it will have to rematerialise its shares following the listing and should contact its CSDP or broker to do so.
Qualifying investors should complete this application form in respect of the private placing and hand deliver, e-mail or post it to:
The office of Rand Merchant Bank: If e-mailed1 Merchant Place Attention Samuel Barton-Bridges
Corner Rivonia Road and Fredman Drive [email protected]
Sandton 2196
Johannesburg
South Africa
The office of Deutsche Bank: The office of Morgan Stanley:Winchester House 25 Cabot Square
1 Great Winchester Street Canary Wharf
London EC2N 2DB London E14 4QA
United Kingdom United Kingdom
This private placing application form must be received by no later than 12:00 on Thursday, 17 July 2014.
Qualifying investors must contact their CSDP or broker and advise them that they have submitted the application form as instructed above. Pursuant to the application, qualifying investors must make arrangements with their CSDP or broker for payment to be made as stipulated in the agreement governing their relationship with their CSDP or broker, in respect of the shares allocated to them in terms of the private placing by the settlement date, expected to be 24 July 2014.
Conditions precedent
The Offer remains conditional upon the Listing of all of the Offer Shares on the JSE, failing which the Offer and any acceptance thereof shall not be of any force or effect and no person shall have any claim whatsoever against the Company, the Selling Shareholders, any of the Joint Bookrunners or any other person as a result of the failure of any condition. If the directors in their discretion determine, the Company shall not be obliged to proceed with the Offer but reserves the right to do so.
Reservation of rights
The directors of Alexander Forbes reserve the right to refuse any application(s), either in whole or in part, or to pro rate any or all application(s) (whether or not received timeously) in any manner as they may, in their sole and absolute discretion, determine.
The directors of Alexander Forbes reserve the right to accept or reject, either in whole or in part, any private placing application form should the terms contained in the pre-listing statement, of which this private placing application form forms part, and the instructions herein not be properly complied with.
Investors will only be allowed to acquire shares for an amount of R1 ,000 ,000 or more, except in the case of persons falling within one of the specified categories listed in Section 96(1) of the Companies Act.
To the directors:
Alexander Forbes Group Holdings Limited
1. I/We, the undersigned, confirm that I/we have full legal capacity to contract and, having read the pre-listing statement, hereby irrevocably apply for and request you to accept my/our application for the undermentioned number of shares in Alexander Forbes at a price of between R6.90 and R8.05 per share (or such lower price as maybe applicable) or any lesser number that may, in your absolute discretion, be allotted to me/us, subject to the memorandum of incorporation of Alexander Forbes.
2. I/We wish to receive my/our allocated shares in dematerialised form and will hand this private placing application form to Rand Merchant Bank, Morgan Stanley or Deutsche Bank, and will provide appropriate instructions to my/our CSDP or broker, as the case may be, with regard to the application herein and the payment thereof, as stipulated in the agreement governing my/our relationship with my/our CSDP or broker, as the case may be. I/We accept that payment in respect of these applications will be, in terms of the custody agreement entered into between me/us and my/our CSDP or broker, as the case may be, on a delivery versus payment basis.
3. I/We understand that the subscription for shares in terms of the pre-listing statement is conditional on the granting of a listing of the shares of Alexander Forbes, by 24 July 2014 or such later date as the directors may determine, on the JSE Limited.
Dated: Telephone number: ( )
Signature
Assisted by (where applicable)
Surname of individual or name of corporate body Mr
Mrs
Miss
Other title
Full names (if individual)
Postal address (preferably PO Box address) Postal Code
Total number of ordinary shares applied for
Required information must be completed by CSDP or broker with their stamp and signature affixed hereto.
CSDP name
CSDP contact person
CSDP telephone number
CSA or bank CSD account number
Scrip account number
Settlement bank account number
Stamp and signature of CSDP or broker
Instructions:
1. Applications may be made on this application form only for a minimum value of R1 ,000 ,000 for a single addressee acting as applicant ,
except in the case of persons falling within one of the specified categories listed in Section 96(1)(a) of the Companies Act. Copies or
reproductions of the application form will be accepted at the discretion of the directors of Alexander Forbes.
2. Applications are irrevocable and may not be withdrawn once submitted.
3. Applications must be in multiples of 100 shares.
4. CSDP’s and brokers will be required to retain this application form for presentation to the directors of Alexander Forbes if required.
5. Please refer to the terms and conditions of the private placing set out in the pre-listing statement. Applicants should consult their broker
or other professional advisor in case of doubt as to the correct completion of this application form.
6. Applicants need to have appointed a CSDP or broker and must advise their CSDP or broker in terms of the custody agreement entered
into between them and their CSDP or broker. Payment will be made on a delivery versus payment basis.
7. No payment should be submitted with this application form.
8. No receipts will be issued for application forms.
9. All alterations on this application form must be authenticated by full signature.
10. Blocked Rand may be used by emigrants and non-residents of the common monetary area (comprising the Republic of South Africa and
Namibia and the Kingdoms of Swaziland and Lesotho) for payment in terms of this and reference should be made to the section in the
pr e-listing statement that deals with the Exchange Control Regulations.
11. Should the private placing not be successful, all monies will be appropriately refunded within seven days of the closing of the private
placing.
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REGISTERED OFFICE OF THE COMPANYAlexander Forbes Group Holdings Limited
115 West Street
Sandton 2196
Johannesburg, South Africa
JOINT GLOBAL COORDINATORS AND JOINT BOOKRUNNERS
Deutsche Bank AG, London BranchMorgan Stanley & Co.
International plcRand Merchant Bank, a division
of FirstRand Bank LimitedWinchester House 25 Cabot Square 1 Merchant Place
1 Great Winchester Street Canary Wharf Rivonia Road
London EC2N 2DB London E14 4OA Sandton 2196
United Kingdom United Kingdom Johannesburg, South Africa
JOINT TRANSACTION SPONSOR LEAD TRANSACTION SPONSORDeutsche Securities (SA)
Proprietary LimitedRand Merchant Bank, a division
of FirstRand Bank Limited(A non-bank member of the Deutsche
Bank Group)
1 Merchant Place
Rivonia Road
3 Exchange Square Sandton 2196
87 Maude Street Johannesburg, South Africa
Sandton 2196
Johannesburg, South Africa
LEGAL ADVISORS TO THE COMPANYAs to U.S. and English law As to South African law
Davis Polk & Wardwell London LLP Bowman Gilfi llan Inc.99 Gresham Street 165 West Street
London EC2V 7NG Sandton 2196
United Kingdom Johannesburg, South Africa
(PO Box 785812, Sandton 2146)
LEGAL ADVISORS TO THE JOINT GLOBAL COORDINATORS ANDJOINT BOOKRUNNERS
As to U.S. and English law As to South African law
Freshfi elds Bruckhaus Deringer LLP Edward Nathan Sonnenbergs Inc.65 Fleet Street 150 West Street
London EC4Y 1HS Sandton 2196
United Kingdom Johannesburg, South Africa
(PO Box 783347, Sandton 2146)
AUDITORS AND INDEPENDENT REPORTING ACCOUNTANTSPricewaterhouseCoopers Inc.
2 Eglin Road
Sunninghill 2157
Johannesburg, South Africa
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