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 R6.90 and R8.05 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 Advisor Joint Bookrunner and Joint Global Coordinator Joint Bookrunner, Joint Global Coordinator and Joint Financial Advisor 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 Gilfillan Inc. Davis Polk & Wardwell London LLP Edward Nathan Sonnenbergs Inc. Freshfields Bruckhaus Deringer LLP
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ALEXANDER FORBES COVER NH - ShareData · Alexander Forbes Group Holdings Limited ... There will be no other class of shares authorised or in issue by the Company at the Listing Date.
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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
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
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.
10
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
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
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.
14
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.
20
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.
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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.
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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.
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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)
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
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
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
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
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.
129
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.
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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
“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.
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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.
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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.
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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.
152
(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
153
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.
154
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.
164
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.
165
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.
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
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
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)
* 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)
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.
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
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
* 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
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
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;
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)
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“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
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;
366
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;
367
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.
368
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
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.
372
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.