ALEXANDER FORBES COVER NH - ShareData · Alexander Forbes Group Holdings Limited ... There will be...

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


(Registration number BR000005)

Winchester House

1 Great Winchester Street

London EC2N 2DB

United Kingdom

Joint Global Coordinator and Joint Bookrunner


(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



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)


3 Exchange Square

87 Maude Street

Sandton 2196

(Private Bag X9933, Sandton 2146)


Joint Global Coordinator, Joint Bookrunner, JSE Sponsor, Lead Transaction Sponsor and Stabilisation Manager

Rand Merchant Bank

a division of FirstRand Bank Limited


1 Merchant Place

Rivonia Road

Sandton 2196



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



Transfer secretaries

Computershare Investor Services

(Proprietary) Limited


Ground Floor

70 Marshall Street 2001

(PO Box 61051, Marshalltown 2107)


vi

Auditors and independent reporting accountants

PricewaterhouseCoopers Inc.

Registered accountants and auditors


2 Eglin Road

Sunninghill 2157

(Private Bag X36, Sunninghill 2157)


Commercial banker

First National Bank

a division of FirstRand Bank Limited


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


Offer price published in the press: Monday, 21 July 2014

Settlement and proposed Listing

Date on the JSE: Thursday, 24 July 2014

Any material change will be released on SENS and published in South African

newspapers.

4

Joint Bookrunners The Joint Global Coordinators and Joint Bookrunners for the Offer are Deutsche

Bank AG, London Branch, Morgan Stanley & Co. International plc and Rand

Merchant Bank, a division of FirstRand Bank Limited.

Admission and listing The JSE has granted the Company a listing in respect of up to 1 ,29 8 ,5 24 , 384 shares

(the “Listing”) in the “Financial Services – Asset Managers” sector under the

abbreviated name “ AFORBES ”, share code “AFH” and ISIN: ZAE000191516, subject

to the fulfi lment of certain conditions (including the JSE’s spread and free fl oat

requirements, as set out in the Listings Requirements, being attained).

Subscription conditions The Offer is subject to a minimum subscription. The minimum subscription which must be realised by the Company is that which enables it to ensure (in conjunction with the Shares sold by the Selling Shareholders) that the Company has, once the Offer is completed, such number and composition of shareholders as will enable it to meet the minimum free fl oat and shareholder spread requirements, as prescribed by the Listings Requirements and acceptable to the JSE, as referred to below. There is no minimum capital requirement to be realised by the Offer. The Listing will not proceed if the minimum subscription is not achieved, and any acceptance of the Offer shall not take effect and no person shall have any claim whatsoever against the Company, the Selling Shareholders, the Joint Bookrunners or any other person as a result of the failure of any condition.

The Listings Requirements provide that a minimum of 20 percent of the Shares

must be held by the public and the number of public shareholders must be at least

300, all as defi ned by the Listings Requirements.

Lock-up agreement The Company and the Selling Shareholders have agreed with the Joint Bookrunners

that they will not, without the prior written consent of the Joint Bookrunners, issue,

sell or otherwise dispose of any additional Shares for 180 days following the

Listing Date, subject to certain exceptions set out in “Particulars of the Offer” .

The lock-ups referred to in this paragraph and in the “Particulars of the Offer”

section apply to Shares held by the executive directors and members of senior

management through Alexander Forbes Management Trust, but shall not, however,

apply to the Shares unbundled by Alexander Forbes Preference Share Investments

Limited (“AF Pref”) to holders of its “ S” preference shares (the “AF Pref holders”),

including any Selling Shareholders, executive directors or members of senior

management who may be holding “ S” preference shares in AF Pref. See “ Incorporation

and Share Capital —Shareholding —AF Pref Unbundling” and “Management and

Corporate Governance —Directors’ Interests” .

The lock-ups referred to in this paragraph and in the “Particulars of the Offer”

section shall not preclude any person who acquires Offer Shares in connection with

the Offer from trading in and transferring any Shares , except for any Offer Shares

acquired by certain executive director and senior manager participants in the 2014

ETI (as defi ned herein). A participant in the 2014 ETI will not be entitled to dispose

of the Shares awarded to him or her for (a) 180 days (in relation to 40% of the total

number of Shares issued to the participant pursuant to the 2014 ETI) and (b) 365

days (in relation to the balance of the Shares issued to the participant pursuant to

the 2014 ETI), in each case, calculated from the Listing Date. See “Management and

Corporate Governance —Directors’ Incentives and Interests in Transaction —2014

Exit Transaction Incentive” .

Overallotment The Selling Shareholders intend to grant to the Joint Bookrunners a 30-day option

to purchase additional ordinary shares up to a maximum of 15 percent of the Offer

Shares, on the same terms and conditions as those applicable to the Offer, for the

purpose of covering short positions resulting from overallotments or from sales of

Offer Shares at or before the end of the Stabilisation Period.

Transaction Sponsors Rand Merchant Bank, a division of FirstRand Bank Limited, is the lead transaction

sponsor for the Company. Deutsche Securities (SA) Proprietary Limited is the joint

transaction sponsor for the Company.

Stabilisation Manager Rand Merchant Bank, a division of FirstRand Bank Limited, is the stabilisation

manager.

5

SUMMARY CONSOLIDATED FINANCIAL INFORMATION

The following selected consolidated financial information is derived from the Consolidated Financial Statements

which were prepared in accordance with IFRS and the Listings Requirements. The financial information for

the years ended 31 March 2013 and 2012 has been restated for the effects of the disposal of Guardrisk and

other businesses, which have been classified as discontinued operations, and the adoption of IAS 19 Employee

Benefits (Revised) and IFRS 10 Consolidated Financial Statements. See “Presentation of Financial and Other

Information” for more details. In addition, the Consolidated Financial Statements reflect the effects of certain

adjustments resulting from the SARS Settlement, which was a post-balance sheet event. See Notes 8, 37.3 44

and 50 to the Consolidated Financial Statements and “Business —Investigations and Legal Proceedings —SARS

Settlement” .

The consolidated financial information of the Group as at and for the financial years ended 31 March 2014,

2013 and 2012 presented in this pre-listing statement has been audited by PricewaterhouseCoopers Inc.

(“PricewaterhouseCoopers”), auditors and independent reporting accountants, as stated in their report

included in Annexure 3 to this pre-listing statement.

The selected consolidated financial and other information presented below should be read in conjunction with

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated

Financial Statements included in Annexure 2 to this pre-listing statement.

Consolidated Income Statement Data

Year ended 31 March

2014 2013 2012

(R million)

Continuing operationsFee and commission income 4 ,776 4 ,038 3 ,603

Less: Direct expenses attributable to fee and commission

income (801) (651) (591)

Net income from insurance operations 417 350 310

Net revenue 4 ,392 3 ,737 3 ,322Operating expenses (3 ,352) (2 ,812) (2 ,460)

Trading profi t 1 ,040 925 862Non-trading and capital items (108) (113) (108)

Operating profi t 932 812 754Investment income 233 129 161

Finance costs (843) (848) (816)

Share of net profi t of associates (net of income tax) 2 1 1

Profi t before taxation 324 94 100Income tax expense (487) (192) (316)

Profi t/(loss) for the year from continuing operations (163) (98) (216)Discontinued operationsProfi t/(loss) on discontinued operations (net of income tax) 542 (10) 157

Profi t/(loss) for the year 379 (108) (59)

Profi t/(loss) attributable to:

Equity holders 269 (191) (136)

Non-controlling interest 110 83 77

379 (108) (59)

6

Consolidated Balance Sheet Data

Year ended 31 March

2014 2013 2012

(R million)

ASSETSFinancial assets held under multi-manager

investment contracts 253 ,747 222 ,790 209 ,994

Financial assets of cell-captive insurance facilities 315 11 ,374 9 ,484

Property and equipment 335 239 165

Purchased and developed computer software 80 129 166

Goodwill 3 ,985 4 ,490 4 ,652

Intangible assets 886 1 ,211 1 ,437

Investments in associates 6 4 3

Deferred tax assets 117 164 110

Financial assets 409 2 ,064 1 ,209

Insurance receivables 814 1 ,073 896

Trade and other receivables 873 935 913

Cash and cash equivalents 3 ,907 3 ,626 3 ,062

Assets of disposal group classifi ed as held for sale 91 29 ,938 288

Total assets 265 ,565 278 ,037 232 ,379

EQUITY AND LIABILITIESShare capital and premium 5 ,819 3 ,261 3 ,261

Treasury shares (405) (21) (29)

Accumulated loss (889) (1 ,162) (967)

Other reserves 102 (8) (173)

Equity holders’ funds 4 ,627 2, 070 2 ,092


Total equity 4 , 837 2 ,264 2 ,277

Financial liabilities held under multi-manager investment

contracts 253 ,747 222 ,790 209 ,994

Liabilities of cell-captive insurance facilities 315 11 ,374 9 ,484

Borrowings 1 ,652 5 ,409 5 ,448

Employee benefi ts 168 181 170

Deferred tax benefi ts 432 450 491

Provisions 284 284 265

Finance lease liability 90 93 –

Operating lease liability 119 40 29

Deferred income 25 72 69

Insurance payables 2 ,270 3 ,985 2 ,693

Trade and other payables 1 ,591 1 ,353 1 ,328

Liabilities of disposal group classifi ed as held for sale 35 29 ,742 131

Total liabilities 260 ,728 275 , 773 230 ,102

Total equity and liabilities 265 , 565 278 ,037 232 ,379

7

Consolidated Cash Flow Data

Year ended 31 March

2014 2013 2012

(R million)

Net cash (outfl ow)/infl ow from operating activities (5 ,357) (1 ,743) (2 ,068)

Net cash (outfl ow)/infl ow from investing activities 1 ,042 151 (560)

Net cash (outfl ow) from fi nancing activities (678) (326) (689)

Cash and cash equivalents at end of year 12 ,129 16 ,975 18 ,83 3

Other Financial Data

Year ended 31 March

2014 2013 2012

EBITDA(1) (R million) 1 ,23 1 1 ,037 938

EBITDA growth – (%) 18.8 10.6 –

1. The Company defines EBITDA as trading profit before property lease adjustment and depreciation and amortisation. EBITDA includes

interest earnings that are directly attributable to operations, as well as interest earned on minimum regulatory capital balances, such as

in the case of the Group’s insurance operations and Financial Advisory and Intermediary Services Act, 2002 (“FAIS”) regulated operations.

EBITDA excludes profits and losses that are considered once-off in nature and not integral to the Group’s operations. This also includes

items reflected as non-trading and of a capital nature. EBITDA is not an IFRS measure and EBITDA should not be considered as an

alternative to measures of net profit/(loss), as an indicator of operating performance, as a measure of cash flow from operations nor as an

indicator of liquidity and should not be considered in isolation. The reconciliation of trading profit to EBITDA is as follows:

Year ended 31 March

2014 2013 2012

(R million)

Trading profi t 1 ,040 925 862Property lease adjustment 4 7 8 (37)

Consolidation of E&O insurance cell-captive 64 24 37

Depreciation and amortisation 80 80 76

EBITDA 1 ,23 1 1 ,037 938

Pro Forma Consolidated Financial Information

The pro forma consolidated income statement and pro forma consolidated balance sheet (the “pro forma

consolidated financial information”) as of and for the year ended 31 March 2014 have been prepared to show

the impact of the Restructure and the Offer, as if the Restructure and the Offer had occurred on 1 April 2013

for purposes of the pro forma income statement and on 31 March 2014 for the purposes of the pro forma

balance sheet. The pro forma consolidated financial information is presented for illustrative purposes only

and, because of its nature, may not fairly reflect the Group’s results or financial position going forward. This

information should be read in conjunction with, and is qualified in its entirety by reference to, the pro forma

consolidated financial information of the Group included in Annexure 4 to this pre-listing statement. The

pro forma consolidated financial information is the responsibility of the directors of the Company.

The pro forma consolidated financial information has been prepared using accounting policies that are

consistent with IFRS and with the basis on which the historical financial information has been prepared in

terms of the Group’s accounting policies.

The independent reporting accountant’s report on the pro forma consolidated financial information is set out

in Annexure 5. Such report is included solely to comply with the requirements of the Listings Requirements

in South Africa. Such pro forma consolidated financial information has not been prepared in accordance with

the requirements of Regulation S-X of the SEC or generally accepted accounting practices in the United States.

In addition, the rules and regulations related to the preparation of pro forma consolidated financial information

in other jurisdictions may also vary significantly from the requirements applicable in South Africa. The

reporting on the pro forma consolidated financial information by PricewaterhouseCoopers has not been

carried out in accordance with the auditing standards generally accepted in the United States and accordingly

should not be relied upon by investors as if it had been carried out in accordance with those standards or any

other standards besides the South African requirements discussed above.

8

Pro Forma Consolidated Financial Effects

Year ended 31 March 2014

Actual(1)Impact of the Restructure(2)

Pro forma after the

Restructure Adjustments

(3)(4)(5)(6)(7)(8)

Pro forma after

the Offer

(R million unless otherwise stated)

Operating profit 932 – 932 ( 300 ) 63 2

Investment income 233 – 233 – 233

Finance costs (843) 715 (128) (1) (12 9)

Share of associate income 2 – 2 – 2

Profit before taxation 324 715 1 ,039 ( 301 ) 7 38

Income tax expense (487) (71) (558) 6 8 (4 9 0)

Profit/(loss) for the year from

continuing operations (163) 644 481 ( 233) 2 48

Discontinued operations

Profit/(loss) on discontinued

operations (net of income tax) 542 – 542 – 542

Profit/(loss) for the year 379 644 1 ,023 ( 233) 79 0

Weighted average number of

Shares in issue (millions) 345 810 1 ,155 1 48 1 ,3 03

Basic earnings/(loss) per Share (cents)Continuing operations ( 77) 34 1 2

Discontinuing operations 155 46 4 1

Total operations 78 80 5 3

Headline earnings/(loss) per Share (cents)Continuing operations ( 77) 33 1 2

Discontinuing operations 24 7 6

Total operations ( 53) 40 1 8


Actual(1) Adjustments

(3)(4)(5)(6)

Pro forma after

the Offer

Number of Shares in issue net A treasury shares (millions) 1 ,155 148 1 ,3 03

Net asset value per Share (cents) 401 ( 10) 3 91

Tangible net asset value per Share (cents) (28) 39 11

All effects are recurring except where otherwise stated.

1. Extracted from the Consolidated Financial Statements.

2. On 31 March 2014, the Group restructured its capital which resulted in a change in its debt structure (the “Restructure” ). See “Restructure” .

The impact of the Restructure on finance costs is not included in the Group’s consolidated income statement for financial year 2014 because

the Restructure was implemented on 31 March 2014 . The Restructure adjustment is based on the assumption that the Restructure was

undertaken on 1 April 2013. The impact of this change will be realised in the interest paid by the Group net of taxation. The taxation is

adjusted by the tax deductions made in the underlying subsidiaries for 2014. The taxation impact is affected by unrecognised deferred

tax assets in certain subsidiaries. The R715 million reversal of finance costs relates to:

Rand million

Senior preference shares 90

High-yield term loan 29 2

Put and call options 60

PIK debentures 337

Amortisation of fees 13

Interest rate hedge 20

Interest cost of new term loan ( 97)

Total 715

9

The fair value gains and losses on the put and call options and interest rate hedge were recognised as part of finance costs. These instruments were settled as part of the Restructure. Consequently, the net losses of R60 million and R20 million, respectively, have been removed from the income statement based on the assumption that the Restructure occurred on 1 April 2013.

3. The adjustment reflects the impact of the Listing on the Alexander Forbes Management Trust. The Alexander Forbes Management Trust will be deconsolidated as a result of the changes to the control over the Alexander Forbes Management Trust after the Listing. In addition, the Remuneration Committee has approved the write-off of a loan of R24 million between the Alexander Forbes Management Trust and the Company which is subject to the Listing taking effect and which effect is non-recurring.

4. The adjustment reflects the deconsolidation of the B-BBEE Funding SPV (the “BEE SPV”) and the Alexander Forbes Management Share Trust Funding SPV (the “Management SPV”) resulting from the sale of the Company’s shares in the BEE SPV and the Management SPV as part of the Offer and utilisation of the proceeds to repay the underlying funding. The deconsolidation has no income statement impact as the funding was raised on 31 March 2014 and had no impact on the Group’s consolidated income statement for financial year 2014.

5. As part of the Offer, an estimated 44,117,647 Subscription Shares will be issued at an assumed price of R7.48. Of the net proceeds, R179 million will be used to redeem the “B” Preference Shares held by Golden Falls at R8.44 per “B” Preference Share. The remainder of the net proceeds will be used to increase regulatory capital holdings in line with the anticipated South African Financial Services Board (the “FSB”) regulatory requirements for consolidated supervision as discussed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Consolidated Supervision” and to reduce the Group’s outstanding debt, which will give rise to a reduction in finance costs of R12 million.

6. The incentive adjustments are one-off costs triggered by the Listing which will not be recurring and which include:

• a “Make-Good” payment in the amount of R57 million paid to the Alexander Forbes Management Trust, as described in “Management and Corporate Governance – Directors’ Incentives and Interests in Transaction – Management Payment Agreement (“Make-Good” Payment)”;

• the 2011 Executive Long-Term Incentive Plan, as described in “Management and Corporate Governance—Directors’ Incentives and Interests in Transaction—2011 Executive Long-Term Incentive Plan as Amended and Revised in June 2014”, with 50%, or R44 million, payable upon the completion of the transaction and the other 50% payable over 18 months, of which 12/18, or R29 million, has been accrued; and

• the 2014 Exit Transaction Incentive Plan, as described in “Management and Corporate Governance—Directors’ Incentives and Interests in Transaction—2014 Exit Transaction Incentive”, of which an amount of R59 million before taxation is reflected in the income statement. The settlement of this incentive will be made through the issue of 7,848,710 shares at an assumed price of R7.48.

Interest at an average rate of 7.93% is charged on the cash outflow arising from the settlement of the incentive awards.

7. Management and staff will be incentivised through a share incentive scheme. See “Management and Corporate Governance—Share Schemes – Long-Term Incentive Share Plan”. The IFRS 2 scheme costs of R53 million will be reflected in the income statement in the first year of the scheme and no share dilution is expected. The pro forma impact of the share-based payment has been reflected for one year on the income statement only, because the share scheme vests evenly over three years. Under IFRS 2, the income statement expense is calculated as the fair value of the award, assumed at R7.48 per Share, multiplied by the period of the vesting period completed. As the Pro Forma Consolidated Income Statement assumes the award is granted on 1 April 2013, one year of the three-year service period will have been completed as at 31 March 2014.

8. Transaction costs of the Offer are estimated to be R86 million, of which R36 million will be paid for by the Group and the remainder will be paid by the Selling Shareholders. These costs, which primarily relate to the Listing, will be expensed through the income statement and will not be recurring.

Dividend Policy

Following the Listing, the board of directors intends to declare a dividend on at least an annual basis. It is intended that the total annual dividend will be split between an interim dividend and final dividend. The Group’s dividend policy is set at a target range of 1.5x – 2.0x earnings cover.

In preparation for the implementation by the FSB of consolidated group supervision, the board of directors does not anticipate that an interim dividend for the six-month period to 30 September 2014 will be declared. The board of directors will consider making the final dividend payment for the year ended 31 March 2015, after taking account of the regulatory capital position on a consolidated basis.

Any regulatory capital shortfall is expected to be eliminated by the proceeds from the subscription for the Subscription Shares and as the Group generates positive operational cash flows such that the Group will be in full regulatory compliance when consolidated group supervision is implemented by the FSB (currently expected to take place on 1 January 2016).

The board retains absolute discretion to determine actual dividend declarations and will take the following factors into consideration:• the growth of the minimum capital requirements of the Group’s businesses;• the capital requirements to support investments in the Group’s growth initiatives; and• changes or prospective changes in the operating environment or operational performance of the Group.

It is the Group’s intention to return any excess capital above its capital targets to shareholders in the form of Share repurchases and special dividends.

For further details on dividends and the Group’s dividend policy, see “Dividends and Dividend Policy”.

Risk Factors

The section of this pre-listing statement entitled “Risk Factors” describes certain risk factors that should be considered together with the other information in this pre-listing statement before making a decision to purchase or subscribe for any Offer Shares. Although information has been provided in this pre-listing statement in relation to the Offer Shares, a prospective purchaser or subscriber should use his or her own judgement and seek advice from an independent financial advisor as to the appropriate value of the Offer Shares.

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


Expected Listing Date: 09:00 on Thursday, 24 July 2014

All times referred to in this pre-listing statement are times in

South Africa.

JSE Approval

The JSE has granted formal approval for the listing of up to 1 ,29 8,524,384 Shares with effect from the

commencement of trading on the JSE on 24 July 2014, subject to the Company meeting the JSE’s free float

and shareholder spread requirements.

Conditions Precedent to the Offer and Listing

The Offer remains conditional upon the Listing of all of the Offer Shares on the JSE, failing which the Offer

and any acceptance thereof shall not be of any force or effect and no person shall have any claim whatsoever

against the Company, the Selling Shareholders, any of the Joint Bookrunners or any other person as a result

of the failure of any condition. If the directors in their discretion determine not to proceed with the Offer, the

Company shall not be obliged to proceed with the Offer but reserves the right to do so.

Date of Information Provided

Unless the context clearly indicates otherwise, all information provided in this pre-listing statement is provided

as at the Last Practicable Date.

11

RISK FACTORS

You should carefully consider the risk factors described below and all other information contained in this

pre -listing statement before you decide to invest in the Offer Shares. If any of the following risk factors, as well

as other risks and uncertainties that are not currently known to the Company or that it currently believes are

not material, actually occur, the Group’s business, financial condition and results of operations could be

materially and adversely affected. Accordingly, the trading price of the Offer Shares could decline due to any

of these risks occurring and investors could lose part or all of their investment.

Risks Related to the Group’s Operations and Business

Market fluctuations and general economic, market and political conditions may adversely affect the Group’s business and results of operations.

The Group’s business and results of operations may be materially adversely affected by conditions in the global

financial markets and by economic conditions generally. Stressed conditions, volatility and disruptions in

financial markets and assets can have an adverse effect on the Group, in part because the Group manages a

large investment portfolio and its insurance liabilities are sensitive to changing market factors. Global market

factors, including interest rates, credit spreads, equity prices, foreign currency exchange rates, consumer

spending, business investment, government spending, the volatility and strength of the capital markets,

deflation and inflation can all affect the Group’s financial condition, as well as the volume, profitability and

results of its operations.

In recent years, the financial markets experienced significant volatility and the medium-term outlook for the

global economy remains mixed. To the extent these uncertain market conditions persist, the Group’s revenues

and net investment income are likely to remain under pressure. In addition, in the event of extreme prolonged

market events, such as the recent global economic crisis, the Group could incur significant capital and/or

operating losses. In an economic downturn characterised by high unemployment, lower family income, lower

corporate earnings, lower business investment and lower consumer spending, the demand for its financial and

insurance products could be adversely affected.

In addition, the recent financial crisis has precipitated, and may continue to raise the possibility of, legislative,

judicial, regulatory and other governmental action. See “ — Changes in legislation and regulation and actions

by regulatory authorities in South Africa and other jurisdictions in which the Group operates may have an

adverse effect on its business” and “Risks Related to the Republic of South Africa —Recent trends that have had

an adverse effect on global economic and financial market conditions have also had an impact in South Africa,

and such trends, or other developments in South Africa, could have an adverse impact on the Group’s business”.

There are certain risks associated with investing in emerging markets, such as South Africa and other sub-Saharan countries where the Group operates.

South Africa and other sub-Saharan countries where the Group operates are generally considered by

international investors to be emerging markets, which are typically thought to have certain characteristics and

be subject to greater risks than more developed markets. These risks include:

• adverse changes in governmental, economic and tax policies;

• volatility in capital markets;

• abrupt changes in currency values;

• high levels of inflation;

• exchange controls;

• relatively low levels of disposable consumer income;

• relatively high levels of crime;

• relatively unstable institutions;

• unpredictable changes in the legal and regulatory environments;

• varying approaches to transparency and corporate governance;

• inconsistent application of existing laws and regulations; and

• slow or insufficient legal remedies.

The Group may face additional risks in certain of the sub-Saharan African countries in which it operates and

in which it may operate in the future. These include political uncertainty, corruption, poor infrastructure, low

12

educational levels and a low standard of living. Such factors could have a negative impact on the Group’s

ability to maintain and grow its business in those countries.

Consumer habits and behaviour in emerging markets also tend to change more quickly than in more developed

markets. Any such change may adversely affect the demand for the Group’s services and products or may

affect the ability of the Group to offer services and products that are successful in the market.

Furthermore, emerging markets are subject to rapid changes and any adverse change in economic, political

or social conditions in South Africa or other sub-Saharan countries where the Group operates, or in emerging

markets generally, may adversely affect the demand for the Group’s services and products, which may have a

material adverse effect on its operations, profitability and financial condition. Any such adverse change may

negatively affect investor sentiment towards South Africa, other sub-Saharan countries where the Group

operates or emerging markets generally.

Changes in legislation and regulation and actions by regulatory authorities in South Africa and other jurisdictions in which the Group operates may have an adverse effect on its business.

Certain of the Group’s activities are subject to licensing requirements and extensive regulation under the laws

of South Africa, other African jurisdictions, the European Union and the United Kingdom, among others. See

“Regulation” for a summary of some of the key regulations to which the Group is subject. The continued

operation of its business units depends on the validity of, and its continued good standing under, the licences

and approvals pursuant to which they operate, as well as compliance with applicable laws and regulations in

the jurisdictions where the Group operates.

Laws, regulations and policies currently governing the Group’s businesses and subsidiaries may change at

any time in ways that may have an adverse effect on its business, and it cannot predict the timing or nature

of any future regulatory or enforcement initiatives in respect thereof. If the Group fails to address, or appears

to fail to address, appropriately any of these changes or initiatives, its reputation could be harmed and it could

be subject to additional legal risk, including enforcement actions, fines and penalties. Possible sanctions that

may be imposed include the suspension or removal of individual directors or employees, limitations on

engaging in a particular business for specified periods of time, revocation of licences, censures and fines, as

well as refunds of fees to clients.

In some instances, the Group follows practices based on its interpretations of laws or regulations, or those

generally followed by the industry, which may prove to be different from those of the relevant regulatory

authorities. Accordingly, the possibility exists that the Group may be precluded or temporarily suspended

from carrying on some or all of its activities or otherwise be subject to sanction in a given jurisdiction.

For example, the financial services sector in South Africa has faced increasing regulation in recent years and

the Group’s direct compliance costs in South Africa have increased fourfold between 2007 and 2013. Most

significant for the Group is the Solvency Assessment and Management (“SAM”) regime in South Africa, which

will have a significant impact on required solvency and capital levels. The new SAM regime, which will be

implemented on 1 January 2016, will impose more stringent regulatory requirements on both long-term and

short-term insurers, requiring them to maintain adequate solvency capital based on risks faced on a day-to-day

basis. The South African registered insurer entities of the Group, Alexander Forbes Insurance Company

Limited (“AFIC”), Investment Solutions Limited, SuperFlex Limited (“Superflex”) and Alexander Forbes Life

Limited, will be directly subject to compliance with the revised solvency capital regulatory requirements, while

the proposed consolidated supervision rules and related group capital requirements will need to be complied

with across the Group. Maintaining higher capital solvency may lead to increased compliance costs, reporting

requirements and employee time spent on compliance or result in restrictions on maintaining and developing

the business or limitations on the Group’s ability to pay dividends. For example, the Group could be subject to

monthly reporting requirements if its capital adequacy requirements (“CAR”) ratio, or the CAR ratio of one of

its subsidiaries, deteriorates. In addition, the FSB is currently assessing remuneration models of financial

services providers as part of its broader cross-sector Retail Distribution Review. The Group is also subject to

numerous South African and foreign jurisdiction laws and regulations designed to protect sensitive or

confidential client and employee data, such as the South African Protection of Personal Information Act

(“POPIA”) and the EU Directive on Data Protection.

Furthermore, the Group’s regulated entities are subject to oversight and monitoring by regulatory authorities,

as well as substantive legal and regulatory requirements, and any such requirements could change in the

future. Such changes could make it more costly to operate or cause the Group to otherwise change the way it

does business. The implementation of the so called “twin peaks” model of financial regulation in South Africa

will result in the establishment of two regulators, namely, the new Prudential Authority within the Reserve

Bank, responsible for the safety and soundness of financial services providers, and the Market Conduct

Authority, whose duties it will be to protect customers of financial services firms and to supervise the way

financial service providers (“FSPs”) operate. The proposed restructuring of the regulatory environment for

financial institutions will result in dual-regulated entities, being those entities that undertake activities that

give rise to both prudential and market conduct regulations. Under the new “twin peaks” dispensation the

Group’s dual-regulated subsidiaries will be subject to increased regulation and supervision by more than one

regulator.

13

There can be no assurance that the Group’s various businesses will continue to be conducted in any given

jurisdiction as they have been in the past. Any significant impairment of the Group’s ability to conduct its

business as it historically has done could have a material adverse effect on its business, financial condition or

results of operations.

A number of the services and products that the Group provides are regulated and regulatory changes that affect its target clients could have a significant effect on the way it operates and, in turn, on its financial condition and results of operations.

The Group provides financial, risk management and administration solutions and advisory services for

employee benefit plans and its individual clients, including the individual members of such plans. Employee

benefit plans are often structured with consideration of applicable legal and regulatory requirements.

Regulatory requirements in these areas change from time to time, and they may change in ways that adversely

affect solutions that the Group provides or may provide in the future. Regulatory changes could require the

Group to modify the way in which it offers or prices its services or products, or could increase the costs

associated with providing those services or products. Any such consequence could have a material adverse

effect on the Group’s financial condition, results of operations or cash flows.

For example, the South African government has proposed to reform the current retirement system, which

proposal, among other items, contemplates the formation of an auto-enrolment or a mandatory contribution

system designed to benefit lower wage earners. Private retirement funds would then become elective retirement

benefit vehicles aimed at supplementing the central saving fund benefits of upper income earners to the extent

that they may be insufficient. A number of important details have yet to be finalised, and thus implementation

is not expected to occur in the short term. At this time, it is unclear what the proposed legislation will

ultimately require and, if passed, when it would become effective and what types of transitional arrangements

would be provided for. Any such reform could affect the manner in which retirement plans are structured and

could therefore change the types of advice, products and expertise that clients demand. Reform of the type,

and in the form, currently proposed could have a materially adverse effect on the Group’s results of operations.

Similarly, the government has proposed regulations under the Short-Term Insurance Act, 1998 (“STIA”) and

the Long-Term Insurance Act, 1998 (“LTIA”), which are intended to more clearly define the demarcation

between health insurance policies and medical schemes (the “demarcation regulations”). This will have an

effect on the advice given and products offered by the Group to its clients. The demarcation regulations will

allow for certain health insurance policies to be excluded from the definition of a “business of a medical

scheme” under the Medical Schemes Act. The latest version of the demarcation regulations was published on

30 April 2014 for public comment. In order to not undermine the business of medical schemes in South Africa,

the demarcation regulations contemplate an alignment of broker commission between health insurance and

medical schemes products. The demarcation regulations prescribe that commission payable in respect of

contracts identified as accident and health policies will be subject to the maximum compensation prescribed

under the Medical Schemes Act, 1998. The prescribed commissions available to brokers in respect of the sale

of accident and health policies will thus be reduced from around 20% of premium to the lesser of R71 per

month or 3% of premium. This could impact the Group’s healthcare business, as 3% of the Group’s revenues

were generated by such commissions in financial year 2014.

Reforms in pensions legislation may have a material adverse effect on the Group’s business and results of operations.

The Group’s strategy is to expand its operations into jurisdictions which have similar pensions legislation to

South Africa, i.e., where the legislation provides for private pensions provision. This allows the Group to

leverage its South African services platform and replicate the business model in other countries. Although

reforms in pensions legislations have generally been favourable and provided the Group with an opportunity

to expand into other sub-Saharan African countries, if future legislative or governmental reforms result in

the unavailability of private pensions provisions in countries where it currently operates or jurisdictions into

which it expands, this may affect the Group’s business strategy and have a material adverse effect on the

Group’s business and results of operations.

The Group faces competitive pressures in all of its businesses.

The South African, other African and European markets in which the Group competes are highly competitive,

with strong and increasing competition in all its business lines. Its competitors include employee benefits

consultants, mutual funds companies (collective investment schemes), asset management firms, commercial

banks and other insurance companies, some of which are regulated differently than the Group is, may have

greater resources than the Group does, offer alternative products or more competitive pricing or have access

to better distribution channels compared to the Group. In addition, the Group may be affected by the growing

trend of disintermediation of sales of products directly to the end-customer or by the ability of the end-

customer to purchase services and products directly from the provider.

Competition in the Group’s business areas is often based on price, product quality, convenience, reputation,

loyalty and conversion of current clients to new business, as well as the conversion of corporate client

beneficiaries (employees) to independent retail clients, the ability to provide full service package advice and

solutions, customer service support and the ability to identify and satisfy emerging consumer preferences.

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


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.

27

Another significant new business created by the Group in response to the needs of institutional and individual

investors is Investment Solutions, which was established by Alexander Forbes in 1997 and has since become

a leading provider of multi-manager investment portfolios to institutional clients in the South African market.

Investment Solutions’ assets under administration have increased to approximately R2 9 billion between its

formation in 1997 and 31 March 2014.

In 2002, the Group further expanded its international financial services business through the acquisition of

a 60% interest in LCP, an actuarial consultancy firm in the UK. This was followed by further acquisitions of

the businesses that formed Investment Solutions in the UK, Alexander Forbes Consultants and Actuaries

(“AFCA UK”) and Media Insurance Services (Direct Marketing), and the expansion of LCP into Belgium,

Ireland, The Netherlands and Switzerland. Between 2012 and 201 4, the Group disposed of a number of these

interests, including the sale of AFCA UK, Investment Solutions UK, Media Insurance Services, LCP Libera

(Switzerland) and Alexander Forbes Trustee Services to focus on its core markets.

In 2007, due to the regulatory changes affecting personal lines insurance brokers and following client

research, the Group reconstituted its personal lines insurance broker into a dedicated insurance company,

AFI, in order to ensure it could continue to leverage off the capabilities it had developed in the personal lines

insurance industry.

By completing the disposals of the non-core operations as discussed above, Alexander Forbes has evolved from

being an insurance broker to capture the retirement benefit, employee benefit, investment and personal

financial wellbeing services business opportunity in sub-Saharan Africa and other jurisdictions in which it

operates by building on synergies between the products and services provided by its business units. The

remaining “core business” of Alexander Forbes has a natural synergistic relationship and is focused on

employee benefits and related services (through AFFS) with an integrated investment gathering business

(Investment Solutions) leveraging the core institutional and retail client base. AFI and AF Life (a subsidiary

of AFFS) provide product offerings complementary to the Group’s core business to further capture the value

chain and client spend, while AfriNet and AF International provide geographic diversification.

On 31 March 2014, the Group completed the Restructure in order to optimise and simplify its capital structure

and to ensure compliance with certain regulatory changes. See “Restructure” for more details.

Alexander Forbes’ Approach

Alexander Forbes’ core business provides retirement funds and asset consulting, actuarial and administration

services, employee risk benefits and healthcare consulting, personal lines insurance and multi-manager

investment solutions. Alexander Forbes has a significant institutional client market share in most of the

countries in which it operates, particularly in Africa. These countries have experienced a major shift from

DB schemes to DC schemes, which has resulted in the transfer of the post-retirement financial risk from

employers to individual members. In response to this shift, Alexander Forbes has developed a number of

solutions to assist individuals in securing their financial wellbeing during employment, at and through

retirement. Alexander Forbes leverages its significant institutional relationships to access individual members

of funds, thereby improving its distribution economics. Alexander Forbes has started working with employers

to ensure that their employees have sufficient employee benefits, savings and other risk cover in place and

helping them to secure their financial wellbeing. Alexander Forbes also provides access to products through

its linked-investment services provider, AFICA, as well as AFI and AF Life.

In addition, employers are becoming increasingly aware of their responsibility towards employees and the

importance of ensuring that adequate benefits are in place. AFCA UK and Alexander Forbes Health

(“AF Health”) work closely with employers to ensure that they implement holistic employee benefits

programmes, while Alexander Forbes’ fund administration services administer the funds for employers.

Alexander Forbes has also developed a number of tools, including the Benefits Barometer and Member Watch™,

to assist employers and individuals in understanding and contextualising their financial profile.

Alexander Forbes primarily implements an advice-led model leveraging off the institutional client base with

worksite and trustee education being an important part of its approach. Alexander Forbes’ aim is to ensure

that individual members are aware of the necessity to save for retirement and to plan for the risks that they

may face in their everyday lives. Throughout an individual’s various life stages from education, working

years, wealth accumulation, retirement and the wealth decumulation phases, Alexander Forbes aims to be

present, providing advice and, where appropriate, solutions and products, to assist individual clients in

securing their financial wellbeing.

Summary of Business Units

The Group’s businesses are split across five business units: AFFS and Investment Solutions, which are its core

businesses, AfriNet and AF International, which provide for geographic diversification, and AFI, which,

together with AF Life (a subsidiary of AFFS), provides complementary product capabilities to the products and

services offered by the core businesses.

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The following diagram shows the Group’s current organisational structure:

1. All of the Group’s significant subsidiaries are wholly owned, except for LCP, certain operations within AfriNet and Caveo although

Alexander Forbes retains a controlling interest in these entities where permitted by law.

2. Includes AF Life.

The following table sets out the relative contribution of each business unit to the Group’s net revenue and

trading profit in financial year 2014:


Net revenue

Percentage of total

Trading profit(1)

Percentage of total

(R million) (%) (R million) (%)

AFFS 1 ,754 39.9 387 35.6

Investment Solutions 717 16.3 360 33. 1

AFI 350 8.0 88 8.1

AfriNet 249 5.7 48 4.4

AF International 1 ,322 30.1 204 18.8

Total Group continuing operations 4 ,392 100.0 1 087 100.0

1. Excluding the effects of the IFRS accounting adjustment for the long-term property lease.

Core Businesses

AFFS

AFFS is a leading employee benefits consulting, actuarial, investment and administration services provider,

health and risk consulting, and individual advisory business in South Africa. With approximately 997 ,000

active member records under administration and approximately R323 billion in assets under administration

as at 31 March 2014, AFFS is one of the largest private retirement fund administrators in South Africa. Its

main sub-divisions and subsidiaries include:

• Operations and Administration, which provides retirement fund administration to over 330 active

standalone institutional retirement funds and AFFS’s umbrella retirement funds housing over

940 participating employers. In addition, it provides administrative services to clients of AFICA covering

a range of retirement and savings products offered on this platform;

• Consultants and Actuaries, which provides employee benefits consulting and actuarial services to

standalone retirement funds, corporate clients and government institutions, as well as actuarial consulting

services to short- and long-term insurers in South Africa and other countries in Africa;

• Umbrella Funds Consulting, which provides retirement fund consulting and preservation services and

products to over 940 participating employers housed in the umbrella retirement funds managed by AFFS;

• Retail, which provides financial planning and wellbeing and wealth management services to individual

clients, predominantly targeting the members and employees of the Group’s institutional clients, and

services approximately 41 ,000 retail clients as at 31 March 2014;

• AF Health, which provides medical scheme and health-related advice and actuarial services to over

510 corporates as at 31 March 2014; and

• AF Life, which provides group and individual risk insurance products and houses the umbrella funds

managed by AFFS.

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Investment Solutions

Investment Solutions is South Africa’s largest multi-manager with assets under administration and

management of R285 billion as at 31 March 2014, of which assets under management comprised R256 billion.

Investment Solutions constructs portfolios by blending suitably selected asset managers, monitors and reports

on manager performance, and develops tailored risk-profiled investable portfolios for institutional clients

(particularly pension funds) and individual investors. Investment Solutions also provides investment

administration services to large institutional clients and intermediaries who develop their own investment

solutions for their own clients using the Investment Solutions platform.

Complementary Businesses

AFI

AFI is a personal lines and commercial direct insurer operating in South Africa and Namibia, focusing on

providing motor, household, homeowners, and business insurance to retail and small to medium-sized business

customers. AFI also writes personal accident, dread disease, hospital cash plan, scratch and dent policies and

brokers funeral insurance, underwritten by a third-party through Alexander Forbes Direct. In addition,

AFI provides insurance administration services to corporates in a cell-captive structure.

Geographic Diversification

AfriNet

AfriNet provides dedicated strategic focus in the African continent outside of South Africa, leveraging the

strong South African financial services platform and replicating the Group’s business model in other countries.

AfriNet’s current key focus countries include Namibia, Botswana and Kenya, where it has market-leading

presences, as well as Nigeria, Zambia and Uganda. AfriNet’s service offerings include employee benefits,

actuarial and investment consulting and retirement administration services for corporate and institutional

clients and the public sector. In addition, AfriNet operates the Investment Solutions and AFI businesses in

Namibia.

AF International

AF International includes the businesses of the UK-based consulting actuarial partnership, LCP, in which the

Group has a 60% ownership interest. LCP provides actuarial and consulting services across pensions and

administration, employee benefits, investment consulting, general insurance and business analytics in the

UK and, through affiliates, in Abu Dhabi, Belgium, Ireland and The Netherlands.

Key Strengths

Alexander Forbes believes that the following competitive strengths contribute to its success and distinguish

it from its competitors:

Market leader in institutional employee benefits and multi-manager investments in its home market in South Africa and in other sub-Saharan African countries.

Alexander Forbes has been a long-standing key player in the sub-Saharan African financial services industry

and has established a group of underlying companies with market-leading positions in their respective sub-

sectors:

• AFFS is one of the leading standalone pension fund administrators in South Africa, with approximately

15% market share by assets under administration as at 31 March 2014;

• AFFS Consultants and Actuaries had approximately 23% of the total number of valuators of retirement

funds in South Africa and was the registered actuary to approximately 43% of the non-umbrella retirement

funds by fund assets as at 31 March 2014;

• AFFS is one of the largest umbrella retirement fund administrators in South Africa with its flagship

retirement umbrella f und, the AFRF, having a 2 4% market share by assets under administration and

approximately 2 22 ,000 active member records under administration as at 31 March 201 3;

• Investment Solutions is the largest multi-manager in sub-Saharan Africa, with R285 billion assets under

administration and management as at 31 March 2014;

• AF Health is a leading healthcare specialist consulting company in South Africa, providing services

to approximately 25% of all principal members of medical schemes, which translates into 9% of the

membership of open schemes and 45% of the membership of restricted schemes as at 31 March 2014; and

• AfriNet has market-leading positions in Botswana, Kenya and Namibia, with market shares of approximately

90%, 24% and 25%, respectively, as at 31 March 2014, according to the Company’s estimates.

30

With a number of industry-leading research publications and analytical tools, including the Benefits

Barometer, Member Watch™ and Large Manager Watch™, Alexander Forbes is also a leader in research

capabilities in the employee benefits sector in South Africa.

Institutional integrity with a high performance culture.

Alexander Forbes has embedded a strong “higher purpose” orientation and guiding framework into its

organisational culture to ensure that the Group has a positive impact on the lives of its clients, employees,

communities and investors.

Clients. Alexander Forbes gives expression to this higher purpose orientation through the SERVE model,

which asks and responds to five questions:

S = Simplicity: “How we deliver”

E = Expert innovative solutions: “What we deliver”

R = Relationships: “What we strive for”

V = Value of trust: “What we stand for”

E = Enrich people’s lives: “Why we exist”

Leadership. The SERVE model is at the core of Alexander Forbes’ leadership development and assessment

framework. The Group has invested significantly in building leadership capacity with the top 180 leaders

trained in terms of this model.

Employees. Alexander Forbes seeks to foster a positive environment and ensure that its employees remain

positively engaged. The Group’s employee recognition and reward programme, SuperServe, is based on the

SERVE model and the Treating Customers Fairly (“TCF”) roadmap issued by the FSB. In addition, improving

the depth of management through active investment, coaching and mentoring of its top leaders is also central

to improving the workplace dynamic. Alexander Forbes uses a balanced scorecard approach to balance the

short- and long-term objectives of employees. The work of Alexander Forbes’ staff and their competence has

been recognised by peer and industry bodies through numerous awards including the Professional Management

Review Award in South Africa (awarded to top retirement fund consultants and administrators) for seven

years in a row, the Sunday Times Top Brands Award for best insurance brand, and the POA 2013 Imbasa

Yegolide Award for the Best Employee Benefits Consulting Firm.

Communities and environment. The contributions made through the Alexander Forbes Community Trust

In 4 Life programme have supported graduates as well as the development of a number of local communities.

Alexander Forbes employees are actively involved in various community outreach programmes. Alexander

Forbes’ commitment to the environment is also illustrated by its new head office in Sandton being certified by

the Green Council of South Africa as a level four green building.

Shareholders and investors. Alexander Forbes believes that, in addition to ensuring the financial and

institutional integrity of the Group, taking genuine care of its clients, deepening engagement with employees

and acting responsibly towards its communities and the environment, it has yielded sustainable positive

returns to the investment and trust that its shareholders have in the Group.

Well-positioned to respond to changing industry and regulatory dynamics.

Alexander Forbes has achieved its leadership position in research and development in the employee benefits

sector due to its ongoing proactive approach in responding to changing industry dynamics. This has been

demonstrated by Alexander Forbes taking advantage of the industry shift from DB to DC pension funds and

providing solutions which are responsive to this shift in South Africa and other countries in which it operates.

In addition, the changing regulatory environment and increased awareness of governance and risk

management of retirement funds, together with changes in reporting standards, have resulted in increased

opportunities for the Group’s actuaries, investment consultants and other professionals.

The Group also seeks to positively and constructively engage with policymakers including the National

Treasury and other key industry regulators in order to assist in shaping important policy and regulatory

shifts, such as the proposed retirement reform in South Africa and the changes to regulatory capital adequacy

requirements.

Successful track record of organically developing new businesses and creating shareholder value.

Alexander Forbes has organically developed a number of businesses from greenfield operations into leading

players in their respective market segments:

• AFFS was developed out of the short-term, property and casualty insurance broking business in the

1950s and has become a leading employee benefits consultancy in South Africa. This business has, in

turn, developed a number of pioneering service offerings to become one of the largest retirement fund

31

administrators in the region, building one of the largest umbrella retirement funds in South Africa and a

significant financial planning business focusing on its individual clients’ financial wellbeing.

• Alexander Forbes was one of the founding shareholders of Guardrisk, which became one of the largest

specialist cell-captive insurance groups of its kind, having grown gross written premiums to R9.0 billion

by the time of its disposal in March 2013 .

• Investment Solutions, established by Alexander Forbes in 1997, has become a leading provider of multi-

manager investment portfolios to institutional clients in the South African market. Investment Solutions’

assets under administration and management increased to R285 billion between its formation in 1997 and

31 March 2014.

• In response to regulatory changes affecting brokers of personal lines insurance and following client

research, the Group reconstituted its personal lines insurance broker as a dedicated insurance company,

AFI, and continues to build on this base as part of its Retail growth strategy.

• Alexander Forbes identified an opportunity in the insurance market in Namibia in 2008 and founded

Alexander Forbes Insurance Namibia, which provides niche personal lines insurance to the retail

market. From an initial investment of R4.0 million, the Group has earned cumulative profits after tax of

R18.5 million to 31 March 2014.

Holistic offering across the value chain.

Alexander Forbes is deliberately positioned across the value chain, with the scope of its employee benefits’

products and services covering advice, administration, insurance and multi-manager investment services.

This advice-led strategy provides clients with packaged solutions that represent Alexander Forbes’ best advice

or, where appropriate, financial products from other providers. This strategy is consistent with a global trend

in the financial services industry towards the convergence of advice and products.

This convergence is most prevalent through the use of Investment Solutions to provide risk-adjusted multi-

manager investment portfolios that incorporate in-house expertise while maintaining independence from the

underlying asset managers. Similarly, clients can access in-house solutions through AFI and AF Life or,

where appropriate, through external insurance products.

Combined, the various businesses that form part of the Group cater to the various financial needs of its clients:

• Institutional clients: offering the full range of employee benefits advice and solutions across pensions

(DB, DC and hybrid), multi-manager investment, risk benefits and healthcare.

• Individual clients: offering holistic financial planning advice and solutions across retirement savings,

wealth management, healthcare, as well as short-term and long-term risks.

This holistic offering enables the Group to hold a privileged relationship with its clients, which has a number

of benefits, including high client retention levels and potential for increased penetration of the current client

base across the various business units, as well as a better negotiating position with product providers.

Deep understanding of the retail (individual) member base to support the Retail growth initiative.

As at 31 March 2014, Alexander Forbes provided administration, consulting or actuarial services to over

500 standalone retirement funds, as well as to more than 1 ,000 umbrella fund clients. This extensive client

base provides Alexander Forbes with 1.4 million underlying employees in sub-Saharan Africa who are end-

user clients of its services, of which 997 ,000 are based in South Africa. Alexander Forbes has the opportunity

to work with employers to ensure that their employees have sufficient employee benefits, savings and risk

cover in place.

Leading and scalable multi-management platform.

Investment Solutions is South Africa’s largest multi-manager, with a 44% market share among the four

largest multi-managers included in the Alexander Forbes Assets Under Management Survey measured by

assets under administration and management as at 30 June 2013. Investment Solutions had R285 billion

assets under administration and management in its multi-manager portfolios as at 31 March 2014, of which

assets under management comprised R256 billion. Investment Solutions has a diversified range of clients that

includes corporates, retirement funds, umbrella retirement funds, public sector, retail customers and

independent financial advisors (“IFAs”).

Investment Solutions has strong capabilities in selecting and blending investment managers and investment

styles to create risk-profiled investable portfolios with unique depth and coverage, and has a strong track

record of developing leading talent. Investment Solutions has an extensive manager research capability

covering a wide range of investment managers and products globally. Investment Solutions has built strong

distribution relationships with fund and individual advisors, including AFFS, which remains an important

distributor of its products and portfolios. Investment Solutions’ scalable platform enables intermediaries and

its own investment team to administer complex portfolios while providing reliable performance and regulatory

reporting.

32

Investment Solutions’ scale provides it with greater access to asset managers, and its flexible and scalable

platform provides it with the ability to manage an increased level of assets under management at lower

marginal incremental costs. Investment Solutions also has operations in Namibia and Jersey, with a research

team based in London. The business has recently expanded to provide platform capability and solutions to

selected intermediaries.

Well-positioned to capture the sub-Saharan African growth opportunity.

Alexander Forbes believes that it is well-placed to benefit from the forecast economic growth in the sub-

Saharan African market. The attractive macro-economic fundamentals and low penetration levels of

compulsory savings products in certain sub-Saharan African countries have provided an opportunity for

Alexander Forbes to expand into countries where the demographics are supportive and legislation provides

for private pension provision.

To date, Alexander Forbes has expanded its employee benefits consulting and administration platform to six

countries in sub-Saharan Africa that have experienced high growth rates in an emerging middle class and

where pension reforms and laws that promote compulsory savings are being implemented and has a leading

presence in Namibia, Botswana and Kenya. Together with correspondents, this represents the largest employee

benefits consulting network in Africa.

Operating in a number of jurisdictions outside of South Africa, the Group has over time built up significant

experience operating in, and an understanding of, the key structural drivers in a number of sub-Saharan

African markets. The Company believes there is an opportunity to expand into other countries as social

reforms occur there and to create further synergies through the improvement of overlap between countries

(for example, through brand, human resources, administration systems and intellectual capital).

Long-standing institutional client relationships with high market shares and high customer retention rates.

The depth of Alexander Forbes’ access to large corporates is demonstrated through its extensive long-standing

corporate relationships:

• Investment Solutions provides portfolio management or administration services to approximately 40% of

the top 100 companies listed on the JSE as at 31 March 2014 and had client retention rates in excess

of 99%;

• AFFS provides retirement fund consulting and administration services to approximately 70% of the top

100 companies listed on the JSE as at 31 March 2014. AFFS had retirement fund institutional client

retention rates of approximately 98% for financial year 2014;

• Alexander Forbes is a leading provider to both governments and corporates in the African countries in

which it operates; and

• LCP continues to maintain client retention rates in excess of 99%.

Predictable revenue base and cash generative model.

Approximately 77% of Alexander Forbes’ revenue base is recurring in nature, with approximately 5%

representing net underwriting profits in financial year 2014. The recurring fee income comprises asset-based

income, fee income from services rendered to clients, monthly administration (either on a fee per member or

a percentage of salary basis), consulting fees and commission income. There is limited volatility in the Group’s

revenues due to the relatively low proportion of one-off consulting fees, ad hoc retirement fund administration

services and underwriting income.

As a significant proportion of the Group’s income is linked to pension contributions, Alexander Forbes benefits

from the macro-economic drivers affecting employment and wage inflation.

Alexander Forbes has limited working capital requirements with high cash flow generation and limited credit

risk exposure in the business as a significant proportion of its income is collected from the retirement funds

and investments it administers. Alexander Forbes’ exposure to debtors remains limited as investments into

retirement funds and investment products are made only once funds are received from clients and payments

to clients are made only once funds are received from redeemed investments.

Alexander Forbes’ capital expenditure requirements, relating mainly to IT investments, are relatively stable

and predictable, and have been in line with depreciation in recent years.

Capital efficient business model.

Despite the increase in regulatory capital requirements as a result of the changing regulatory environment,

Alexander Forbes continues to operate a capital efficient business model whereby business is conducted under

the appropriate licences to ensure capital efficiency and increases in capital have been self-funded from

operational cash flows. The total capital requirements of Alexander Forbes’ underlying regulated entities

represent less than one year’s worth of the Group’s trading profit.

33

Alexander Forbes’ risk retention within its life and short-term insurance portfolios is low. The ability to

assume additional underwriting risk as these portfolios mature provides a platform for additional growth as

well as the opportunity for investors to capture exposure to administration and asset-related fee income

without the legacy underwriting and systemic exposures of a legacy insurance portfolio.

Investment Solutions and AFI are currently participating in the Internal Model Approval Process of SAM.

See “Regulation—Solvency Assessment and Management” . Investment Solutions is structurally positioned

such that the capital requirements of the standard formulae of the interim measures do not necessarily reflect

the limited risk nature of its operations or the linked unit nature of its liabilities. As a result, regulatory

approval of the use of the Internal Models may enable the Group to hold capital on a basis that is reflective of

the risk it is exposed to, which in turn may result in lower capital requirements or support growth with lower

marginal capital requirement.

Continuous investment into systems and core infrastructure.

Alexander Forbes utilises both in-house and third-party developed IT systems and has made continuous

investments in its systems to remain up to date with regulatory changes and clients’ evolving requirements.

Therefore, other than maintenance capital expenditure aimed at enhancing the current interface and planned

enhancements and developments to certain systems required in order to support the Group’s Retail growth

strategy, the Group’s IT systems require limited investment in the medium-term.

Stable and experienced management team.

Alexander Forbes’ key management team has remained stable since the appointment of its Chief Executive in

January 2010. The 13 Executive Committee members collectively have over 250 years of working experience

and have spent a total of 88 years working at Alexander Forbes. The current management team has been able

to embed a high performance, service-oriented culture, lift employee engagement and successfully steer the

Group through the global financial crisis, simultaneously increasing cohesion across the business units and

driving the growth in recent years. In the last four years, the management team has also focused on resolving

outstanding legacy issues, significantly re-enforcing the ‘SERVE’ culture of ethical behaviour which resulted

in further positive recognition of the Group’s brand and positioning. Alexander Forbes has also invested in

leadership to enhance succession planning.

Growth Strategy and Prospects

Alexander Forbes intends to capitalise on its unique market positioning and improve the performance of its

operations by pursuing the Retail, public sector and sub-Saharan Africa growth strategies, as described in

more detail below. These growth strategies are Group-wide initiatives focused on leveraging the core

institutional client base and the Group’s market positioning in its core businesses.

Retail Growth Strategy

As at 31 March 2014, the Alexander Forbes retail businesses included approximately 41 ,000 AFFS individual

financial advisory clients, predominantly serviced through financial planning consultants and private client

wealth managers (collectively, “FPC”) R48.5 billion of Retail assets under advice, mainly on the AFICA

platform; approximately 147 ,000 short-term insurance policyholders within AFI; and approximately

1 ,600 individual life insurance policyholders within AF Life.

Historically these businesses have functioned independently, with very little leveraging across the respective

client bases. In the last few years, as part of the Group’s strategic intent, a conscious decision was taken to

drive the Retail growth strategy with greater focus, including establishing the Retail Cluster under a single

business leader. While retaining the specialised focus in each of the respective business lines, the Retail

Cluster seeks to use the Group’s trusted advisor status with its clients and provide them with a common,

holistic client experience to help secure their financial wellbeing, and at the same time better leveraging the

client base to deepen vertical sales integration.

The Retail Cluster brings together all the businesses within the Group that already serve individual clients.

• FPC: Advice-led asset accumulation and asset retention business.

• AFICA: Linked investment service provider and administration platform.

• AF Life: Since 2012, AF Life has, through collaboration with the broader institutional business and FPC

and by growing its own distribution force, broadened its focus from providing predominantly group

risk products and solutions, to individual life, disability and dread disease benefits to individuals in the

institutional customer base.

• AFI: In 2007, Alexander Forbes extended its retail offering by reconstituting its personal lines insurance

broker into a dedicated insurance company, AFI, to write personal lines short-term insurance products for

individuals. Since then, AFI has grown its motor and household gross written premium from R 554 million

(financial year 2008) to R1,165 million (financial year 2014) and increased this class of personal lines

34

clients from approximately 60 ,000 to approximately 75 ,000. The Active Member Consulting strategy

within the Retail growth strategy aims to develop and increase the opportunity to deliver the short-term

risk products/policies to individual members of the corporate funds.

• Investment Solutions Independent Partners: Multi-manager portfolio solutions and administration for

the IFA market.

• Investment Solutions Retail: Creation, management and distribution of portfolios for individual clients

of FPC and AFICA.

The cornerstone of the Retail growth strategy is to leverage off the Group’s strong relationships with the

institutional clients of the pension funds it administers, and build earlier and deeper relationships with the

individual clients within the respective funds. As at 31 March 2014, the South African business had

approximately 997 ,000 active individual member records under administration while a further approximately

403 ,000 individuals belonging to funds administered by Alexander Forbes in the rest of sub-Saharan Africa.

Alexander Forbes believes that, with its strong brand, deep institutional relationships and individual client

information and consent, it is well-placed to provide tiered financial advice or execution-only services as

appropriate to these individuals.

The primary focus of the Retail Cluster is to deepen the Group’s understanding of the needs and purchasing

behaviour of the individuals within the funds that Alexander Forbes administers and follow this with financial

education and cost-appropriate, needs-based engagement. Cross-selling initiatives are further expected to

expand the Group’s share of wallet with its individual client base. Relative to its competitors, Alexander Forbes

believes it is uniquely positioned to leverage its trusted advisor relationship with its institutional clients, to

access and serve their employees with relatively good distribution economics. This creates significant value to

employers through an enhanced employer value proposition, as well as to the individual through providing

holistic solutions that cater to all their financial needs.

The Retail growth strategy presents a unique opportunity to accelerate the Group’s growth in the retail

market as it further develops competitive capabilities to take advantage of market opportunities and ultimately

reach individuals beyond its own funds.

The following table sets forth the key performance indicators for the periods indicated:

Year ended 31 March

2014 2013 2012

Net revenue attributable to Retail(1) (R million) 995 888 783

Net revenue growth 12.0% 13.4% 12.2%

Retail assets under advice: FPC (R billion) 48.5 40.3 32.7

Retail assets under administration: AFICA(2) (R billion) 42.8 36.7 30.7

Retail assets under management: Investment Solutions(3)

(R billion) 33.5 29. 8 26.0

Retail gross written premium (short term) (R million) 1 , 224 1 ,066 926

Retail gross written premium (long term) (R million) 16.8 15.2 13.6

1. AFI, AF Life, FPC and AFICA.

2. Approximately 88% of these assets are placed on AFICA by FPC (included in line above).

3. Approximately 79% of these assets are placed with Investment Solutions by AFICA (included in line above).

Capturing Public Sector Opportunities

The public sector in South Africa is the largest employer in the formal sector, with approximately 2 million

employees ( source: Statistics South Africa). The sector includes the national, provincial and local arms of the

government, state-owned enterprises, Chapter 9 Institutions under the South African Constitution (such as

the South African Human Rights Commission and the Auditor-General), as well as universities and other

public tertiary education institutions. While a large proportion of employees in the public sector already have

retirement benefits, a significant number, especially senior government officials, are not adequately catered

for. The public sector is a significant market sector for financial services related to retirement benefits and

personal financial management, with the Government Employees Pension Fund in South Africa and other

public sector-related retirement funds estimated to have total assets in excess of R1 trillion.

Alexander Forbes already has significant public sector business and, based on recent public sector market

research, believes that there is further potential to grow its position by mapping its current integrated value

offerings and providing innovative consulting services and solutions in response to identified needs in both

the institutional and retail segments.

The Group believes that its successful track record with private sector clients, holistic actuarial, investment

and risk consulting services and solutions will translate successfully with public sector clients. Through

utilising its expertise in actuarial and employee benefits consulting as well as institutional knowledge,

35

existing system infrastructure and technology platform, Alexander Forbes believes that it has the capability

to further develop its service to the public sector market effectively and continue to expand its consulting

opportunities in this market segment.

In light of the significant potential the public sector presents, Alexander Forbes has redefined its approach to

the public sector and established a dedicated team, the Public Sector Division, in order to focus resources on

growing its public sector client base. This team’s focus is on setting the overarching public sector strategy and

supporting the implementation thereof through effective engagement strategies in order to build lasting

relationships with public sector clients and stakeholders and communicate Alexander Forbes’ holistic value

proposition to both new and existing clients. After identifying opportunities and building the new business

pipeline, this team also assists the various Alexander Forbes businesses in tendering for new business and

retaining existing public sector clients.

In addition to the opportunities in the public sector retirement fund space, the Group believes that Investment

Solutions is well-positioned to benefit from asset management industry developments (such as Regulation 28

of the Pension Funds Act, the United Nations Principles for Responsible Investing initiative and the Code for

Responsible Investing in South Africa) and advise on the construction of responsible investment portfolios for

public sector entities. Investment policy statements and mandates are becoming an increasing focus for some

of the major public sector entities, and Investment Solutions’ capabilities are expected to be a key differentiator

for Alexander Forbes.

The following table sets forth the key performance indicators for the periods indicated:

Year ended 31 March

2014 2013 2012

Net revenue attributable to public sector (R million) 167 136 121


Alexander Forbes public sector tenders’ participation 74% 53% <20%

New clients acquired 42 15 –

Growth in Sub-Saharan Africa

Many countries in sub-Saharan Africa are expected to experience medium to high economic growth rates over

the medium term. Financial services markets in a number of these countries are still at an early stage of

development, which represents an opportunity for Alexander Forbes to grow into the relatively underdeveloped

and underpenetrated markets, building on AfriNet’s success in Namibia, Botswana, Kenya and experience in

developing businesses in Nigeria, Uganda and Zambia.

Pension and social security reforms are among the key criteria taken into account in connection with the Group’s

expansion in sub-Saharan Africa. The pensions and social security reforms in East Africa, as well as certain other

changes, such as the amendments to the Pensions Fund Act in Botswana, typically result in an increased market

size, as the member base grows, and offer opportunities for the provision of additional services that are statutorily

permitted. For example, in Kenya, the Social Security Bill adopted in 2013, increased the potential market size

from approximately 400 ,000 members to approximately 1.2 million members, based on the Group’s internal

estimates. Similar social security reforms have occurred in Ghana and are expected to occur in other countries in

the region, including Uganda, Tanzania, Zambia and Ethiopia. The Group aims to take advantage of favourable

legislative changes to expand its operations in the region in the short to medium term.

In addition, the continued expansion of South African companies into other parts of the African continent in

search of incremental growth presents further opportunities for Alexander Forbes to follow its corporate

clients as they expand.

As a market leader in providing retirement administration services and actuarial and asset management

consulting services in South Africa and a trusted financial services provider, Alexander Forbes has long-standing

relationships with many South African multi-national corporates. In expanding into new territories, AfriNet

plans to continue to leverage off its institutional experience and expertise, replicating the successful South

African business model and scalable IT platforms, while adapting to the specific domestic commercial and

regulatory environment in each country. The Group’s consulting-led approach minimises capital outlays and

enables a lower risk profile when entering into new and relatively underdeveloped markets.

Prospects

The Group believes it has attractive long-term prospects, underpinned by an enabling macro-economic

environment that is expected to support growth opportunities across the Group’s businesses.

The disposal of the Guardrisk group of companies substantially completed the strategic repositioning and

refocusing of the Group that was the driving force behind the many divestments and disposals implemented

over the past number of years. In addition, on 31 March 2014, the Group completed the Restructure, which

has resulted in a simplified and more flexible financial position. As a result, the Group believes it is now well-

36

positioned to consolidate its strong market position in its core businesses and to drive its growth strategies

with clear focus.

Business Units

The Group’s businesses are split across five business units: AFFS and Investment Solutions, which are its core

businesses, AfriNet and AF International, which provide for geographic diversification, and AFI, which,

together with AF Life (a subsidiary of AFFS), provides complementary product capabilities to the products and

services offered by the core businesses.

AFFS

AFFS is a leading employee benefits consulting, actuarial, investment and administration services provider,

health and risk consulting and individual financial advisory business in South Africa. With approximately

997 ,000 active member records under administration and approximately R323 billion in assets under

administration as at 31 March 2014, AFFS is one of the largest private umbrella retirement fund administrators

in South Africa, both in terms of members and assets. Its flagship umbrella retirement fund, AFRF, is one of

the largest multi-employer umbrella retirement funds in South Africa, with approximately R49.5 billion in

assets under administration and a 2 4% market share as at 31 March 201 3 ( source: Financial Services Board

website). This business is based in South Africa, but also provides employee benefits consulting and insurance

consulting in other African countries.

AFFS is at the core of the Group’s business model exhibiting stable recurring income, historically providing

client access and distribution capabilities for its other business units, including, in particular, Investment

Solutions. In addition, AFFS has focused on improving employee and customer wellbeing through worksite

education and encouraging behaviours promoting financial wellbeing through integrated advice and product

offering.

AFFS generated net revenue of R1,754 million and trading profit of R387 million in financial year 2014,

representing 40.0% and 35.6%, respectively, of the Group’s total. As at 31 March 2014, AFFS had 997 ,000

active member records under administration, which represents an approximately 10.6% increase as compared

to 31 March 2013.

The following table sets forth the key performance indicators for the AFFS business unit for the periods

indicated:

Year ended 31 March

2014 2013 2012

Net revenue (R million) 1 ,754 1 ,603 1 ,485


Trading profit (R million) 387 365 330

Trading profit growth 6.0% 10.6% 9.6%

Number of standalone retirement funds 331 343 338

Standalone retirement funds assets under management

(R billion) 27 4.9 230.0 219.1

Number of umbrella corporate clients(1) 1 ,031 848 792

Total umbrella retirement funds assets under management(2)

(R billion) 57.3 45.6 34.7

Number of active members records under administration 997 , 004 901 ,532 854 ,537

Number of healthcare corporate clients 513 484 482

Number of FPC Retail clients 41 ,021 38 ,407 36 ,059

Retail assets under advisement (R billion) 48.5 40.3 32.7

Insurance gross written premiums (R million) 417 394 407

1. Includes AFRF, Alexander Forbes CorePlan (“CorePlan”) and Alexander Forbes Access Fund (“AF Access”).

2. Includes AFRF, CorePlan, AF Access, Alexander Forbes Preservation Funds and Alexander Forbes Unclaimed Benefit Preservation Fund.

Within AFFS, the operations are categorised into the following sub-divisions:

• Operations and Administration, which includes retirement fund administration (both umbrella retirement

funds and non-umbrella retirement funds). This sub-division is a leading provider of retirement fund

administration, with approximately 997 ,000 active member records under administration in retirement

funds in South Africa as at 31 March 2014. In financial year 2014, Operations and Administration had

27 new standalone institutional client appointments. Its flagship umbrella retirement fund, AFRF, is one

of the largest retirement funds in South Africa, with 657 participating employers and approximately

R49.5 billion assets under administration as at 31 March 2014, and a benchmark against which other

funds in South Africa are assessed. In addition, this sub-division provides administrative services to clients

of AFICA, covering a range of retirement and savings products offered on this platform.

37

• Consultants and Actuaries, which provides consulting and actuarial services to corporate clients, retirement

funds and government institutions. This sub-division is a leading provider of employee benefits consulting

and actuarial services in South Africa and advises clients on the design and management of employee

benefits plans, investment strategies, plan governance, risk management and legislative matters. The

sub-division’s actuarial services include the statutory valuation of employee benefits plans, corporate

accounting valuations and advising on corporate obligations relating to mergers and acquisitions with

regard to employee benefits matters.

• Umbrella Funds Consulting, which provides retirement fund consulting and preservation services and

products to over 940 participating employers of the umbrella retirement funds managed by AFFS.

• Retail, which provides a full spectrum of financial planning and wellbeing as well as wealth management

services to individuals. This sub-division is an advisory business that provides advice on investment, estate

planning and life and disability cover, as well as advice on the purchase of annuities, predominantly focusing

on individuals within its base of participants in retirement schemes and employees of other corporate

clients it advises. As at 31 March 2014, it had R48.5 billion of assets under advisement relating to retail

customers, a 20.3% increase as compared to 31 March 2013. In addition, the sub-division’s approximately

41 ,000 Retail clients as at 31 March 2014 represented a 6.8% increase as compared to 31 March 2013.

• AF Health, which provides medical scheme and health-related advice and actuarial services to over

510 corporate clients and related individuals. This sub-division assists employers and state and parastatal

institutions in the selection, implementation and maintenance of medical schemes for their employees

and members. It also provides specialised consulting and actuarial services to trustees regarding benefit

design, scheme performance, communication strategies, reserving strategies and post-retirement

healthcare liability valuations for accounting reporting purposes and solutions to manage these liabilities.

The AF Health Management Solutions unit within this sub-division offers absenteeism and disability care

management as well as occupational healthcare consulting services. As at 31 March 2014, the AF Health

sub-division had 513 healthcare clients, which represents an approximate 6% increase as compared to

31 March 2013.

• AF Life, which is a long-term insurer registered with the FSB and which provides death, disability and

dread disease cover to both corporate and retail clients, and funeral products to corporate clients. In

addition, it also houses the various institutional umbrella funds.

• Others, including Trust Services (providing fiduciary services to beneficiary funds), Asset Consultants

(providing asset consulting to retirement fund trustees), Legal Services (providing consultant and client

legal support and advice), Public Sector Division (focusing on business opportunities in the Public and

related sectors), Research and Development (supporting business units with industry-specific employee

benefits research, best practice and product development and pricing), Alexander Forbes Compensation

Technologies (“AFCT”) (providing Road Accident Fund medical supplier recoveries process) and Insurance

Consulting (providing actuarial consulting services to short- and long-term insurers in respect of solvency

and regulatory capital).

Operations and Administration

Operations and Administration is a leading provider of retirement fund administration services in South

Africa. Its revenues are mainly driven by fees from the administration of standalone retirement funds, the

administration of the various umbrella retirement funds offered by AFFS and administration fees from the

platform administering retail funds and investments through AFICA.

The Operations and Administration sub-division generated net revenue of R315 million in financial year 2014.

Products and services

The Operations and Administration sub-division mainly provides the administration of umbrella retirement

funds and standalone funds, including:

• Alexander Forbes Administration Services, which provides administration services for standalone

retirement funds;

• AFRF and CorePlan, which are umbrella retirement fund products for corporate clients where advice is

provided by AFFS consultants;

• AF Access, which is an umbrella retirement fund used by corporate clients where advice is provided by an

external consultant;

• Alexander Forbes Preservation Funds, which are used to preserve money when an individual leaves the

employer’s fund;

• Alexander Forbes Unclaimed Benefit Preservation Fund, which accepts unclaimed benefits from retirement

funds for further tracing and payment to beneficiaries;

• Retail umbrella funds, which provide retirement solutions for small employers and individuals; and

38

• AFICA, an investment administration and product packaging business offering access to traditional life

insurance products and collective investment schemes.

Operations and Administration has six segments, each providing different types of services:

– Retirement Fund Administration Services, which is the main operational administration function

performed for retirement funds. Administration Services includes the receipt of contributions,

the payment of benefits to qualifying members and pensioners of retirement funds on a monthly

basis (i.e., annuity-type income payments as well as lump sum benefits) and other related services

required to administer a retirement fund.

– Finance, which is an operational financial management function performed for each retirement

fund. The Finance segment consists of financial management services, which includes regular

statutory reporting to the various legislative entities, financial reporting services (including

statutory auditing of each retirement fund), central functions and liquidity management. The

financial management function includes a central banking platform that interfaces host-to-host

with all the major banks in South Africa and offers a centralised payment gateway to all its

operational activities. This segment also includes a centralised tax division, a dedicated team which

performs asset and liability matching for DC funds and a dedicated team focusing on closing and

liquidating funds.

– Client Service, which assists clients through a call centre, walk-in centres and a Client Services

Managers team, focuses on direct contact with funds and fund members, and acts as client

relationship managers for funds.

– Operational Risk Management, which focuses on the implementation and monitoring of best

practice across the operating units. This segment also includes forensic specialists, who focus

on the prevention and detection of fraudulent activities and a team of accounting specialists. In

addition, the Operational Risk Management unit develops standardised policies and procedures

and is responsible for the training and implementation monitoring of new practices and processes.

– Operational Systems, which provides in-house support to AFFS’ core administration platforms.

This segment conducts centralised batch processing, online user support and system level data

maintenance. Operational Systems provides system support to the Group’s operators in all sub-

Saharan African countries.

– AFICA, a registered linked-investment services provider which is an investment administration

and product packaging business offering access to the platform for investment in a wide range of

traditional life products (such as endowments, retirement annuities, preservation funds and living

annuities) and collective investment schemes (such as unit trust funds).

Distribution

Operations and Administration’s products are distributed through the Institutional Sales and Distribution

unit, senior management within Operations and Administration, and management and consultants

within AFFS.

Strategy

Operations and Administration is focused on maintaining and growing its leading market position in the

fund administration market. This includes both securing new institutional clients and ensuring that AFICA

maintains its competitive position as the preferred platform for FPC business.

Operations and Administration is also focused on operational efficiencies through investing in the improvement

of operations and servicing aimed at achieving more competitive pricing and reducing the costs of investments

through AFICA.

Consultants and Actuaries

Consultants and Actuaries is a leading provider of employee benefits consulting and actuarial services in

South Africa, which advises clients on the design and management of employee benefits plans, investment

strategies, plan governance, risk management and legislative matters.

The Consultants and Actuaries sub-division generated net revenue of R242 million in financial year 2014.


Consultants and Actuaries provides a full range of integrated employee benefits advice and solutions to the

boards of trustees of standalone retirement funds and companies, including:

• the holistic design and management of employee benefits plans that align an employer’s objectives with

the needs of its employees;

• devising and implementing investment strategies and risk management practices;

39

• providing broker services to the client’s insurance arrangements for death and disability cover for

employees and their families;

• establishing governance programmes to support plan sponsors and help trustees meet their fiduciary

responsibilities;

• developing and implementing communication and education strategies for plan members;

• legal support focusing on the latest statutory and regulatory requirements;

• statutory valuations and financial reviews of retirement funds; and

• corporate financial reporting on employee benefits plans.

Distribution

Consultants and Actuaries’ products and services are distributed through the Institutional Sales and

Distribution unit, consultants and senior management within AFFS.

Strategy

Consultants and Actuaries aims to be the strategic and trusted partner to each of its clients, providing solution-

centred advice to meet their requirements. A key part of the strategy is also to create an enabling environment

for the Retail business in terms of the consulting approach and information provided to employers and

trustees. The Consultants and Actuaries team uses its client relationships to support other parts of the Group

by introducing these offerings to clients where appropriate. A key objective is to devise strategies aimed at

individual members within the employer benefit programmes to assist them in improving their financial

wellbeing.

Consultants and Actuaries also plans to further support the AfriNet operations and grow the Group’s African

footprint within and beyond its current markets.

Umbrella Funds Consulting

Umbrella Funds Consulting provides products and related consulting services for the participating employers

in the umbrella retirement funds managed by AFFS, in terms of which professional trustees manage the fund

enabling competitive operational costs.

Umbrella Funds generated net revenue of R152.7 million in financial year 2014, of which R103.2 million was

consulting revenue and R49.5 million was administration revenue.


Umbrella Funds Consulting offers two corporate umbrella retirement funds:

• AFRF, which provides a flexible arrangement that can be customised to meet client’s needs; and

• the Alexander Forbes Core Plan, a lower-cost option with more restricted choices and consulting services.

Employee benefits advice is provided to clients by AFFS’ consultants and administration services are provided

as part of the product. Insurance is available to provide financial assistance to employees and their families in

the event of the death or disability of the employee. The consultants act as brokers and advisors to the client’s

insurance arrangements.

The assets of the fund are held on AF Life’s balance sheet and are reinsured with Investment Solutions, which

in turn provides multi-manager services.

Distribution

Umbrella retirement fund products and consulting services are distributed through the Institutional Sales

and Distribution unit, consultants and senior management within AFFS.

Strategy

Umbrella Funds Consulting aims to enhance, develop and grow the umbrella funds business, while at the

same time retaining existing clients and ensuring a competitive market positioning. The team uses its client

relationships to support other parts of the Group by introducing these offerings to clients where appropriate.

A key objective is to devise strategies aimed at individual members within the employer benefit programmes

to assist them in improving their financial wellbeing.

Product development and consulting in relation to legislative changes are key for the Umbrella Funds sub-

division. This business is competitively positioned to benefit from the anticipated retirement reform in South

Africa, including among others, the annuitisation of benefits on retirement and compulsory preservation.

40

Retail

Retail provides financial planning and wellbeing and consulting advice to individuals. Alexander Forbes

entry into the retail segment began in the mid-1960s through the marketing of financial services products

and services to individuals in the institutional customer base through the predecessor of FPC. The FPC

business has evolved over time from a traditional product-driven business to an advice-led financial planning

and consulting business predominantly targeted at the higher customer segment within the Group’s

institutional client base. Retail had approximately 41 ,000 clients and R48.5 billion assets under advice as

at 31 March 2014.

Many of the individual clients are referred to Retail when they retire or withdraw from retirement funds

administered by Operations and Administration or funds to which Alexander Forbes provides consulting

services. The holistic approach to financial wellbeing includes advice on preservation funds and pre-retirement

planning (including long-term insurance), retirement planning (including purchase of annuities), discretionary

investments and risk products, wills and estate planning as well as asset allocation.

A key performance indicator for Retail is the capture rate, which measures the percentage of preserved assets

within the retirement funds administered by Alexander Forbes that are captured or consulted to by the FPC.

Retail’s capture rate has increased from 29% at 31 March 2013, to 33% as at 31 March 2014.

Retail generated net revenue of R647 million in financial year 2014.


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


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.


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.


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 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



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.


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 growth 14.0% 6. 2% 11.9%


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


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 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 growth 23.3% 18. 8% 12.7%


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



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.


Through LCP, Alexander Forbes provides actuarially led employee benefits-related consulting, investment

consulting and life and general insurance actuarial consulting, primarily on a billable hours basis, in the

following areas:

• Advice to trustees of occupational pension arrangements. Valuation of pension funds, advice on scheme

funding and employer negotiations, DB and DC pension scheme consulting, benefit design and costing,

scheme documentation, pension administration and member communication, de-risking solutions, general

advice, pension trustee training, trust governance and employer covenant review services.

• Advice to sponsors of occupational pension arrangements. Accounting for pensions, mergers and

acquisitions work (including due diligence and advice on financing pension scheme deficits), negotiations

with pension trustees, benefit design and costing, advice on the management of pension and other employee

benefits costs and risks, corporate reporting, and advice on de-risking solutions. It also offers advice on

overseas plans, accounting for pensions, due diligence, advice on expatriate services and global benefit

advice on employee benefits design and coordination.

• Pension administration. Recordkeeping, benefit calculations, pension payroll, secretarial services

for trustees, individual member documentation and accounting services to, predominantly, actuarial

consulting clients.

• Investment consulting. Consulting on investment decisions made by scheme trustees and their sponsors,

including those related in particular to DB and occupational DC pension schemes, strategic advice on

investment portfolios, the matching of assets and liabilities, the selection of investment managers,

monitoring managers and portfolio restructuring, including advice on swaps and alternative assets

strategies.

• General insurance actuarial consulting. Advice to insurance companies and Lloyd’s syndicates on

reserving and pricing, optimal reinsurance structures, actuarial services relating to medical malpractice

covers, Solvency II and capital adequacy modelling.

• Business Analytics. Non-employee benefits actuarial advice to corporate clients, including share option

valuations, and real-time financial and statistical stochastic modelling including for large scale, energy

projects and clients.

48

LCP LLP, which represents approximately 93% of LCP’s business, targets large UK corporations and multi-

national companies and has over 900 clients. Recurring consulting revenue represents a significant portion

of the revenues generated by LCP.

LCP LLP benefits from high customer retention and public recognition and has received a number of awards

in recent years:

• DC Consultancy of the Year at the Professional Pensions UK Pension Awards (2014).

• Risk Reduction Advis or of the Year at the Professional Pensions UK Pension Awards (2014).

• Corporate Advis or Awards Best Strategy for Investment Advice on Pensions (2014, 2013, 2012, 2011).

• Pensions Consultancy of the Year at the Irish Pensions Awards (2013).

• FT Pension and Investment Provider Awards – Auto-enrolment consultant of the year (2013).

• FT Pension and Investment Provider Awards – Buyout consultant of the year (2013).

Channel Islands

Alexander Forbes Channel Islands is a Jersey-based regulated independent financial advisory business

reporting to Investment Solutions in South Africa. Alexander Forbes Channel Islands commenced business in

Jersey in 1975 and provides employee benefits and financial advisory services to Channel Islands’ employers

and employees, as well as South African and UK clients. Services include the provision of pensions’ solutions

and corporate risk benefits locally and internationally, as well as independent financial advice to individuals

within Jersey. One of the core offerings is the Alexander Forbes Jersey Pension Investment Trust, which had

£43.5 million of assets under management as at 31 March 2014, and which provides an holistic, flexible

defined contribution pension solution to employers and individuals, including administration, investment,

reporting and advice to members.

The following table sets out the net revenue for the AF International business for the periods indicated:

Year ended 31 March

2014 2013 2012

(£ thousands)

UK and Ireland 78 ,380 70 ,891 67 ,277

The Netherlands 822 768 871

Channel Islands 1 ,636 1 ,541 1 ,411

Total net revenue (continuing operations) 80 ,838 73 ,200 69 ,560

Strategy

AF International’s recent focus has been centred on streamlining the business and disposing of non-core

operations. It is currently reviewing its strategy for the Belgium and Abu Dhabi businesses, which mainly

provide “Talk” software and associated software services. For purposes of the Consolidated Financial

Statements, Lane Clark & Peacock Belgium CVBA (“LCP Belgium”) is classified as held for sale.

The current strategy for the core business of LCP and Alexander Forbes Channel Islands is to continue to

grow by increasing revenue, through new business and maintaining high client retention rates.

Disposals

In financial year 2012, the Group sold the Risk Services businesses in South Africa, Namibia and Botswana to

the Marsh Group. Subsequently, in the same transaction, the Group disposed of the Risk Services businesses

in Uganda, Malawi, Zambia and Nigeria in financial years 2012 and 2013. In addition, the Group sold its

interests in the Risk Services businesses in Tanzania and Mozambique in financial year 2013. The Group has

also entered into agreements to dispose of the Risk Services businesses in Swaziland with Tibiyo Taka Ngwane

(a Swazi Nation Organisation established by Royal Charter in 1968) and Kirsh Holdings (Proprietary) Limited,

and in Zimbabwe with A Simba Private Equity Partners (Private Limited), respectively. The completion of each

of the Swaziland and Zimbabwe disposals is conditional upon the receipt of certain regulatory approvals.

In financial year 2013, the Group disposed of a number of interests in the UK and Europe, including the sale

of the AFCA UK to JLT. In addition, the Group disposed of the Investment Solutions UK business, the

Media Insurance Services (Direct Marketing) businesses in the UK, the LCP Libera (Switzerland) business,

which disposals were completed in financial year 2014. Alexander Forbes Trustee Services in the UK was

disposed of in financial year 2015. These disposals did not affect the holdings in the consulting actuarial

partnership of LCP .

49

On 4 November 2013, the Group announced the disposal of the Guardrisk business unit. The transaction

closed in March 2014.

With respect to its divestments, the Group is subject to non-compete undertakings with varying durations,

which have been provided in favour of the acquirers of the divestments, and which restrict certain activities

of the Group in the business line sold in the relevant identified territories to which the non-compete applies.

Pursuant to these divestments, the Group may also be subject to outstanding potential indemnities and other

claims which may arise in relation to the divestments and for which the Group could be liable until such

time as the applicable period during which a claim may be brought expires. See Annexure 14 for a list of

material divestments.

Properties

The Group’s principal property is the head office in Sandton, which received level four green building

certification. The Group moved into its head office, which has approximately 36 ,000 square metres of office

space, in September 2012 and has leased this property through 2024. The Group also leases land and buildings

in various locations throughout South Africa and internationally. See Annexure 9.

Information Technology

Alexander Forbes uses a combination of tailored and packaged information technology (“IT”) solutions,

including in-house developed systems such as ALEX, Mertrix and SAMMI. The Group’s IT infrastructure is

highly standardised, centralised and supported by Alexander Forbes Group IT. The main data centre is situated

at Alexander Forbes’ head office in Sandton. The Group’s disaster recovery data centre facilities are based in

Centurion. Both facilities include enhanced environmental monitoring, generators, uninterrupted power

supply and fire suppression. Software licensing is centrally owned and managed by Alexander Forbes Group

IT. The costs of all IT services provided by Alexander Forbes Group IT are recovered from the various business

units on an agreed allocation basis that includes dedicated resourcing and licensing, named user licensing,

database usage and headcount.

Employees

Alexander Forbes’ employees are responsible for the stabilisation and growth of its businesses and represent

Alexander Forbes to its clients, communities and other stakeholders. As at 31 March 2014, Alexander Forbes

had 3 ,900 full-time employees, compared to 3 ,881 and 4 ,082 as at 31 March 2013 and 2012, respectively.

There are no recognised trade unions at Alexander Forbes and no collective bargaining on the terms and

conditions of employment between Alexander Forbes and its employees. In addition, Alexander Forbes’

South African businesses are subject to the requirements of the FS Code. See “ —Broad-Based Black Economic

Empowerment” .

Investigations and Legal Proceedings

In the conduct of its ordinary course of business, the Group is exposed to various actual and potential claims,

lawsuits and other proceedings relating to alleged errors and omissions, in respect of which the Group has

taken out professional indemnity insurance. See “ —Errors and Omissions Insurance”. The directors are

satisfied, based on present information and the assessed exposure (for error and omissions claims), that the

Group has adequate insurance protections in place to meet such claims. However, like all businesses of this

type, the risk exists that significant adverse developments in past or existing claims, or a significant increase

in the frequency or severity of future claims, could have a material effect on the Group’s reported results.

Other than in respect of actual and potential claims, lawsuits and other proceedings relating to alleged errors

and omissions and those matters which are described below, the directors are not aware of any legal or

arbitration proceedings, including any proceedings that are pending or threatened, that may have or have

had, in the 12-month period preceding the Last Practicable Date, a material effect on the financial position of

the Group.

SARS Settlement

During financial year 2014, the Group received information requests from the SARS focused on the 2007

acquisition of the Group by the Private Equity Consortium (the “2007 Acquisition”) and a reorganisation of

the Group’s businesses. The information requests related mainly to the interest expenditure incurred in

respect of debt raised for the reorganisation. The interest expenditure incurred by the Group between 2007

and 2014 was claimed as a tax deduction by some of the Group’s subsidiaries.

The Group believes that its reorganisation and the debt funding was a common and legitimate type of

transaction and was implemented in accordance with legal and tax advice. However, at the initiative of the

Group and in order to bring finality to this matter, on 1 July 2014, Alexander Forbes entered into an agreement

providing for a full and final settlement of the matter, including with respect to the deduction of interest

claimed since the 2007 Acquisition up to and including financial year 2014. The conclusion of the settlement

50

resulted in an additional assessment for cash taxes payable by AF Acquisition in an amount of R60 million

and the waiver of assessed losses carried forward, which included assessed losses in respect of which an

amount of R66 million of deferred tax assets that were previously raised and held on the balance sheets of

various subsidiaries of the Group. The Consolidated Financial Statements reflect the impact of the

SARS Settlement.


Investment Solutions has entered into a reinsurance arrangement with a reinsurer whereby Investment

Solutions manages assets on behalf of that reinsurer (for purposes of this paragraph, the “client”). The assets

are further reinsured to a second re-insurer (the “third-party reinsurer”) which offers the portfolios to

investors through endowment structures. During a period from 2007 until 2011, assets which should have

been invested into taxed portfolios were invested into untaxed portfolios. In January 2014, Investment

Solutions received a letter of demand from the client’s attorneys and later from the third-party reinsurer’s

attorneys alleging incorrect allocation of assets to the wrong policyholder fund in terms of Section 29A of the

Income Tax Act. In particular, the claim relates to alleged breach of Investment Solutions’ obligations under

the reinsurance agreement. Investment Solutions is in the process of responding to the letters of demand and

denies all liability in respect of the claims. The claim has been reported to Investment Solutions E&O insurers

and indemnity is being provided subject to the relevant policy’s terms and conditions. No summons has been

received as of the date of this pre-listing statement.

AF Health

In November 2013, the South African Council for Medical Schemes (the “CMS”) requested certain information

in connection with AF Health’s communication relating to the move by one of its clients to a new fund and

indicated it was considering whether AF Health’s accreditation should be suspended or withdrawn. In a

subsequent letter, the Compliance and Investigative Unit of the CMS expressed the view that AF Health was in

contravention of the Medical Schemes Act and had failed to comply with the Code of Conduct. On

30 April 2014, AF Health met with the CMS to discuss the matter and provided further information requested

by the CMS. The Group is currently awaiting the CMS’ response. If its accreditation were suspended, AF Health

would not be able to earn any commissions from any South African registered medical scheme. In fi nancial

year 2014, such commissions accounted for R132 million, or 68%, of AF Health’s revenue. The Company is of

the view that AF Health has not infringed any applicable law or regulation and does not believe that this

inquiry is likely to result in the suspension or revocation of its licence.

Price Forbes Arbitration

The Group has agreed to arbitration in respect of a dispute regarding its right to use various trademarks

(including “PRICE FORBES” and “PRICE FORBES GROUP”). The dispute centres around the Group’s use of

certain trademarks acquired by it pursuant to certain historical transactions and the alleged passing-off and

infringement of certain of the Group’s trademarks by a third party. The outcome of the arbitration may

include the losing party bearing the other party’s costs. The parties have agreed that the arbitrators’ decision

is to be fi nal and binding with no appeal. A decision is expected in late 2014.

Broad-Based Black Economic Empowerment (B-BBEE)

B-BBEE is a South African government policy that attempts to rectify the economic divide in South Africa

as a result of historical discrimination. This policy has been embodied through the Codes of Good Practice

(the “Codes”) issued pursuant to the B-BBEE Act. In addition, the South African fi nancial industry entered

into the Financial Sector Charter in October 2003 (the “FS Charter”), which was a fi nancial services industry-

driven B-BBEE initiative. The FS Charter provided guidelines on B-BEE within the industry, which were

voluntary, but companies in the fi nancial services industry have been reporting annually on B-BBEE

progress since 2005. In 2012, the FS Charter was replaced with the FS Code, a new binding legal framework

against which the empowerment progress of the fi nancial sector is measured. The FS Code applies to all

fi nancial services fi rms and has set targets in core categories, which (when weighted) make up the scorecard

against which fi nancial institutions are rated each year. The scorecard in the FS Code measures B-BBEE

compliance in the following categories: shareholding, management, employment equity, skills development,

procurement, enterprise development, social investment, access to fi nancial services and empowerment

fi nancing. The FS Code is enacted pursuant to Section 9(1) of the B-BBEE Act. See “Regulation — Black

Economic Empowerment”.

As a practical matter, B-BBEE compliance is an important factor in winning new corporate and institutional

business, especially from government or related organisations, and in maintaining existing business

(companies prefer to mandate fi rms that are “empowered” as it assists them to comply with their own B-BBEE

industry codes). As a result, private companies also seek B-BBEE-compliant business partners.

The Company’s B-BBEE status was audited by Empowerdex Proprietary Limited, a leading empowerment

rating agency in South Africa, in May 2014 and it received a Level 2 empowerment contributor rating (where

Level 1 is the highest score and Level 8 is the lowest score).

51

The Group is committed to giving effect to the objectives of the B-BBEE Act and the FS Code and also, where

possible, meeting its procurement requirements through the procurement of goods and services from groups

that the B-BBEE Act seeks to benefi t. The shareholding of the Group’s current B-BBEE partners may decrease

following the disposal of their interest by the current B-BBEE owners as a result of the Offer. It is anticipated

that there will be a requirement for additional B-BBEE ownership of between 2% and 3% of the Group in order

to contribute towards maintaining the level of ownership required to obtain a Level 2 empowerment contributor

rating. This is based on a number of assumptions that may change over time, including those relating to

continuing consequences (i.e. the principle which allows a measured entity to continue to score a limited

number of points for ownership on the basis of previous B-BBEE transactions), the expected investor base in

the listed environment and assets that have been realised by the Group. As a result of being required to

undertake a future ownership transaction to increase the B-BBEE shareholding, as is typical of such

transactions, support or facilitation of a transaction of this nature may be provided by the Group in line with

South African market standards. Notwithstanding this, other factors (such as the other elements measured

under the FS Code scorecard) will also play a role in the Group’s overall rating.

Errors and Omissions Insurance

Given the nature of the Group’s activities, the most signifi cant operational risk faced by the Group relates to

claims for losses suffered by clients due to errors and omissions on the part of the Group or its representatives,

typically related to advice and administration activities.

The Group’s errors and omissions risk is insured in the London market, with a limit of R1.9 billion for each

and every claim or loss in the annual aggregate in excess of the aggregate deductible of R90 million (the

“market policy”). The R90 million aggregate excess is self-insured with a third-party cell-captive insurer,

Mannequin Insurance PCC Limited Cell AFB48 (the “Mannequin policy”). The market policy covers all

subsidiary and associate companies, except for LCP, which effects its own cover. Non-wholly-owned subsidiaries

and associate companies have access to a combined limit of R125 million, subject to the aggregate deductible

of R90 million. The Group has arranged a separate errors and omissions run-off cover for the fi nancial

services operations in the UK sold to JLT (to comply with contractual obligations in the sale placement

agreement) with a limit of £55 million for any one claim or loss in the aggregate, with the excess layers on

the Group programme providing further cover up to R1.2 billion. This is in respect of claims notifi ed post-

completion of the sale of the operations for which the Group retains responsibility.

The Group is generally seen by the insurance market as a good risk and this has been refl ected in a number

of aspects, including a wide policy wording, generally reducing rates over the years and very wide and

generous claims handling conditions. The Group is in a relatively unique position and its policy provides two

major advantages over many others. Firstly, claims circumstances are only known to the Company when they

are known to a specifi c named individual. This considerably reduces the risk of a claim being repudiated for

late notifi cation. Secondly, it is empowered by insurers to settle its own claims up to R 10 million and these

claims count towards its aggregate deductible of R90 million without reference to the insurers. These

advantages are of considerable value to the Group and the Group considers it highly unlikely that it would be

able to replicate these arrangements with alternative insurers.

The Group insures on what is generically called a “full civil liability” basis, with a policy wording that has

been adapted and improved over many years. It has many features which are generally not available to the

majority of other insureds. Such features have been developed by remaining with the same lead insurers. This

long-term relationship has built up a level of trust whereby the Group is able to continue to obtain benefi ts that

would otherwise be unavailable.

52

INDUSTRY OVERVIEW

South African Macro-Economic Environment

Economy characterised by stable GDP growth

South Africa has been characterised by stable gross domestic product (“GDP”) growth over the last 10 years.

Based on data from the International Monetary Fund nominal GDP in South Africa increased from

approximately R1,273 billion to R3,139 billion between 2003 and 2012, which represents a CAGR of

approximately 10.5%.

Wage infl ation outpacing CPI, rising employment numbers and declining household debt

The AFFS administration business is to a certain extent driven by its institutional clients’ number of employees

and their respective wages, as some of the fees that it charges are in relation to the institutional clients’ wage

bill. As such, wage infl ation outperforming CPI creates a positive environment for AFFS’ administration

business. The high real wage infl ation, coupled with declining debt to disposable income and declining debt

servicing cost to disposable income, typically results in a higher propensity to save and is consequently

expected to benefi t the South African savings, investments and insurance industries.

Increasing migration to higher Living Standards Measure segments

The South African Audience Research Foundation (“SAARF”) Living Standards Measure (“LSM”) is a widely

used research tool in South Africa. It divides the population into ten LSM groups, with 10 being the highest

and 1 being the lowest. The SAARF LSM groups people according to their living standards using criteria such

as the degree of urbanisation and ownership of cars and major appliances.

According to the SAARF, in 200 4, approximately 4 6% of the South African population (approximately

14.0 million) was in the higher LSM 5-10 segment and in 2012, this increased to approximately 7 5% of the

51.2 million population. As the South African population migrates to the higher LSM segments, there is an

increase in the employable population as well as in the proportion of the population focusing on savings and

insurance.

AFFS Industry Drivers

Overview

Employee benefi ts in South Africa consist of a number of inter-related benefi ts, including retirement benefi ts,

death, disability and health benefi ts. The employee benefi ts system represents one of the most effective formal

channels for creating a savings culture in South Africa. The key developments in this market include the

changes to the way pension benefi ts are structured as well as the growth of total pension plan assets, which

can be expected to result in a greater demand for professional advice, investment services and fund

administration.

Market Trends

Withdrawal and preservation in South Africa

Under South African law, members of a retirement fund have access to their retirement savings before

retirement only in the case where they withdraw from their current employer fund due to resignation,

dismissal or retrenchment. At this point, benefi ts can be withdrawn in cash or kept earmarked for retirement

by transferring to either another retirement fund or to a preservation fund designed as a “parking bay” for

these benefi ts until retirement. However, despite the limited circumstances under which members have access

to their accumulated benefi ts and the opportunity to preserve these benefi ts until retirement, there is still

signifi cant value loss occurring due to the non-preservation of retirement funds. For example, within

Alexander Forbes’ retirement funds, approximately 49% of outfl ows by value are preserved for retirement on

an annual basis, with the balance withdrawn in cash ahead of retirement, by way of encashment at withdrawal

from the fund and the allowable lump sum access withdrawn at retirement.

Younger members are most likely to withdraw their retirement savings and are also least likely to preserve.

Retirement savings in the early years contribute signifi cantly towards retirement income levels due to the

effect of compounding on investment returns. As a result, low preservation rates combined with higher

withdrawal rates at younger ages can have negative consequences for retirement income levels. Although

withdrawal rates are lower for older members, the preservation rate is still relatively low, with over two-thirds

of retirement savings by value being lost due to non-preservation on resignation. The preservation rate by

value of assets is higher than that among individuals with larger asset values as they tend to preserve more.

53

Members of retirement funds can withdraw a portion of their capital at retirement in cash. Based on current

South African tax laws, pension fund members can withdraw up to one-third of their retirement capital in

cash, and provident fund members can take up to 100% of their retirement capital in cash. Proposals from the

South African National Treasury (the “National Treasury”) to align the treatment of pension and provident

funds (limiting the amount that may be taken out of provident funds at retirement), as well as the implementation

of compulsory preservation before retirement, are expected to signifi cantly reduce the amount of cash outfl ows

from retirement funds.

The National Treasury has announced its intentions to make it compulsory for the partial preservation of

retirement assets when individuals change jobs. Commencing 1 March 2015, provident fund members will

(for contributions made after this date) be limited to withdrawing one-third of their retirement savings in cash

on retirement in order to harmonise the tax treatment of pension funds and provident funds. These measures

are expected to lead to growth in the pension assets in South Africa, as well as an increase in the assets

Alexander Forbes captures from the retirement funds it administers.

The National Treasury has stated that the implementation of a default annuity channel for all funds is to

become mandatory, which means that all retirement funds will be required to choose a default retirement

product into which all their members will be enrolled. Members will be allowed to opt-out, subject to taking

advice and choosing a similar product or a conventional life annuity.

Retirement fund coverage in South Africa

It is currently voluntary for employers to put retirement savings schemes in place for employees. In 2005, the

Department of Social Development estimated that 5.4 million of the 11.3 million employed South Africans did

not have any retirement savings arrangements in place. Alexander Forbes believes that this fi gure has not

changed signifi cantly since that time. A large portion of these individuals are in the informal sector and are

low-income earners.

The retirement fund industry is currently characterised by low contributions, increasing annuity prices and

low preservation rates. The level of retirement income secured with retirement fund savings typically lies far

below the level of pre-retirement earnings. In addition, a large portion of the working population does not

have retirement savings in place. Alexander Forbes believes that the strong historical growth in pension

assets should continue over the next several years. In 2012, the penetration of pension assets reached

approximately 65% of GDP in South Africa ( source: Towers Watson Global Pension Assets Study), presenting

potential opportunities for fi nancial service organisations to provide increased services as pension assets

continue to grow.

The National Treasury is currently exploring ways to increase the number of workers in South Africa with

retirement savings plans in place. This may include enrolling all workers into some form of retirement

savings arrangement, with an option to opt-out.

Insurance coverage

True South Actuaries and Consultants and the Bureau of Market Research monitor the insurance gap in

South Africa. The insurance gap is defi ned as the difference between the insurance need and actual cover

whereby the insurance need is the amount of cover required to meet the need that is created by the death and

disability events.

The insurance gap has increased from R18.4 trillion in 2010 to R24.0 trillion in 2013, which includes

R9.3 trillion in respect of death and R14.7 trillion in respect of disability cover. This represents an increase of

between 9% and 10% per annum thereby exceeding infl ation by approximately 3% over the period.

The insurance gap in South Africa is presented in the tables below:

Insurance gap in 2010 Insurance gap in 2013

2010 insurance gap 2013 insurance gapDeath Disability Total Death Disability Total

(R billion) (R billion)

Insurance need 11 ,683 18 ,714 30 ,397 Insurance need 15 ,146 24 ,435 39 ,581

Actual cover (4 ,426) (5 ,563) (9 ,989) Actual cover (5 ,867) 7 ,280 1 ,413

Disability grant

cover – (2 ,014) (2 ,014)

Disability grant

cover – (2 ,414) (2 ,414)

Insurance gap 7 ,257 11 ,137 18 ,394 Insurance gap 9 ,279 14 ,741 24 ,020

Gap as % of

need 62% 60% 61%

Gap as % of

need 61% 60% 61%

Source: True South Actuaries and Consultants and the Bureau of Market Research.

54

Move from DB schemes to DC schemes

In South Africa, the shift to DC schemes began in the early 1980s, making the country an early mover in this

area. A survey by PricewaterhouseCoopers of the South African retirement funds market (as at May 2012)

indicated that 73% of the pension funds in South Africa are DC schemes, with a further 11% being hybrid

funds. Regulatory and accounting changes in recent years have focused corporates on the actual, ultimate

costs of providing employee benefi ts, particularly pension benefi ts. As a result, there has been a growing shift

away from DB schemes towards DC schemes.

The trend towards DC pension schemes has the effect of shifting responsibility for pension contributions and

investment risk from employers to individuals, although employers remain responsible for providing an

enabling environment for employees with an often compulsory membership requirement as a condition of

employment. In DB schemes, employees’ pensions are typically based on an employee’s number of years of

service and their fi nal salary. DB schemes calculate the benefi ts at retirement independently of the contributions

made and the investment returns. Such schemes may be in surplus or in defi cit, requiring contributions from

sponsoring employers, and are subject to mortality risk. As a result, the funding of the fi nal amount payable

on retirement is not certain and the employer assumes the risk of any shortfall.

On the other hand, in DC schemes, employers and employees make contributions to an employee’s pension

fund. The amount funded at retirement is determined by a number of factors, including the assets available at

retirement date, annuity rates, mortality and investment return. The employer’s liability is generally limited

to the contributions made, with the employee assuming the investment and mortality risk.

Increased individual member investment choice

With the move to DC schemes, individual member investment choices have typically become more complex,

leading to increased demand for personal investment advice, particularly among higher-paid executives.

Alexander Forbes believes that it is well positioned to benefi t from this trend towards further personalisation

of investment decisions given its access to a large base of employees. This, in turn, provides an opportunity to

provide fi nancial advice on a more holistic basis, including, for example, providing discretionary investment,

risk products and annuities.

Alexander Forbes has observed a trend towards increased awareness of governance and risk management

issues by both pension fund and employee benefi t trustees. Alexander Forbes believes that this trend will

continue to support and, to some extent, increase the need for retirement fund consulting, professional

services and advice.

Move towards pooled umbrella retirement funds

In South Africa, one of the consequences of the increase in compliance and fi duciary responsibilities, together

with the increased complexity of running pension funds, has been a greater use of pooled umbrella retirement

funds managed by professional trustees where an environment of shared costs exists. This trend is expected

to continue as the industry consolidates further and more regulations are put in place.

Market Size and Growth

Retirement fund consolidation

There has been signifi cant consolidation in the retirement fund industry in South Africa in recent years.

The number of registered retirement funds decreased from approximately 13 ,000 in 2005 to 5 ,855 as at

31 March 2013, of which 2 ,271 funds were active and the remainder were dormant. Over 60% of retirement

fund members are privately administered and funded in South Africa, creating an enabling environment for

Alexander Forbes to grow its presence. This reduction in the number of funds has been driven by consolidation

and an increase in use of umbrella retirement funds, highlighting the importance of an umbrella retirement

fund offering as corporates move from standalone funds to umbrella retirement funds.

As at 31 March 2013, Alexander Forbes was a market leader in the administration of pension funds in South

Africa based on the number of active retirement funds, with a market share of 18% of total active funds by

assets under administration ( source: FSB 2013 Annual Report).

Healthcare

In the healthcare industry, contributions to medical schemes are increasing at a faster rate than salaries due

to rapid increases in the costs of healthcare. Fewer employers now offer post-retirement medical benefi ts and

individuals may fi nd the increasing contribution rates on medical schemes unaffordable. There are also long-

term implications for retirement funding. For example, during the individual’s retirement years, income is

likely to reduce but the required level of medical cover is expected to increase.

In recent years, the number of medical schemes in South Africa has continued to decline, decreasing from

144 in 2000 to 92 in 2012 as a result of the continued amalgamation and liquidation activity (both voluntary

and involuntary). The number of open medical schemes has decreased by 22 compared to a decrease

of 30 restricted medical schemes during the 13-year period. The CMS is in favour of the amalgamation of

55

unsustainable medical schemes. This position by the CMS is very likely to accelerate consolidation in the

industry, which has already been seen in 2013.

The Alexander Forbes Health Diagnosis 2013/2014 highlighted that the top 15 schemes by number of lives

covered experienced signifi cantly different membership growth during 2012 when compared with 2011, with

eight schemes experiencing positive growth and the remaining seven experiencing a reduction in membership

numbers. Discovery and government Employees Medical Scheme, the largest open and restricted schemes,

respectively, both continued to grow their membership during 2012.

AFFS’ Competitive Environment

Standalone retirement funds administration

AFFS is a leading standalone retirement fund administrator by value of assets, with approximately R323 billion,

or 18%, of total assets under administration, as at 31 March 2014. Its largest competitors in South Africa

include Old Mutual Life Assurance and Sanlam Employee Benefi ts, which, as at 27 July 2013, had assets

under administration of R189 billion and R233 billion, respectively ( sources: Alexander Forbes analysis; FSB

fund list, July 2013).

The employee benefi ts administration industry is serviced by a number of key players, including the large life

insurers in South Africa (Old Mutual, Sanlam, Liberty, MMI), Absa, NBC and NMG, as well as self-administered

funds, such as Metal Industries and Eskom.

Umbrella retirement fund administration

According to the FSB and the Company’s internal analyses, AFFS is also a leading umbrella retirement fund

administrator by value of assets, with approximately R52 billion assets under administration, as at

31 March 2014. This includes assets held by the Alexander Forbes Retirement Fund (“AFRF”), Core Plan and

AF Access. Its largest competitors in South Africa include Liberty, Old Mutual Life Assurance and MMI.

Consultants and Actuaries

Alexander Forbes’ main competitors in the consulting and actuarial space include the leading players in the

fi eld, such as AON, Absa, Simeka and Towers Watson.

Healthcare

Healthcare consulting in South Africa is highly fragmented with the major players being NMG, Aon, PSG,

Absa, Eluleka/JLT and Towers Watson, as well as individual brokers, scheme-aligned brokers and union

brokers.

Investment Solutions Industry Drivers

Overview

The savings and investment market in South Africa derives most of its fl ows and stock of assets from individual

members and groups saving through retirement funds, collective investment schemes, insurance companies,

informal savings clubs and banks. The largest segments in this sector are retirement funds, insurance

companies and collective investment schemes.

Investment Solutions has been placed within the top 10 investment management fi rms by assets under

management for the past three years as shown in the Alexander Forbes Large Manager Watch Survey below:

December 2013 December 2012 December 2011

Company

TotalAuM

(R billion) No.

TotalAuM

(R billion) No.

TotalAuM

(R billion) No.

OMIGSA 570 1 491 1 472 1

Coronation 522 2 375 2 274 6

Investec 425 3 319 4 314 4

Allan Gray 419 4 245 5 320 3

SIM 413 5 241 6 347 2

Stanlib 393 6 325 3 293 5

Investment Solutions 243 7 208 7 178 8

Momentum AM 180 8 174 8 184 7

Momentum MoM 161 9 47 14 44 15

Prudential 157 10 88 11 102 9

Source: Alexander Forbes Large Manager Watch Survey.

56

Industry Value Chain

The various components of the industry and the complex value chain of marketing, consultation and

organisational hierarchy link the ultimate individual investors to the assets invested.

The key role players in this value chain are:

Player Role

Broker or investment advisor The role of the advisor is to help the client choose the most suitable

investment solution.

Packager/aggregator The product architect is responsible for packaging fi nancial services into

marketable investment products.

Distributor The distributor is the link between the asset owners as consumers and

the advisors as producers of investment products.

This link can take many forms depending on whether the sale is through

direct or indirect channels or if the distribution is internal or external.

Asset consultants These are fi nancial consultants, pension advisors and planners and trust

managers who operate in the interest of the asset owners and investment

buyers to screen investment products.

Investment buyers These are organised institutions which represent large pools of asset

owners to buy investment products on behalf of this group of consumers.

Asset owners/clients These are the ultimate consumers of the industry and the owners of the

investment product.

Market Trends

Net outfl ows from retirement funds

While the retirement fund sector has shown reasonable growth in assets under management, its growth is

largely attributable to market growth. Benefi t payments have consistently exceeded contributions to retirement

funds, resulting in a consistent net cash outfl ow situation for the industry.

The net cash outfl ow in the South African retirement funds industry between 2006 and 2011 has been as

follows:

YearOpening AuM

(1-Jan) ContributionsBenefi t

paymentsNet cash

fl owsMarket growth

Closing AuM(31-Dec)

(R million)

2006 1 ,283 ,921 81 ,156 (91 ,045) (9 ,889) 327 ,113 1 ,620 ,923

2007 1 ,620 ,923 91 ,157 (108 ,784) (17 ,627) 300 ,019 1 ,938 ,569

2008 1 ,938 ,569 98 ,991 (142 ,344) (43 ,932) (57 ,517) 1 ,924 ,984

2009 1 ,924 ,984 112 ,363 (136 ,250) (23 ,887) (73 ,872) 1 ,874 ,999

2010 1 ,874 ,999 129 ,006 (141 ,404) (12 ,398) 310 ,987 2 ,198 ,384

2011 2 ,198 ,384 142 ,650 (147 ,995) (5 ,345) 226 ,114 2 ,429 ,843

Source: FSB Annual Reports.

Net fl ows into collective investment schemes support shift to retail products

The growth of collective investment schemes as a preferred means of savings has shown better growth than

retirement funds. The collective investment schemes segment has been a benefi ciary of both positive market

growth and net infl ows.

57

The net cash infl ow into collective investment schemes between 2006 and 2011 has been as follows:

YearOpening AuM

(1-Jan) Sales RepurchasesNet cash

fl owsMarket growth

Closing AuM(31-Dec)

(R million)

2006 435 ,355 123 ,134 ( 377 ,073) 16 ,109 73 ,242 546 ,656

2007 560 ,125 135 ,525 ( 491 ,193) 8 ,430 37 ,875 653 ,463

2008 587 ,768 161 ,529 ( 527 ,809) 26 ,143 (52 ,222) 661 ,201

2009 596 ,664 147 ,675 ( 509 ,358) 23 ,551 28 ,610 786 ,117

2010 846 ,352 237 ,659 ( 737 ,787) 35 ,810 44 ,097 938 ,779

2011 917 ,882 235 ,842 ( 869 ,635) 12 ,034 24 ,027 1 ,011 ,053

Source: Association for Savings and Investment South Africa.

Regulation and legislation

The South African investment management industry is facing a number of legislative changes that are

expected to increase overall governance and operating costs. Over the longer term, the increased regulation

and costs may lead to signifi cant changes in the industry, with smaller and sub-scale players exiting the

industry through wind-downs or mergers and acquisitions, as is currently the case.

Shift from DB schemes to DC schemes

As South Africa has moved from DB schemes to predominantly DC schemes, the Group believes that scheme

members have acquired more fl exibility and developed a greater need for “life stage” relevant investments.

Gaps in pension advisory services became apparent, particularly among smaller pension funds that were

limited in their investment choices and also had limited resources to monitor and evaluate managers, and to

make informed decisions about changing managers when warranted.

As this shift from DB to DC schemes continues, there will be a greater demand for investment choice at an

individual member level, particularly for more sophisticated investors, which will benefi t the growth prospects

of Investment Solutions. In addition, the growing complexity in investment markets globally and increasingly

onerous legislation governing fi duciary responsibility is expected to make the “multi-manager” route more

attractive to trustees and individuals who generally lack expertise in the fi eld of investing. Multi-manager

platforms have the potential to address the needs of trustees and individuals who seek advice and

implementation. In addition, multi-manager platforms can reduce risk and provide benchmark-beating

performance through information and research.

Market Size and Growth

Multi-management, as an investment philosophy, has been present in South Africa for over 20 years and is

fi rmly entrenched as one of the ways in which institutional and retail investments are managed in South

Africa. All the major South African fi nancial conglomerates made up of banks and insurers under a single

common ownership have multi-manager operations. Some banks and insurers without a common ownership

have also built multi-manager operations as part of their investment management approach.

Based on the Alexander Forbes Survey of Asset Managers (June 2013), the value of assets managed by the

multi-manager industry increased from R363 billion in 2009 to R683 billion as at 30 June 2013. This translates

to a CAGR of approximately 17% against a CAGR of approximately 11% for the rest of the industry.

In South Africa, according to the South Africa Reserve Bank Quarterly Bulletin, the market for savings and

investments was estimated at R5 trillion as at 30 June 2013.

58

The approximate breakdown of the market is illustrated in the chart below:

Source: South African Reserve Bank Quarterly Bulletin, Q3 2013.

The savings pool in South Africa has grown ahead of GDP in the past decade, but there has been a marked

shift of assets from insurance companies to unit trusts. The pension fund market share remained relatively

stable, although assets of the government-owned Public Investment Corporation (“PIC”) grew faster than

private pension funds due to the increase in the number of government employees and their contributions,

which have been ahead of infl ation.

The revenue model of the market is dependent on assets under management, which is in turn affected by net

infl ows and outfl ows and capital market movements. Due to the size of the asset base, market movements have

been the dominant factor for the change in asset base.

Investment Solutions competitive environment

The competitive environment for Investment Solutions has a number of different players, each with slightly

different roles, as set out in the table below:

Type of competitor Offering Examples

Traditional multi-managers

Single asset managers

Asset consultants

• Offers similar services to Investment

Solutions but may be strong in

certain elements (e.g., creating

portfolios, investment administration

or bespoke consulting)

• Offers a client the choice between a

multi-managed or a single manager

solution

• Performs some of the functions

that Investment Solutions does

(e.g., manager research, portfolio

construction or the monitoring of

managers)

• Symmetry Multi-Managers

• Momentum Managers of

Managers

• Sygnia

• 27Four

• Novare

• Allan Gray

• Coronation

• Investec

• Prudential

• Stanlib

• Old Mutual

• Sanlam

• Towers Watson

• Riscura

• Old Mutual Actuaries and

Consultants

• Ginsberg Asset Consulting

• Novare

59

AFI Industry Drivers

Overview

The insurance sector in South Africa is characterised by extensive inter-relationships and dependencies,

particularly in life insurance companies and banks. In addition to cross-ownership, banks also provide a

distribution channel for insurance products. However, most distribution still remains via agents and brokers,

whether tied to the insurance company or independent and servicing the wider market. Direct insurers, for

example, Outsurance, MiWay and the Telesure group, have increased their market share signifi cantly in the

last number of years. For direct non-life insurance companies, distribution is often also through telesales and

advertising.

The insurance sector is regulated by the insurance division of the FSB.

Market Trends

Insurance cycle

Pricing pressure in insurance is primarily driven by the availability of capital to fund underwriting. The

insurance industry has been in a “soft” cycle since 2004. Prices remain soft for large corporate placements,

but have shown signs of stabilising for commercial business and hardening for personal lines. The insurance

cycle on personal lines has been negatively impacted by the devaluation of the local currency. Severe weather

events, especially hailstorms in the Gauteng Province of South Africa as well as recent fl ooding in the Western

Cape, have also contributed to the hardening of the personal lines insurance cycle.

Based on estimates by Business Monitor International (“BMI”) and the FSB, the South African insurance

market is expected to continue to grow and will be driven by sustained economic growth and increased

penetration into previously untapped segments of the population. In particular, Alexander Forbes expects that

the motor and commercial property lines will be among the stronger growing product categories given the

fact that approximately 60% of the vehicles in South Africa remain uninsured ( source: South African Insurance

Association, April 2014).

Economic growth

Major growth opportunities for insurance hinge on a vibrant economy whereby corporates acquire assets and

spend money on improving their infrastructure. From a personal lines perspective, motor vehicle sales yielded

a positive year-on-year gain for the fourth consecutive year in 2013. Although declining, levels of household

debt continue to place fi nancial strain on certain consumers; this is evident from the high level of client churn

due to consecutive failed debit orders.

Growth in the black middle class

The growth in South Africa in the middle and upper classes (particularly, the emerging black middle class)

has helped to grow substantially the volume of new clients brought onto personal lines short-term insurance

products. According to the UCT Unilever Institute of Strategic Marketing, South Africa’s black middle class

has more than doubled between 2004 and 2012, growing from 1.7 million to 4.2 million. The black middle

class is considered to provide a range of key functions for the economic growth and development of the

country. The existing black middle class clients are adding new assets to their portfolios, resulting in higher-

than-expected organic growth. The potential business growth that the Group anticipates could be adversely

impacted in the short term to the extent that tightening economic conditions cause South Africans and, in

particular, members of the emerging black middle class, to reduce spending on personal lines insurance

products or defer decisions regarding investments.

Slowing trend in penetration

When expressed as a percentage of GDP, South Africa’s non-life insurance penetration of approximately 2.8%

as at January 2014 ( source: World Insurance in 2012, Swiss Re) is relatively high, given the low per capita

incomes of the vast majority of the population. The general trend in penetration has been decreasing due to a

combination of factors, one of which being competitive pressures. Large insurance companies have leveraged

brands, distribution networks, strong balance sheets and capability to develop innovative products that suit

the needs of the targeted customers. The non-life insurers have also had to compete on price.

Movement towards compulsory short-term insurance

Only 35% of vehicles on South African roads are insured, according to the April 2014 report by South African

Insurance Association mentioned above. The industry is currently in discussions with regulators regarding

implementing compulsory third-party property and damage insurance. Should this come into effect, this is

likely to have a material impact on premium fl ows and pricing within the short-term insurance industry.

Competitive landscape

In both the life and non-life insurance segments in South Africa, most of the players are tied, whether by

shareholding or other long-standing commercial relationships, to the major diversifi ed fi nancial services

60

groups. Of the large insurers, Mutual & Federal is wholly-owned by Old Mutual, Sanlam has a 58% shareholding

in Santam and RMI has a 90% shareholding in Outsurance. Hollard is the largest privately-owned insurance

company in South Africa (source: the South African Insurance Industry Survey by KPMG, August 2013). The

market is dominated by these four large insurers, with Santam, Mutual & Federal, Outsurance and Hollard

having an approximately 51% market share based on gross written premiums in 2012. Even though the

market is open to foreign competition, Zurich is the only multi-national corporation to have a signifi cant

market share in the non-life insurance sector, through Zurich South Africa with an approximately 5.3%

market share based on gross written premiums in 2012.

The following table shows the market shares of the top 10 non-life insurers based on gross written premiums

in 2012. The short-term insurance market in South Africa is led by Santam, which had a market share of

23.1% in 2012.

Company Market share

Santam 23.1%

Mutual & Federal 10.5%

Outsurance 9.8%

Hollard 7.8%

Guardrisk 6.5%

Absa 6.2%

Auto & General 6.0%

Zurich 5.3%

Centriq 3.0%

Etana 2.8%

Other 19.1%

Note: AFI is included in “Other”.

Source: The South African Industry Survey 2013, KPMG.

AfriNet Industry Trends

Botswana

As governments in Africa continue the drive to ensure wider access to fi nancial services for their populations,

key stakeholders in Botswana (including the government) have been investigating the potential of

collateralising mortgage fi nance with pension or provident fund contributions.

Kenya

The new National Social Security Fund Act (the “NSSF Act”), which came into effect on 31 May 2014, reformed

the pensions system in Kenya, introducing mandatory contributions at a higher level than under previous

regulation.

The NSSF Act increased the coverage, range and level of benefi ts provided by the National Social Security

Fund (“NSSF”), and introduced measures to strengthen the corporate governance of the NSSF. The Provident

Fund was closed and ring-fenced and the NSSF Act introduced two funds: a Pension Fund (to cover all

employed persons in the formal sector who are above 18 years) and a new Provident Fund (to cover self-

employed persons and workers in the informal sector who wish to make voluntary contributions).

Namibia

Similar to other sub-Saharan African countries, the Namibian government has been focused on improving

access to fi nancial services. The small and medium enterprises sector growth in Namibia has been considered

as underpinning economic growth and Alexander Forbes is looking to position its umbrella fund offerings,

personal lines insurance and, potentially, business insurance offerings to capture this growth.

UK Employee Benefi ts Industry Trends

Employee benefi ts remain a key part of companies’ efforts to attract and retain employees, with pensions

representing the largest part of that expenditure. Similar to the trend in South Africa, the UK pensions

industry has been experiencing a shift from DB to DC pension schemes as employers manage their risk of

exposure to pensions, and in particular, DB pension schemes, where the sponsoring employer ultimately

remains liable for investment and longevity risk. The 2013 Annual Survey of Hours and Earnings by the UK

Offi ce for National Statistics estimates that active membership of DB pension schemes fell from approximately

46% of employees in 1997 to approximately 28% in 2012. According to the National Association of Pension

Funds in 2012, only around one in eight DB schemes were still open to new members in the private sector, as

opposed to two in five in 2005. The occupational DC pension market is estimated to comprise approximately

66% by assets with contract-based schemes accounting for the balance ( source: UK Offi ce for Fair Trading).

61

The following table shows the proportion of active members of private sector occupational pension schemes by

the scheme’s foundation date, status and benefi t structure:

Defi ned Benefi t Defi ned ContributionUnited Kingdom Open DB Closed DB Open DC Closed DC

Before 1980 49% 61% 5% 6%

1980 – 1999 15% 22% 42% 67%

2000 and after 35% 17% 53% 27%

(1) Excludes schemes with fewer than 12 members.

(2) Proportions are calculated excluding non-response.

Source: Occupational Pension Schemes Survey, Offi ce for National Statistics, 2011.

Although a number of DB funds are closed to new entrants and future accrual, the membership base of

DB pension schemes is still signifi cant and DB pensions schemes are expected to continue to be a key part of

the sector, requiring ongoing actuarial, investment and administration services. Since legislative changes in

2006, sponsoring employers have been under increased pressure by the UK Pensions Regulator to fully fund

DB pension liabilities and, in particular, any defi cits. This has led to increased demand for consulting advice

and de-risking solutions, including buy-in and buy-out solutions. This trend may not continue as DB pension

funds decline over the long term as benefi ts are paid out to benefi ciaries or as their pension liabilities are

bought out.

DC pensions have increased as employers seek solutions that reduce their risk of providing pensions. In

addition, the UK government introduced legislation under which employers are required to automatically

enroll eligible workers into a company pension scheme if they are not already in one (“Auto-enrolment”). The

staging dates for companies having to provide for Auto-enrolment commenced in 2012 for the largest

companies and will continue until 2017, by which stage all companies in the UK will have to provide Auto-

enrolment. By 2018, the minimum pension contribution, unless an individual has opted out, will be 8% of an

individual’s salary. This could increase DC assets to as much as £900 billion by 2050, according to the Pensions

Policy Institute in a 2009 report.

Individuals can draw down on their pensions from retirement age, which is currently 55 years. The UK

government has recently announced changes to UK annuity rules which will give retirees complete fl exibility

over how the money in their DC pension balances can be accessed. The Group expects this to result in annuities

becoming a discretionary purchase and is likely to increase deferrals of annuitisation and use of drawdown

over time which would have a positive effect on LCP in the short term.

These changes in the UK pension industry, along with Auto-enrolment and changes to remuneration bases for

advisors via the Retail Distribution Review, continue to support demand for pension and investment advice

from employee benefi ts consultants.

62

REGULATION

Financial Advisory and Intermediary Services Act, 2002

The FAIS is the primary legislation governing the fi nancial services industry in South Africa.

FAIS requires all persons or entities seeking to provide “fi nancial services” (which comprise advice,

intermediary services or both) in respect of a broad spectrum of fi nancial products to clients or prospective

clients in South Africa to be formally registered as fi nancial services providers with the FSB.

Once registered, FAIS and its subordinate legislation (including formal codes of conduct) impose a number of

ongoing compliance requirements (including solvency requirements) and restrictions on fi nancial services

providers. FAIS-registered fi nancial services providers are required to report extensively, on an annual basis,

to the FAIS Division of the FSB, which has broad powers to take action against non-compliant providers.

A number of entities in the Group are registered fi nancial services providers under FAIS, including AFFS,

AF Life, AFIC, Alexander Forbes Financial Planning Consultants Proprietary Limited (“AF Financial

Planning”), AFICA, AF Health, AFAS and Alexander Forbes Direct Proprietary Limited. Each of these entities

is accordingly bound in its business operations by FAIS and its subordinate legislation (including the applicable

codes of conduct).

Solvency Assessment and Management

During 2009, the FSB announced its intention to adopt a new risk-based solvency regime for insurers. Based

largely on the European “Solvency II” directive (with changes, where necessary, to adapt to the South African

environment), the proposed SAM regime is divided into three “pillars”: (i) capital adequacy, (ii) governance and

risk management and (iii) reporting and disclosure. Upon implementation (currently expected to take place

on 1 January 2016), SAM will apply to all insurers registered as such in South Africa, both short and long

term, operating on a commercial basis.

Pillar I of SAM seeks to impose more stringent regulatory requirements in respect of the capital structure

implemented and maintained by insurers, by imposing quantitative requirements compelling insurers to hold

and maintain adequate solvency capital in relation to the risks faced by such insurers on a day-to-day basis.

Pillar I’s requirements represent a major shift from the current solvency requirements imposed on insurers

by the FSB. Pillar I further seeks to provide for effective group supervision (or consolidated supervision),

which is not provided for under the existing South African insurance framework.

The fi rst step toward the implementation of the SAM regime was the Insurance Laws Amendment Bill, 2013

(“ILAB”) which proposed amending each of the STIA and LTIA. ILAB provided extensively for increased

governance and risk principles and also set out interim measures for consolidated supervision. National

Treasury announced on 29 April 2014 that ILAB, as an outstanding bill, would lapse with the expiry of

Parliament’s term leading up to the national elections on 7 May 2014 and accordingly that the Minister of

Finance had requested that ILAB be withdrawn from the national assembly (pending acknowledgement by

Parliament). The announcement stated further that National Treasury and the FSB were considering a

combination of alternative interim measures to give effect to the intention of ILAB, including through the

Financial Sector Regulation Bill, 2013, the use of board notices issued under the LTIA and STIA and proposed

amendments to FAIS.

The interim measures in advance of the implementation of the SAM framework, specifi cally the introduction

of the revised CAR for long-term insurers by the FSB, took effect in February 2010 and in January 2012 for

short-term insurers and impact the following entities within the Group: AFIC, Investment Solutions, AF Life

and Superfl ex.

Following the postponement of the international equivalent Solvency II regime in Europe, the implementation

date of SAM in South Africa has been revised to 1 January 2016. The impact of these interim measures for

both long-term and short-term insurers, combined with liquidity requirements introduced for FAIS-registered

businesses, resulted in signifi cant additional cash resources having to be retained by the Group. The Group is

currently in compliance with all the additional capital requirements. The various insurance entities in the

Group have invested signifi cant time and effort into developing internal risk-based capital models, along with

own risk and self-assessment processes and procedures, in order to be fully compliant with the requirements

of SAM when they become effective. Given the fact that in certain insurance entities, very little or no

underwriting risk is assumed by the Group, the SAM framework is generally expected to have a favourable

impact. However, it is unlikely that the Group will enjoy any relief of regulatory capital requirements from

these efforts until 2016 when SAM becomes applicable.

National Treasury announced on 29 April 2014 that the effective date for the implementation of the formal

framework for group supervision will be announced later in 2014. The capital structure of the Group is being

reviewed to ensure that it will meet the relevant long-term regulatory and operational requirements.

63

Even though consolidated supervision has not yet been formally introduced by the FSB, in designing the

Restructure that was completed on 31 March 2014, the Group anticipated a manageable capital shortfall

compared to the proposed minimum requirements for consolidated supervision. Applying the latest guidance

available from the regulator, this shortfall amounted to R305 million as at the date of the Restructure. This

negative position is expected to be eliminated by a portion of the proceeds from the subscription for the

Subscription Shares and as the Group generates positive operational cash fl ows such that the Group will be in

full regulatory compliance when consolidated group supervision is implemented by the FSB (currently

expected to take place on 1 January 2016).

Twin Peaks

The Financial Sector Regulation Bill, 2013, is the fi rst in a series of bills intended to give effect to the “twin

peaks” model of fi nancial regulation in South Africa. The implementation of the twin peaks reform is intended

to be a two-phase process.

The fi rst phase will result in the establishment of two regulators, being:

• the new Prudential Authority within the South African Reserve Bank, which will be responsible for the

safety and soundness of financial institutions carrying out dual-regulated activities, including insurers

and banks; and

• the Market Conduct Authority, which will be responsible for protecting customers of financial firms and

improving the way FSPs operate.

In the second phase, the existing sectoral legislation will be gradually amended or replaced with laws that

more appropriately align with the twin peak framework. The fi rst phase will see very few changes to existing

legislation regulating the sector.

The Financial Sector Regulation Bill also creates the concepts of “mono-regulated” and “dual-regulated”

institutions. “Mono-regulated” entities undertake activities that only give rise to market conduct regulation

(e.g., entities that provide fi nancial advisory and intermediary services and pension funds) whereas dual-

regulated entities are those that undertake activities that give rise to both prudential and market conduct

regulations (e.g., long- and short-term insurance providers).

The bill also seeks to: enhance coordination and cooperation between regulators, balance operational

independence and accountability of regulators, establish a crisis management and resolution framework,

create a fi nancial services tribunal, and strengthen enforcement mechanisms and ombudsman systems.

Treating Customers Fairly

In March 2011, the FSB issued its TCF roadmap. Since publication of the TCF roadmap, a number of updates

have been provided by the FSB in respect of its move toward the implementation of TCF, elements of which are

inextricably linked to the intended shift in the South African fi nancial services sector to the “twin peaks”

regulatory model, which is characterised by separate prudential and market conduct regulators.

In essence, TCF aims to introduce concrete market conduct standards for greater consumer protection in

the fi nancial services sector, with the framework being based on six explicit customer fairness outcomes,

as follows:

Outcome 1: Customers are confi dent that they are dealing with fi rms where the fair treatment of customers is

central to the fi rm culture.

Outcome 2: Products and services marketed and sold in the retail market are designed to meet the needs of

identifi ed customer groups and are targeted accordingly.

Outcome 3: Customers are given clear information and are kept appropriately informed before, during and

after the time of contracting.

Outcome 4: Where customers receive advice, the advice is suitable and takes account of their circumstances.

Outcome 5: Customers are provided with products that perform as fi rms have led them to expect, and the

associated service is both of an acceptable standard and what they have been led to expect.

Outcome 6: Customers do not face unreasonable post-sale barriers to change a product, switch a provider,

submit a claim or make a complaint.

Compliance with TCF requires fi nancial services fi rms to be able to show that the fair customer treatment

concept is fi rmly embedded into the fi rm’s culture across all levels (and at all stages of the customer relationship),

to identify and manage risks of unfair customer treatment and to demonstrate concrete improvements in

customer service and satisfaction. Firms will further be required to have controls and measures in place in

order to evidence true delivery of the six fairness outcomes.

Retail Distribution Review

The FSB is currently assessing remuneration models of fi nancial service providers as part of its broader cross-

sector Retail Distribution Review. One aspect of the review relates to differentiating between different levels

64

of intermediaries, including the introduction of the term “limited advice” which would be determined by the

status of the intermediary. This means that intermediaries will be required to declare themselves to a

prospective policyholder as either an insurer agent (a tied agent or independent broker) or an independent

fi nancial advisor.

Financial Intelligence Centre Act, 2001

The Financial Intelligence Centre Act, 2001 (Act 38 of 2001) (“FICA”), is South Africa’s main anti-money

laundering legislation.

FICA imposes the majority of its key obligations on “accountable institutions”, which are entities that have

been designated as such under Schedule 1 to FICA. Accountable institutions are required (among other

obligations) to formally register as such with the Financial Intelligence Centre (“FIC”), to identify and verify

the identity of their clients in the prescribed manner, to report certain transactions or business dealings to the

FIC, and to keep records of client relationships and transactions in the prescribed manner and for the

prescribed period. In addition to the obligations imposed by FICA on accountable institutions, FICA further

requires any person conducting or involved with the conduct of a business to report suspicious and unusual

transactions to the FIC.

Strict penalties are prescribed under FICA for non-compliance with the FICA provisions.

A number of entities within the Group are “accountable institutions” and will need to comply with FICA.

Short-Term Insurance Act, 1998

The STIA regulates the short-term insurance industry in South Africa, requiring the formal registration of

short-term insurers with the FSB and constituting the primary statutory framework for such insurers

following registration.

The STIA strictly regulates the activities of and the conduct of business by registered short-term insurers. It

subjects many of their actions and activities to the prior, formal approval of the Registrar of Short-Term

Insurance and imposes extensive requirements and restrictions on short-term insurers, including in respect

of capital adequacy and solvency, asset spread, borrowing and encumbrance, and investment.

As a short-term insurer registered as such with the FSB, AFIC is bound by the provisions of the STIA, as

amended from time to time, as well as by the provisions of regulations issued under the STIA.

Long-Term Insurance Act, 1998

The LTIA regulates the long-term insurance industry in South Africa, requiring the formal registration of

long-term insurers with the FSB and constituting the primary statutory framework for such insurers

following registration.

The LTIA strictly regulates the activities of, and the conduct of business by, registered long-term insurers. It

subjects many of their actions and activities to the prior, formal approval of the Registrar of Long-Term

Insurance and imposes extensive requirements and restrictions on long-term insurers, including in respect of

capital adequacy and solvency, asset spread, borrowing and encumbrance, and investment.

As long-term insurers registered as such with the FSB, AF Life, Investment Solutions and Super Flex are

bound by the provisions of the LTIA, as amended from time to time, as well as by the provisions of regulations

issued under the LTIA.

Health Insurance

AF Life and Investment Solutions are registered as long-term insurers and are qualifi ed to provide long-term

disability cover. AFIC is registered as a short-term insurer and is thus able to provide accident and health

insurance policies. The Insurance Laws Amendment Act, 2008, introduced provisions in the LTIA and the

STIA that sought to facilitate a clear demarcation between what constituted insurance business (i.e., health

policies and accident and health policies) and what constituted the business of a medical scheme, in instances

where there appears to be uncertainty and ambiguity in the legislative framework.

On 29 April 2014, the draft regulations under the LTIA and STIA were published for comment. The draft

regulations relate to what validly constitutes a “health policy” and an “accident and health policy” under the

respective legislative instruments, and contain safeguards in an effort to ensure that the design, sale and

marketing of health insurance products do not undermine the social solidarity principles in medical schemes.

The proposed safeguards are as follows:

• the prohibition on health insurance policies from unfairly discriminating against any person on the

grounds of age, gender and other criteria;

• enhanced product disclosure/marketing requirements;

• alignment of broker commission between health insurance and medical scheme products;

65

• enhanced regulatory reporting and monitoring;

• product standards which limit policy benefits; and

• limitations on bundled type health insurance products which replicate medical schemes.

Final regulations are expected to be published by September 2014.

The draft regulations will further have to be read in line with the Financial Services Laws General Amendment

Act, 2013 (“FSLGA”), which, once effective in this respect, will broaden the defi nition of “business of a medical

scheme” under the Medical Schemes Act, 1998. Under the amended defi nition, health insurance products may

fall within the new broader defi nition of “business of a medical scheme” and the insurance company providing

the product would have to register as a medical scheme under Section 24 of the Medical Schemes Act.

The FSLGA became effective on 28 February 2014, with a few exceptions, but the National Treasury

recommended to the Parliament in 2013 that the date of implementation of the amendment to the defi nition of

“business of a medical scheme” be delayed to late 2014, when the fi nal regulations relating to “health policy”

and “accident and health policy” under the LTIA and the STIA, respectively, are expected to take effect.

Retirement Fund Administration

Under South African law, all retirement funds (other than certain statutory or public service funds) must be

registered under the PFA. Upon registration they obtain juristic personality, that is, they become corporate

entities independent of their founder or participating employers and members. Only registered retirement

funds may conduct retirement fund business in South Africa.

The table below sets forth the details of the registered funds of the Group:

Fund No. Name Type of fund Administrator

37906 Alexander Forbes Benefi ciary Fund Private Fairheads Benefi t Services

Proprietary Limited

37095 Alexander Forbes Core Plan (Pension Section) Underwritten AF Life

37094 Alexander Forbes Core Plan (Provident Section) Underwritten AF Life

29650 Alexander Forbes Past Service Pension Fund Private AFFS

37722 Alexander Forbes Preservation Fund (Pension

Section)

Underwritten AF Life

37718 Alexander Forbes Preservation Fund (Provident

Section)


28358 Alexander Forbes Provident Fund No. 2 Private AFFS

37525 Alexander Forbes Retirement Fund (Pension

Preservation Section)


34768 Alexander Forbes Retirement Fund (Pension

Section)


37523 Alexander Forbes Retirement Fund (Provident

Preservation Section)


34766 Alexander Forbes Retirement Fund (Provident

Section)


37917 Alexander Forbes Unclaimed Benefi t Pension

Preservation Fund


37916 Alexander Forbes Unclaimed Benefi t Provident

Preservation Fund


38078 Investment Solutions Pension Preservation Fund Underwritten Investment Solutions

38079 Investment Solutions Provident Preservation Fund Underwritten Investment Solutions

38080 Investment Solutions Retirement Annuity Fund Underwritten Investment Solutions

Employers who offer retirement benefi ts to employees are required to subscribe to a registered retirement

fund (a multi-employer retirement fund or an existing group retirement fund) for that purpose or to register

a new retirement fund.

The PFA also prohibits the provision of administration services to retirement funds without a licence issued

by the Registrar of Pension Funds in terms of Section 13 of the PFA. The entities in the Group which render

66

administration services to AFRF and to other retirement funds must hold such a licence. The PFA therefore

not only regulates the registration of retirement funds, it also regulates the conduct of retirement fund

business, the approval or removal of a retirement fund administrator by the pension funds regulator, the

collection of retirement fund contributions, the payment of benefi ts by a retirement fund and the reporting

obligations of a retirement fund.

The Conditions for the Administration of Pension Funds, 2002, regulate more specifi cally administration

services and the agreements under which they are rendered. These Conditions stipulate the content of an

administration agreement, the terms for the termination of an administration agreement, the appointment of

an administrator’s auditors, the procurement of fi delity fund insurance by an administrator, management of

administrators’ trust accounts and the annual reporting obligations of an administrator.

Financial Services Laws General Amendment Act

The FSLGA became effective in South Africa on 28 February 2014, with a few exceptions, one of which

includes Section 31 of the FSLGA, which amends the PFA by empowering the Registrar of Pension Funds to

prescribe criteria for fi nancial soundness. Section 31 of the FSLGA will come into effect on 29 August 2014.

FSLGA contains, among others, the following amendments which are relevant to the Group:

• If a board member becomes aware of any matter which may seriously impair the financial stability of a

fund the Registrar of Pension Funds must be informed in writing.

• New protections are created for whistle-blowing trustees, principal officers, administrators, valuators,

other officers and employees of a fund.

• The Registrar of Pensions Funds will prescribe criteria that retirement funds and their administrators will

need to abide by in their communication with members.

• The FSLGA provides for the personal liability of directors of employer companies in relation to the non-

payment of retirement fund contributions as well as criminal liability, where Section 13A is not complied

with (the monitoring of such compliance is often outsourced to administrators).

• The amendments make it possible for retirement funds to be placed under business rescue.

• The FSLGA confirms that a retirement fund is not allowed, without the approval of the Registrar of Pension

Funds, to hold shares in any entity which results in the fund controlling that entity.

• The FSLGA allows for reasonable expenses to be taken into account in determining the fund credit of the

members, which is useful for preservation and beneficiary retirement funds, where there are no ongoing

contributions from which expenses can be deducted.

Taxation Laws Amendment Act, 2013

The Taxation Laws Amendment Act, 2013 (“TLAA”), promulgated on 12 December 2013, gives effect to many

of the tax proposals announced in the 2013 South African Budget Review. The TLAA as it applies to the below

matters will come into effect from 1 March 2015:

Disability and Income Protection Policies

Currently, two forms of disability insurance plans are offered to individuals: capital protection and income

protection. The tax outcomes of each differ in terms of premiums and pay-outs. In the case of capital protection

plans, cover exists to protect individuals against the loss of the individual’s income earning capacity (e.g.,

through loss of a limb or mental capacity). In such plans, no deduction is available in respect of premiums

paid, but there is no tax payable in respect of insurance policy pay-outs. In the case of income protection plans,

cover exists to protect individuals against the loss of future income (focusing on the negative income impact

of the disability rather than the disability itself). In such plans, premiums are deductible but policy pay-outs

are taxable.

The TLAA will align the tax treatment of life and disability premiums and pay-outs, regardless of whether the

policy is aimed at capital or income protection. Premiums paid by natural persons in respect of life, disability

and severe illness policies will no longer be deductible if the policies are aimed at income protection. However,

all pay-outs on life, disability and severe illness policies will be tax-free irrespective of whether the pay-out

takes the form of a lump sum or an annuity. The same dispensation will apply in the case of disability policies.

Premiums paid by employers in respect of an employer-provided insurance policy for the benefi t of employees

will be deductible by the employer, as long as the premiums are taxed as a fringe benefi t in the hands of

employees. As the employee is taxed on the premium (with no subsequent deduction available), the policy pay-

outs will be free from tax.

There will be no transitional period for current policy-holders and premiums will no longer be eligible for

deduction even if the plans are pre-existing. However, all policy pay-outs will be tax-free even if the policy

previously generated deductible premiums.

67

Retirement Reforms

The TLAA retirement reforms will impact individuals, employers and retirement funds. Under the TLAA,

individual members will receive a uniform deduction for their aggregate contributions regardless of whether

the contribution is to a pension, provident or retirement annuity fund. Deductible contributions will be subject

to an annual percentage limit and a monetary limit.

The amount of contributions deductible by an individual in a year of assessment will not be allowed to exceed

the lesser of R350 ,000 or 27.5% of the greater of the individual’s remuneration or taxable income (excluding

retirement lump sums and severance). Contributions in excess of these limits may be rolled forward to future

years where the amounts will again be deductible together with contributions made in that year, but subject

to the limits applicable in that year. However, if any contributions have not been deducted as at retirement, the

nominal value will be available to be set-off against any lump sum to determine the taxable portion of the lump

sum, or will be available on assessment to reduce the tax payable in respect of compulsory annuities.

Employer contributions to all approved retirement funds will be deductible by the employer against income.

The deduction will effectively be unlimited and will be available regardless of whether the fund allocates the

contribution to a current or a retired employee. However, no fringe benefi t will arise in the case of an employer

contribution for the benefi t of a retired member of the fund.

Employer contributions to all approved retirement funds for the benefi t of an employee-member will be taxed

as a fringe benefi t in the hands of the employee-member, but will be deemed to be contributed by the employee-

member thereby being potentially deductible in the hands of the employee-member, subject to the above limits.

The value of the employer contributions for fringe benefi t tax purposes will depend on whether the contributions

are in respect of a DC component or DB component of a fund. Where contributions are made to a DC component,

the cash value of the contribution that pertains to the employee will be included as a taxable fringe benefi t for

that employee. The fringe benefi t tax on contributions made to a DB component will be determined by applying

a special formula. There is draft legislation contained in the Draft Taxation Laws Amendment Bill, 2014

(together with accompanying draft regulations), released on 10 June 2014, which contains proposals to

amend this formula.

The TLAA provides that the same mandatory annuitisation requirements that are currently applicable to

pension funds and retirement annuity funds be applied to provident funds. More specifi cally, any person

retiring from a provident fund or provident preservation fund will not be able to receive a lump sum upon

retirement of more than one-third of their retirement interests. In other words, a mandatory compulsory

annuity will be required for the remaining two-thirds of their retirement interests (pre-retirement interests

remain free from any mandatory compulsory annuitisation). The vested rights of current provident fund

members will be protected. Balances in provident funds as at 1 March 2015 (and any subsequent growth

thereon) need not be annuitised. Furthermore, if a provident fund member is older than 55 years of age as at

1 March 2015, the mandatory annuitisation requirements will not apply to contributions made (and any

growth thereon).The mandatory annuitisation requirements will therefore only affect new contributions for

persons under the age of 55 as at 1 March 2015. Provident funds must maintain separate accounts in respect

of a member under the age of 55 as at 1 March 2015, in order to separate pre-1 March 2015 contributions and

any growth thereon from post-1 March 2015 contributions and related growth. The de minimis exception in

respect of the two-thirds annuitisation requirement (currently R75 ,000) will increase to R100 ,000 for all

retirement funds.

Due to the alignment of the mandatory annuitisation requirements between all retirement and preservation

funds, the transfer of retirement savings to provident and provident preservation funds from other funds (to

the extent that such transfer is allowed) will be free from tax in all instances.

Data Protection

Data protection in South Africa will be regulated under the POPIA when it comes into effect. POPIA was

passed by Parliament and signed by the President in late 2013. Certain non-operative provisions of POPIA

came into effect on 11 April 2014. The operative provisions of POPIA will come into effect on a date to be set

by the President.

POPIA is a comprehensive privacy and data protection statute, which will impose obligations on any companies

(“data controllers” (with a data controller being defi ned in POPIA as a “responsible party”)) which collect and

hold certain types of personal information relating to individuals (including customers and employees) and in

certain cases legal entities. It will accordingly apply to all South African members of the Group.

Under POPIA, data controllers may only process personal data, including by collecting, storing, organising,

using and disseminating such data, under certain conditions. Data controllers are required to adhere to

various principles, including that personal information may only be collected for a specifi c purpose and used

only for that purpose and related purposes, that personal information must be kept up-to-date, and that

adequate security safeguards must be put in place by the data controller and any data processor (defi ned in

POPIA as an “operator”) who acts on its behalf. POPIA imposes specifi c requirements in relation to the cross-

border transfer of personal information, where personal information collected in South Africa is transferred

out of the country to another data controller.

68

The Information Regulator will be responsible for enforcing compliance with the statute. The Information

Regulator may impose administrative fi nes of up to R10 million where a data controller fails to comply with

an enforcement notice. Non-compliance with an enforcement notice is also a criminal offence.

Black Economic Empowerment

B-BBEE is a policy of the South African government, which is aimed at increasing participation by previously

disadvantaged South Africans in economic activities. The B-BBEE Act is the primary legislation through

which this B-BBEE policy is implemented. In terms of the B-BBEE Act, B-BBEE consists of measures and

initiatives that are aimed at increasing levels of equity ownership by black people in businesses operating in

South Africa, increasing the numbers of black people who participate in management roles in business,

improving the skills of black employees, assisting small and medium businesses that are majority-owned by

black people, procuring goods and services from businesses that are good contributors to B-BBEE and

corporate social investment.

The B-BBEE Act provides that B-BBEE is a factor which must be taken into account by all government

departments at national, provincial and municipal level and government agencies when procuring goods and

services, issuing licences or concessions, selecting partners from the private sector or disposing of state

assets. However, the B-BBEE Act does not impose any hard requirements that businesses must achieve a

certain level of B-BBEE or adopt particular B-BBEE initiatives. Instead, levels of B-BBEE are measured on the

basis of a scorecard and the scores achieved by businesses can then be compared. As such, B-BBEE is a

commercial imperative for most businesses operating in South Africa, particularly those who deal with the

public sector.

The Minister of Trade & Industry has published various Codes, including certain sector-specifi c Codes, under

the B-BBEE Act. These Codes set out the details of how B-BBEE scores are measured on each of the different

elements identifi ed above, namely ownership, management, employment equity, skills development,

preferential procurement, enterprise and supplier development and socio-economic development. Companies

are scored in terms of a scorecard set out in the Codes (the “Scorecard”) on the extent to which they meet the

specifi ed targets. General, non-sector specifi c Codes (the “General Codes”) were fi rst published under the

B-BBEE Act in 2007. A revised version of these General Codes was published in 2013 and will come into effect

in April 2015.

Although there is no legal obligation for a private enterprise to comply with the Codes, it is important for

companies that wish to do business with the public sector or obtain licences or concessions from the government

to ensure that they score as high as possible in terms of the Scorecard. B-BBEE also has a cascading effect,

even where a particular company does not interact with the government or the public sector, as in order to

score highly on the procurement element of the Scorecard, companies need to ensure that as many of their

service providers as possible also score highly on the Scorecard and will therefore give preference to service

providers who have good B-BBEE credentials. Compliance with the Codes is therefore often more of a

commercial imperative than a legal one.

The B-BBEE Act also makes provision for the publication of sectoral charters and Codes to regulate the

implementation of B-BBEE in a particular sector. A sector Code published under Section 9 of the B-BBEE Act

is itself a Code that is binding and that must be applied by all businesses operating in the relevant sector. Such

sector Codes are required to impose targets that are in accordance with the General Codes, although they can

deviate from the targets set out in the General Codes if good reason is shown for doing so.

One such sectoral code, published under Section 9 of the B-BBEE Act, is the FS Code, which applies to the

Group. The FS Code was published in 2012 and replaced the Financial Sector Charter, which was a voluntary

fi nancial services industry-driven B-BBEE initiative in terms of which companies in the fi nancial services

industry have been reporting annually on B-BBEE progress since 2005. The FS Code is a new binding legal

framework against which the empowerment progress of the fi nancial sector is measured. The Group’s B-BBEE

status is currently measured under the FS Code. The FS Code will, at some stage, be aligned with the revised

General Codes although the alignment process is not yet underway.

The FS Code applies to all fi nancial services fi rms and has set targets in core categories, which (when weighted)

make up the scorecard against which fi nancial institutions are rated each year. The scorecard in the FS Code

measures B-BBEE compliance in the following categories: shareholding, management, employment equity,

skills development, procurement, enterprise development, social investment, access to fi nancial services and

empowerment fi nancing. Various targets are set for each element and indicator in the separate scorecards

that have been developed for each B-BBEE element. Points are ascribed to each element. A business then scores

points on a pro-rated basis in relation to its achievement of the relevant target.

The Company’s B-BBEE status was audited by Empowerdex Proprietary Limited, a leading empowerment

rating agency in South Africa, in May 2014 and it received a Level 2 empowerment contributor rating (where

Level 1 is the highest score and Level 8 is the lowest score).

69

In addition to the B-BBEE Act, other legislation which imposes related requirements aimed at increasing

participation by black people and which is applicable to the Group includes:

• The Preferential Procurement Policy Framework Act, 5 of 2000, which sets out the approach that must be

taken by government departments and agencies in taking B-BBEE into account when making procurement

decisions.

• The Employment Equity Act, 55 of 1998, which requires designated employers to submit employee equity

plans to the Department of Labour and to act in accordance with those plans in their hiring activities.

Capital Adequacy Requirements

Pension Funds Act

AFFS, AF Life and AFICA hold section 13B licences under the PFA.

Section 13B of the PFA, Regulation 32 published thereunder and Schedule O require a Section 13B administrator

to be audited in order to monitor the internal controls and records of the administrator. Paragraph 7 of Board

Notice 24 of 2002 sets out the liquidity criteria for Section 13B administrators. It provides that an administrator

shall at any time maintain liquid assets equal to or greater than 8/52 weeks of annual expenditure. Further,

it provides that administrators shall maintain at all times current assets, which are at least suffi cient to meet

current liabilities.

Financial Advisory and Intermediary Services Act

Board Notice 106 published under the FAIS regulates the fi t and proper requirements of FSPs as well as the

fi nancial soundness of FSPs. An FSP’s assets must exceed its liabilities subject to any exemptions granted. In

addition, different categories of FSPs are subject to different capital adequacy requirements.

AFFS, AF Life, AFIC, AFICA, AF Health, AFAS and Alexander Forbes Direct Proprietary Limited are all

registered as “Category I” FSPs and are required to maintain liquid assets equal to or greater than 4/52 weeks

of annual expenditure at all times.

AF Financial Planning is registered as a “Category II” FSP and is required to at all times maintain liquid

assets equal to or greater than 8/52 weeks of annual expenditure.

Short-Term Insurance Act, 1998

AFIC is registered as a short-term insurer in South Africa. Board Notice 169 of 2011 prescribes the minimum

capital adequacy requirements of short-term insurers as the higher of:

• R10 million; or

• an amount representing operating expenses, multiplied by 13 and divided by 52, or if applicable the number

of weeks included in the reporting period; or

• 15 percent of the greater of the amount of the premium income of the insurer after deduction of all

premiums payable by it in terms of any reinsurance policies entered into by it in respect of any policies,

during the period of: (i) 12 months immediately preceding the day on which the previous fi nancial year ended

or (ii) 12 months immediately preceding the day on which the calculation is made.

Long-Term Insurance Act, 1998

AF Life, Investment Solutions and SuperFlex are registered as long-term insurers in South Africa. Board

Notice 14 of 2010 prescribes the minimum capital adequacy requirements of long-term insurers as the

higher of:

• R10 million;

• an amount representing operating expenses, as defined and reported in the annual return last submitted

to the Registrar, multiplied by 13 and divided by 52 or, if different, the number of weeks included in the

reporting period; or

• an amount equal to 0.3% of its gross contingent liabilities under unmatured policies.

Road Accident Benefi t Scheme Legislation 2014

The draft Road Accident Benefi t Scheme Bill (the “Bill”) and related rules and regulations were released

on 9 May 2014.

The purpose of the Bill is to establish a Road Accident Benefi t Scheme (the “Scheme”) which will replace the

current Road Accident Fund. The Bill also provides for the establishment of a Road Accident Benefi t Scheme

Administrator who will be responsible for the administration of the Scheme and a Road Accident Benefi t Scheme

Board which is responsible for the governance of the Road Accident Benefi t Scheme Administrator. The Scheme

will be funded through a Road Accident Benefi t Scheme levy and other moneys appropriated by Parliament.

70

MANAGEMENT AND CORPORATE GOVERNANCE

Directors of the Company

The following discussion provides a description of the Company’s board of directors as it will be on the Listing

Date.

It is anticipated that, with effect from immediately after the Listing, the non-independent, non-executive

directors of the Company will resign. In accordance with the provisions of the Shareholder Agreement and the

Shareholder Side-Letter (see Annexure 12: Material Agreements), each of Mercer and OTPP shall, subject to

applicable laws, be entitled to nominate for appointment to the board such number of nominees as is

contemplated in the Relationship Agreement (in the case of Mercer) and in the Shareholder Side-Letter (in the

case of OTPP). Pursuant to such nominations, the Company intends to use commercial reasonable endeavours,

subject to applicable laws, to facilitate the appointment of such additional number of directors to the board as

is deemed appropriate in order to comply with the Listings Requirements and the King Code.

The Company’s board of directors consists of 1 3 members with four alternate directors. The members of the

Company’s board of directors are as follows:

Name, age and nationality

Occupation/Function

Business address

Date of appointment as director

Mark Derrick Collier (60)

(British)

Lead Independent

Director

Puckden Poundsbridge,

Penshurst, Kent TN11 8AR,

United Kingdom

1 August 2011

Deenadayalen Konar (60)

(South African)

Independent Director 42 Wierda Road West, Wierda

Valley, Sandton 2196, South

Africa

1 February 2008

Hilgard Pieter Meyer (55)

(South African)

Independent Director 32 Fricker Road, Illovo 2196,

South Africa

9 June 2011

Barend Petersen (54)

(South African)

Independent Director Chambers, 33 Church Street,

Cape Town 7001, South

Africa

10 June 2010

Lori Hall-Kimm (37)

(Canadian)

Non-Executive

Director

Leconfi eld House, Curzon

Street, London W1J 5JA,

United Kingdom

3 September 2007

Natalie Catherine Kolbe (38)

(South African)

Non-Executive

Director

Cradock Heights, 21 Cradock

Avenue, Rosebank 2132,

South Africa

3 September 2007

Dave D Govender (46)

(South African)

Non-Executive

Director

18 Acacia Road,

Chislehurston, Sandton

2196, South Africa

28 May 2013

David Ngobeni (37)

(South African)

Non-Executive

director

18 Acacia Road,


2196, South Africa

23 July 2013

André Roux (65)

(South African)

Non-Executive

Director

35 Fricker Road, Illovo,

Sandton 2196, South Africa

3 September 2007

John Adrian van Wyk (49)

(South African)

Non-Executive

Director

2 More London, Riverside,

London SE1 2JT, United

Kingdom

3 September 2007

Matthews Sello Moloko (48)

(South African)

Non-Executive

Chairman

115 West Street, Sandton

2196, Johannesburg, South

Africa

3 December 2007

(executive)

1 July 2014

(non-executive)

Edward Christian Kieswetter

(55) (South African)

Group Chief Executive 115 West Street, Sandton


Africa

4 January 2010

71

Name, age and nationality

Occupation/Function

Business address

Date of appointment as director

Deon Marius Viljoen (49)

(South African)

Group Chief Financial

Offi cer



Africa

3 September 2007

Anthonie Christoffel de Beer


Alternate Director to

André Roux

35 Fricker Road, Illovo,

Sandton 2196, South Africa

29 February 2008

Jean-Charles Emmanuel

Douin (36) (French)


Lori Hall-Kimm

Leconfi eld House, Curzon

Street, London W1J 5JA,

United Kingdom

8 September 2009

Robert Ngetha Waithaka (34)

(Kenyan)


John van Wyk

Cradock Heights, 21 Cradock

Avenue, Rosebank 2132,

South Africa

1 September 2012

Jabulani Steven Masondo (38)

(South African)


Dave D Govender

18 Acacia Road,


2196, South Africa

28 May 2013

Short biographies of the directors are set out below:

Chairman

Matthews Sello Moloko. Mr Moloko was appointed as Chairman of the board of directors in December 2007

and became a non-executive Chairman in July 2014. He is a founder shareholder and Executive Chairman of

Thesele Group, a diversifi ed investment holding company. He has signifi cant asset management and actuarial

consulting experience gained over more than two decades. He is the former CEO of Old Mutual Asset Managers

and former deputy CEO of Capital Alliance Asset Managers (Brait Asset Managers). Mr Moloko served on the

Old Mutual SA’s Executive Committee and boards of subsidiaries of Old Mutual SA. He is the non-executive

chairman of Sibanye Gold Limited and also serves as non-executive director of Acucap Properties Limited,

Sycom Property Fund Managers and General Reinsurance Africa. He is a trustee of the Nelson Mandela

Foundation and chairs its Investment Committee. Mr Moloko also served on several other boards, including

Gold Fields Limited, the Industrial Development Corporation of South Africa Limited, Makalani Holdings

Limited and Seartec Industries. He was the national president of the Association of Black Securities and

Investment Professionals (“ABSIP”) from 2005 to 2007. In 2003, ABSIP presented him with the Financial

Services Pioneer Award in recognition of his achievements in the fi eld of investment management.

Executive Directors

Edward Christian Kieswetter. Mr Kieswetter was appointed as Group Chief Executive in January 2010.

Mr Kieswetter has a track record of successfully transforming and building high-performance organisations.

As a Senior Executive in Power Generation, Banking, and most recently Deputy Commissioner of the South

African Revenue Service before his current role, Mr Kieswetter has broad experience in both the public and

private sectors in energy and fi nance. He ascribes his success to building great teams with a strong execution

bias. This has won him the “Boss of the Year” title in 2000, along with other prestigious industry awards.

Along with his initial training in Electrical Engineering, he holds three Masters Degrees in Cognitive Science

(UWC), an Executive MBA (Henley UK) and a Master’s Degree in Commerce (cum laude) (Northwest University).

Mr Kieswetter has an appointment as a Harvard University Research Associate and is still actively involved

in education on various local and international boards.

Deon Marius Viljoen. Mr Viljoen joined the Group in March 2003 as fi nance director of Investment Solutions

Holdings Limited (“Investment Solutions Holdings”) and was promoted to Group Chief Financial offi cer in

2007. He currently serves as executive director on the main board and also serves on numerous subsidiary

boards and committees within the Group. Before joining Alexander Forbes, he was a partner and director of

PricewaterhouseCoopers Johannesburg in the service line of assurance and business advisory services, having

joined one of its predecessor fi rms in 1987. During his time in the profession, he specialised in banking and

other fi nancial services clients both in PricewaterhouseCoopers’ Johannesburg and London offi ces and served

on a number of industry bodies, such as the SAICA Banking Industry Group, and also chaired both the

Investment Management and the Collective Investment Schemes Industry Groups for a number of years. Mr

Viljoen obtained his BCom Accountancy (cum laude) in 1985 from the Rand Afrikaans University (now

University of Johannesburg) and completed his BCom Honours before qualifying as a Chartered Accountant

(SA) in 1987.

Non-Executive Directors

Mark Derrick Collier. Mr Collier is a business leader with an extensive international track record in developing

and building winning fi nancial services businesses both as a corporate executive and as an entrepreneur. His

72

career spans nearly 30 years in the retail and institutional sectors of the securities, asset management, wealth

management, retail banking, pensions, and fi nancial services industries holding a range of senior management

positions in leading global companies. He held a number of board appointments at Fidelity International in

Europe, including board director of Fidelity Investments Services Ltd and Managing Director Fidelity Portfolio

Services Ltd. He was a Senior Vice President at Schwab US, Managing Director of Schwab International and

President of Schwab Europe. Today Mr Collier is a Senior Advisor to a leading emerging markets private

equity fi rm and holds advisory positions on the boards of privately held fi nancial services companies in Brazil,

Indonesia and India. In addition, as an entrepreneur, he is engaged with a number of early stage business

startups in emerging market fi nancial services.

Deenadayalen Konar. Dr Konar is a member of the King Committee on Corporate Governance, the Corporate

Governance Forum and the Institute of Directors. He is also a non-executive director of Lonmin and Sappi, and

Chairman of Mustek, Steinhoff International Holdings and Exxaro Resources. He is the past co-chair of the

Independent Oversight Panel of the World Bank, former member of the Safeguards Panel of the International

Monetary Fund (“IMF”) and the former Chairman of the External Audit Committee of the IMF in Washington,

DC. Since 1998, he has been serving as professional and non-executive director of a number of companies.

Dr Konar was also previously a professor and head of the Accountancy department at the University of

Durban-Westville and has lectured at a post-graduate level at various universities in South Africa.

Hilgard Pieter Meyer. Mr Meyer is an actuary with extensive management experience gained over 30 years in

a broad range of sectors in the fi nancial services industry, including long-term and short-term insurance,

pensions, asset management and banking. Mr Meyer is the managing partner of Nodus Investment Managers,

a private equity fund manager. Prior to joining Nodus, he was the CEO of the Momentum Group. Mr Meyer is

also a non-executive director of a number of companies.

Barend Petersen. Mr Petersen is a Chartered Accountant with broad international business experience in

mining, fi nance, auditing, the oil industry, energy, government relations, business turnarounds, corporate

recovery, consulting and corporate governance. Mr Petersen is the executive chairman of De Beers Consolidated

Mines, a director of the De Beers Group of companies, the chairman of the Environment Company, Health and

Safety committee of the De Beers Group, and a director of Ponahalo, the black empowerment partner of

De Beers Consolidated Mines. He is a director of several companies, including Anglo American South Africa

Limited and Curro Holdings Limited. Mr Petersen is the chairman of Sizwe Business Recoveries, which he

founded in 1997.

Lori Hall-Kimm. Ms Hall-Kimm is a director at Teachers’ Private Capital and has over 10 years of combined

experience in investment banking and private equity. She oversees Teachers’ private equity fund and co-

investing activities in EMEA and helped to establish Teachers’ London offi ce in 2007. She has been involved in

several international transactions, including negotiating and executing new fund commitments, and equity

and mezzanine direct investments. Prior to joining Teachers’ in 2005, Ms Hall-Kimm worked in the consumer

and retail investment banking group at Goldman Sachs’ Investment Banking division, TD Securities, and

OMERS. She holds an MBA from Columbia Business School and a BBA with honours from the Schulich School

of Business at York University.

Natalie Catherine Kolbe. Ms Kolbe is a partner at Actis. She began her career working for Investec Bank,

where she was responsible for a team of investment consultants. She then moved to stockbrokers, Thebe

Securities, and joined Actis in 2003, where she is responsible for Actis’ investment in Alexander Forbes.

Ms Kolbe holds a BCom from the University of the Witwatersrand, an MBA (cum laude) from Wits Business

School and has completed the CFA programme.

Dave D Govender. Mr Govender is Strategic Projects Director and member of the M&A team at Shanduka

Group. Before joining Shanduka, he was the Technical Operations Director of Nando’s South Africa. Prior to

that, he worked for Coca-Cola South Africa, where he held numerous roles ranging from audit and supplier

to management; environmental and corporate affairs to eventually heading up commercialisation and special

projects. Mr Govender holds an MBA from the Wits Business School majoring in Innovation and is a Food

Science & Technology graduate from the Durban University of Technology. He is also a member of the Institute

of Directors.

David Ngobeni. Mr Ngobeni is the Chief Investment Offi cer and Chief Financial Offi cer at the Shanduka

Group. Before joining Shanduka Group, Mr Ngobeni worked in the Strategic Equity Division at Standard

Bank where he was involved in originating, structuring and implementing equity and mezzanine funding

transactions. In 2006, he was voted one of the best managers in the Corporate and Investment Banking

Division. He is a Chartered Accountant, a CFA Level III candidate and has completed an MCom Tax course

work. He is also a director of a number of Shanduka Group investee companies.

André Roux. Mr Roux is the Founding Partner of Ethos Private Equity Proprietary Limited, having established

the business in 1984. He is widely regarded as the pioneer of South African private equity and held the post

of chief executive since Ethos’ inception. He has lectured extensively on the private equity industry to business

schools and is a regular speaker at industry conferences. Mr Roux recently stepped down as Chief Executive

and assumed the role of Deputy Chairman, and Chairman of Ethos’ investment committee. Prior to the

73

establishment of Ethos, Mr Roux held the positions of Chief Executive of FirstCorp Capital Investors Limited

and FirstCorp Merchant Bank. He has also served on the boards of several portfolio companies associated with

the various investment funds advised by Ethos. Mr Roux graduated with a Bachelor of Commerce degree from

the University of the Witwatersrand, is a member of the South African Institute of Chartered Accountants and

serves on the board of the Emerging Markets Private Equity Association.

John Adrian van Wyk. Mr van Wyk is a partner and Head of Africa at Actis. He has extensive experience in

the private equity industry and has been involved in identifying, managing and executing some of the largest

and most successful deals in South Africa. Prior to Actis, Mr van Wyk spent nine years with Ethos Private

Equity Proprietary Limited. Mr van Wyk holds a BCom and a BAcc qualifi cation from the University of the

Witwatersrand and is a member of the South African Institute of Chartered Accountants.

Anthonie Christoffel de Beer. Mr de Beer is a Partner at Ethos Private Equity Proprietary Limited. He has

extensive experience across the private equity value chain and has been involved in deal sourcing, execution,

restructuring, monitoring and disposals of Ethos investments. Prior to joining Ethos in 2002, he worked for

PricewaterhouseCoopers for fi ve years. Mr de Beer also serves on the boards of Idwala, Plumblink and Kevro.

He holds a Bachelor of Commerce (Honours in Accounting) degree from the University of Johannesburg and

is a member of the South African Institute of Chartered Accountants.

Jean-Charles Emmanuel Douin. Mr Douin joined the London offi ce of Teachers’ Private Capital in 2008. He

was involved in the buyouts of Acorn Care & Education, Busy Bees, Burton’s Biscuits and Helly Hansen and

the investment in ISS. Mr Douin serves on the boards of Acorn Care & Education, Alexander Forbes, Busy Bees

and Helly Hansen. Previously, Mr Douin worked at CapVest, a pan-European mid-cap private equity fund

active in the food, consumer goods and healthcare sectors, and UBS Investment Bank, where he focused on

M&A deals in the consumer retail sectors. Mr. Douin earned a master’s degree and diploma from Écoles des

Hautes Etudes Commerciales (HEC) in Paris.

Robert Ngetha Waithaka. Mr Waithaka is an investment professional at Actis. Mr Waithaka gained investment

banking and private equity experience at Credit Suisse and Pacifi c Corp. Group Capital Partners in the United

States. He holds a BA from Middlebury College and an MBA from The Wharton School, University of

Pennsylvania.

Jabulani Steven Masondo. Mr Masondo is a Finance Executive at Shanduka Group. He specialised in taxation

in the fi nancial services industry for six years, prior to joining Shanduka in November 2010. He was previously

an Associate Director at PricewaterhouseCoopers, where his main focus was the banking and insurance

sectors. Some of his clients included FirstRand Bank, ABSA Bank, Momentum and Outsurance. Mr Masondo

holds a Masters in Taxation and is a member of the South African Institute of Chartered Accountants.

Senior Management of the Group

The senior management of the Group is as follows:

Name Position Business address Date of appointment

Edward Christian

Kieswetter (55)

(South African)

Group Chief Executive 115 West Street, Sandton

2196, Johannesburg

South Africa

1 January 2010

Lindiwe Angela

Dlamini (44)

(South African)

Managing Director, Retail 115 West Street, Sandton

2196, Johannesburg

South Africa

1 June 2013

Garikai Dombo (47)

(Zimbabwean)

Managing Director, AFI 115 West Street, Sandton

2196, Johannesburg

South Africa

1 April 2011

Peter Alan Edwards


Chief Executive Offi cer,

A FFS


2196, Johannesburg

South Africa

1 April 2013

Bradley John Eliot (44)

(South African)

Group Executive, IT 115 West Street, Sandton

2196, Johannesburg

South Africa

1 November 2002

Derrick Thembinkosi

Vusumuzi Msibi (45)

(South African)

Managing Director,


63 Wierda Road East, Wierda

Valley, Sandown, 2196,


1 January 2009

Vishnumurthie Kista

Naicker (48)

(South African)

Group Chief Risk Offi cer

and Group Executive, Risk

and Compliance


2196, Johannesburg

South Africa

1 May 2008

74


Luendran Pillay (39)

(South African)

Managing Director, AfriNet 115 West Street, Sandton

2196, Johannesburg

South Africa

1 May 2012

Janice Eva Salvado (41)

(South African)

Group Company Secretary 115 West Street, Sandton

2196, Johannesburg

South Africa

1 July 2003

Grant Edwin Stobart

(50) (British and

South African)

Chief Executive Offi cer,

A F International

3rd Floor, 1 Royal Exchange,

London EC3V 3LN, United

Kingdom

1 June 2004

Lynn Wilhelmina

Stevens (46)

(South African)

Group Executive, Brand,

Marketing and

Communications


2196, Johannesburg

South Africa

4 August 2010

Thabo Mashaba (44)

(South African)

Group Chief Human

Resources Offi cer


2196, Johannesburg

South Africa

1 April 2012

Deon Marius Viljoen


Group Chief Financial

Offi cer


2196, Johannesburg

South Africa

1 April 2007

Short biographies of the senior management of the Company are set out below:

Edward Christian Kieswetter. See “ —Directors of the Company —Executive Directors” above.

Lindiwe Angela Dlamini. Ms Dlamini was appointed as Managing Director of the Retail business in June

2013. Previously, she was the Group Executive of Emerging Consumer Markets at Liberty Group. She also

served in various other senior positions at Liberty Group, including Group Executive of Retail South Africa

Operations (2008 – 2011) and Divisional Director, Risk Benefi ts and Premium Administration (2006 – 2008).

Ms. Dlamini holds BA, LLB and LLM (Tax) degrees and is a Certifi ed Financial Planner.

Garikai Dombo. Mr Dombo has been the Managing Director of AFI since April 2011. Prior to his appointment

as Managing Director, he was a senior executive at Alexander Forbes Personal Insurance Services. Mr Dombo

serves on the boards of AFI and Alexander Forbes Insurance Namibia and was a former board member of the

Ombudsman for Short-Term Insurance and of the South African Insurance Association. Mr Dombo holds an

MBA degree from the University of Natal. He is an Associate of the Chartered Institute of Insurance in

Hillcrest, London, a member of the Society of Fellows and a fellow of the Insurance Industry in South Africa.

Peter Alan Edwards. Mr Edwards has been the Chief Executive Offi cer of AFFS Holdings since April 2013. He

previously served as the Managing Director of AF Health. He is currently a board member of AFFS Holdings,

AFFS Proprietary Limited and a number of the Retail subsidiaries. Mr Edwards is also trustee of the Alexander

Forbes Management Trust, the Alexander Forbes Management Co-Investment Trust and a member of the

AF Life Risk Committee.

Bradley John Eliot. Mr Eliot was appointed as Group IT Director in 2002. He holds a BCompt (Hons) and is a

qualifi ed Chartered Accountant. He previously worked at Deloitte and joined Alexander Forbes in the Corporate

Finance division in 1998. He serves on the boards of a number of companies within the Group.

Derrick Thembinkosi Vusumuzi Msibi. Mr Msibi was appointed as Managing Director of Investment Solutions

Holdings in 2008. Mr Msibi also serves on the boards of Investment Solutions, Caveo, Investment Solutions

Jersey, and is a trustee of the Alexander Forbes Management Trust and the Alexander Forbes Staff Share

Trust. He also represents Investment Solutions on industry associations. Prior to joining the Group, he was

an Executive Director of Alternative Investments at Old Mutual Investment Group (South Africa) Proprietary

Limited.

Vishnumurthie Kista Naicker. Mr Naicker was appointed as Group Chief Risk Offi cer in 2008. He was

previously with the KZN provincial government as the Deputy Director General and the Provincial Accountant

General, after which he joined South Africa Airways Proprietary Limited in 1996 as an Executive Vice

President of Audit, Risk and Compliance. Mr Naicker has over 20 years of diversifi ed professional experience

in the fi elds of fi nancial management governance, treasury management, fi scal policy development, risk

management compliance and internal auditing.

Luendran Pillay. Mr Pillay was appointed as Managing Director of AfriNet in 2011 and has been managing

the Group businesses in the various African countries for the last two years. Prior to joining the Group, he

was with Gerald Metals LLC, a commodity trading fi rm, as a Managing Director of Finance and Investments

and was running their global investment and operating portfolio from the New York offi ce. Previously, he was

with RMB, where he gained extensive experience in fi nancial restructuring, project fi nance and private equity.

75

Janice Eva Salvado. Ms Salvado was appointed as the Group Company Secretary in July 2003 and has been

Head of Investor Relations since July 2007, having fi rst joined the Group as Group Assistant Company

Secretary in April 1999. She has previously held positions at Allied Technologies Limited, MIH Holdings

Limited and Aegis Insurance Company Limited. Ms Salvado holds BCom and LLB degrees.

Grant Edwin Stobart. Mr Stobart was appointed as CEO of AF International in April 2006 and the head of

corporate development in December 2010. Mr Stobart is also a board member of AFIL, LCP, LCP Belgium and

a number of the Group’s non-operating holding companies and has previously served on all of the Group’s

regulated entities in the UK and in Europe prior to their disposal. He joined the Group in 2003 as Finance

Director of International Operations. Prior to joining the Group, Mr Stobart held senior managerial positions

in the FirstRand Bank Group.

Lynn Wilhelmina Stevens. Ms Stevens was appointed as Group Executive of Brand, Marketing and

Communications in 2009. She is also a board member of AFI and Salesian Street Youth Institute, a non-

governmental organisation. Ms Stevens holds a BA (English and History) degree and a Post-Graduate Diploma

in Higher Education (English and History) from the University of Cape Town.

Thabo Mashaba. Mr Mashaba was appointed as Group Chief Human Resources Offi cer in 2011. He previously

held senior leadership roles in the banking industry, including at the Absa group of companies, where he was

Head of HR for Absa Retail Bank, Head of Employee Relations for the Absa Group and Regional Manager for

Private Bank at Absa. He is currently a trustee in the various trustee entities within the Group and was also

formerly a board member and remuneration committee chairman for CANSA.

Deon Marius Viljoen. See “ —Directors of the Company —Executive Directors” above.

Directors of Major Subsidiaries

The directors of the Company’s major subsidiaries are as follows:

AFFS Holdings


Matthews Sello Moloko

(South African)

Non-Executive Chairman 115 West Street, Sandton

2196, Johannesburg

South Africa

11 February 2008

Edward Christian

Kieswetter

(South African)

Non-Executive Director 115 West Street, Sandton

2196, Johannesburg

South Africa

4 January 2010

Deon Marius Viljoen

(South African)


2196, Johannesburg

South Africa

11 November 2004

Peter Alan Edwards

(South African)

Chief Executive Offi cer 115 West Street, Sandton

2196, Johannesburg

South Africa

17 May 2011

Lisa Stott

(South African)

Financial Director 115 West Street, Sandton

2196, Johannesburg

South Africa

31 August 2008

Mark Derrick Collier

(British)

Independent Non-Executive

Director



United Kingdom

23 November 2011

Bradley John Eliot

(South African)

Alternate Non-Executive

Director


2196, Johannesburg

South Africa

11 February 2008

Vishnumurthie Kista

Naicker

(South African)


2196, Johannesburg

South Africa

4 August 2008

Deenadayalen Konar

(South African)


Director

42 Wierda Road West, Wierda

Valley, Sandton 2196

South Africa

25 July 2008

76



Edward Christian

Kieswetter

(South African)


2196, Johannesburg,

South Africa

4 January 2010

Deon Marius Viljoen

(South African)

Alternate Director 115 West Street, Sandton

2196, Johannesburg,

South Africa

4 January 2010

Mark Derrick Collier

(British)


Director



United Kingdom

23 November 2011

Deenadayalen Konar

(South African)


Director

42 Wierda Road West,

Wierda Valley, Sandton

2196, South Africa

25 July 2008

Marilyn Ramplin

(South African)


Director

99 Boundary Lane,

Parkmore, 2196,


19 August 2011

Ntobeko Goodman

Nyawo (South African)

Financial Director 63 Wierda Road East, Wierda



2 June 2011

Mavuso Msimang

(South African)

Independent Director 131 Elevation Avenue,

Randjesfontein, Midrand,

1685, South Africa

1 April 2011

Barend Petersen

(South African)


Director

Chambers, 33 Church Street,

Cape Town 7001,

South Africa

1 October 2010

Derrick Thembinkosi

Vusumuzi Msibi

(South African)

Managing Director 63 Wierda Road East, Wierda



2 January 2009

AF International


Edward Christian

Kieswetter

(South African)


2196, Johannesburg

South Africa

12 January 2010

Grant Edwin Stobart

(British and

South African)

Chief Executive Offi cer 3rd Floor, 1 Royal Exchange,

London EC3V 3LN

United Kingdom

20 May 2004

Phillip Mark Elliot

(British)

Executive Director 3rd Floor, 1 Royal Exchange,

London EC3V 3LN

United Kingdom

6 April 2014

Short biographies of the directors of the Company’s major subsidiaries are set out below:

Edward Christian Kieswetter. See “ —Directors of the Company —Executive Directors” above.

Matthews Sello Moloko. See “ —Directors of the Company —Chairman” above.

Lisa Stott. Ms Stott has been the Finance Director of AFFS Holdings since August 2008. She fi rst joined the

Group in 2002 as the Financial Accountant, reporting to the Group CFO. Prior to joining the Group, Ms Stott

was an audit manager at PricewaterhouseCoopers. She is currently a board member of AFFS Holdings and a

number of the Group’s subsidiary companies. Ms Stott is also a member of the AFFS Holdings Risk Committee

and AF Life Risk Committee and a member of the Group’s staff provident fund.

Mark Derrick Collier. See “ —Directors of the Company —Non-Executive Directors” above.

Bradley John Eliot. See “ —Senior Management of the Group” above.

Vishnumurthie Kista Naicker. See “– Senior Management of the Group” above.

Deenadayalen Konar. See “ —Directors of the Company —Non-Executive Directors” above.

Derrick Thembinkosi Vusumuzi Msibi. See “ —Senior Management of the Group” above.

77

Marilyn Ramplin. Ms Ramplin is the Founder and CEO of the Hedge Fund Academy. Prior to this she was an

executive director with JP Morgan London. Ms Ramplin holds several independent non-executive board

positions and has developed a risk governance framework for fi nancial institutions. She is an internationally

recognised specialist on a number of boards.

Ntobeko Goodman Nyawo. Mr Nyawo began his career at De Beers Consolidated Mines. He then joined

Alexander Forbes as a Senior Consultant before being appointed the Financial Director of Alexander Forbes

AfriNet Investments and Chief Operations Offi cer of Alexander Forbes AfriNet Investments. He is currently

the Financial Director of Investment Solutions. Mr Nyawo holds B Comm and B Comm (Hons) (Accounting)

degrees and is a qualifi ed Chartered Accountant.

Mavuso Msimang. Mr. Msimang has vast executive management experience, with primary areas of expertise

in environmental impact management, deployment of IT and technology as well as transforming organisations.

He holds a BSc and an MBA.

Barend Petersen. See “ —Directors of the Company —Non-Executive Directors” above.

Grant Edwin Stobart. See “ —Senior Management of the Group” above.

Phillip Mark Elliott. Mr Elliott is the Head of Group Finance and Taxation of AF International . He has extensive

multi-national experience at management and director levels. Mr Elliott joined the Group in 2007, prior to

which he held a senior management position within the Viacom Group (a U.S.-based multi-national media

group) as Director of International Tax and Compliance for one its international subsidiaries. Mr Elliott is a

Fellow of the Association of Chartered Certifi ed Accountants.

Further particulars of the directors of the Company and its major subsidiaries and senior management of the

Group, including details of other directorships or partnerships held in the preceding fi ve years, are set out in

Annexure 6 to this pre-listing statement.

Directors’ Confi rmations

None of the directors or senior management of the Company or the directors of its major subsidiaries referred

to in this pre-listing statement:

• has been declared bankrupt, insolvent or sequestrated or has entered into an individual voluntary

compromise arrangement;

• has ever been involved, in any business rescue plans and/or resolution proposed by any entity to commence

business rescue proceedings, application having been made for any entity to begin business rescue

proceedings, notices having been delivered in terms of Section 129(7) of the Companies Act, receiverships,

compulsory liquidations, creditors’ voluntary liquidations, administrations, company voluntary

arrangements or any composition or arrangement with its creditors generally or any class of its creditors

of any company where such person is or was a director, with an executive function within such company

at the time of, or within the last 12 months;

• has been involved in any compulsory liquidation, administration or voluntary arrangements of any

partnership where such person is or was a partner at the time of or within the 12 months preceding such

events;

• has had receivership of any of the assets of such person or of a partnership of which he or she was a

partner subject to receivership when he or she was a partner or was a partner at the time of, or within

12 months prior to such an event;

• has been the subject of public criticism by any statutory or regulatory authorities, including recognised

professional bodies, or been disqualified by a court from acting as a director of a company or from acting

in the management or conduct of the affairs of any company;

• has been convicted of any offence resulting from dishonesty committed by such person;

• has ever been found guilty of any offence involving dishonesty committed by such person;

• has been removed from an office of trust on the grounds of misconduct and involving dishonesty; or

• is or has been subject to any court order declaring him or her delinquent or placing him or her under

probation under Section 162 of the Companies Act and/or Section 47 of the Close Corporations Act, 1984

(Act No. 69 of 1984) or disqualifying him or her to act as a director under Section 69 of the Companies

Act, 2008.

Company Secretary

The company secretary is Janice Eva Salvado (BCo m, LLB). Ms. Salvado has approximately 17 years of

experience in the company secretarial fi eld. At a meeting of the board held on 5 June 2014, the board assessed

Ms Salvado’s competence, qualifi cations, experience, suitability and performance during fi nancial year 2014

and found her to be competent and suitably qualifi ed to act as company secretary.

78

Ms Salvado is not a director of the Company and the board, having specifi cally considered the matter, is

satisfi ed that an arm’s length relationship is maintained between the board and the company secretary, in

accordance with the recommended practice of the King III Report. The company secretary will be subjected to

an annual evaluation by the board, which can also remove her from offi ce.

All directors have access to the advice and services of the company secretary to enable them to perform their

duties and responsibilities and for the board to function effectively. The company secretary fulfi ls the duties

as set out in Section 88 of the Companies Act and is also responsible for compliance with the Listings

Requirements.

Appointment, Qualifi cation and Borrowing Powers of Directors

Set out in Annexure 11 to this pre-listing statement are extracts of the relevant provisions of the memorandum

of incorporation of the Company, regarding:

• the qualification, appointment, terms of office and remuneration of directors;

• the borrowing powers of the Company exercisable by the directors and how such borrowing powers can

be varied;

• powers enabling directors to vote on a proposal, arrangement or contract in which they are materially

interested and to vote remuneration to themselves or any member of the board of directors; and

• retirement of directors by rotation and the retirement or non-retirement of directors under an age limit.

The directors’ borrowing powers have not been exceeded during the past three years and there have not been

any exchange control or other restrictions on the borrowing powers of the Company or any of its subsidiaries.

The memorand a of incorporation of each of the subsidiary companies do not interfere with the Company’s

compliance with the Listings Requirements.

Remuneration of Directors

The total aggregate remuneration, benefi ts and fees paid and payable to the executive directors and non-

executive directors of the Company for fi nancial year 2014 is set out below. See also Note 43 to the Consolidated

Financial Statements.

Executive Directors

Name Salary BonusBenefi ts and

allowances

Retirementand medical

contributions Total(R thousands)

EC Kieswetter 4 ,626 5 ,200 99 484 10 ,409

MS Moloko(1) 2 ,240 2 ,250 47 317 4 ,854

DM Viljoen 3 ,126 3 ,600 69 504 7 ,299

Total 9 ,992 11 ,050 215 1 ,305 22 ,562

(1) Appointed as non-executive chairman with effect from 1 July 2014.

79

Non-Executive Directors

Name Salary Bonus Fees Total

(R thousands)

MD Collier – – 1 ,067 1 ,067

AC De Beer – – – –

JE Douin – – – –

DD Govender – – – –

L Hall-Kimm – – – –

NC Kolbe – – 324 324

D Konar – – 1 ,552 1 ,552

JS Masondo – – 324 324

HP Meyer – – 516 516

B Petersen – – 852 852

D Ngobeni – – 324 324

A Roux – – 324 324

RN Waithaka – – – –

JA van Wyk – – 324 324

Total – – 5 ,607 5 ,607

None of the directors received any management consulting, technical or other fees payable or such services

rendered during fi nancial year 2014. None of the directors received any commission or has been party to any

gain or profi t-sharing arrangements during fi nancial year 2014. None of the directors received any other

material benefi ts, directly or indirectly, from the Company or the Group during fi nancial year 2014. Other

than as set out below in “ — Directors’ Incentives and Interests in Transactions”, none of the directors were

granted any share options or any other right which had the same or a similar effect in respect of providing a

right to such director to subscribe for the Shares during fi nancial year 2014. Further details of the directors’

service agreements are set out in Annexure 6 to this pre-listing statement. No fees were paid or accrued as

payable to a third-party in lieu of directors’ fees. Other than as set out below in “ — Directors’ Incentives and

Interests in Transactions” , the remuneration receivable by the directors of the Company will not be varied in

consequence of the transaction.

Name

2011 Executive Long-Term Incentive

Plan(1)

2014Exit

TransactionIncentive

(R millions)

Executive DirectorsEC Kieswetter 8.1 18.3

MS Moloko 4.1 –

DM Viljoen 5.7 9.1

1. As amended and revised in June 2014. See “ —Directors’ Incentives and Incentives in Transaction —2011 Executive Long-Term Incentive

Plan as Amended and Revised in June 2014”.

Directors’ Interests

The direct and indirect interests in the Shares as at the Last Practicable Date of the directors and their

associates, including any director who has resigned during the last 18 months, are set out below .

The directors do not have any direct holdings in the Shares.

The directors’ indirect holdings in the Shares are through the Alexander Forbes Management Trust and the

Alexander Forbes Management Co-Investment Trust. Prior to the completion of the Restructure, these trusts

held in aggregate shares amounting to 8.7% of the Shares. As part of the Restructure, a special purpose

vehicle, Management SPV, was formed for the benefi t of management and holds Shares in the Company.

Following the Restructure, the Alexander Forbes Management Trust, the Alexander Forbes Management

Co-Investment Trust and Management SPV hold in aggregate shares amounting to 5.7% of the Shares.

Participants in the trusts do not directly own Shares in the Company. However, the trusts hold shares in the

Company for the benefi t of such participants. Each participant made a contribution of capital to the trusts.

The original value at which the points were allocated from the trusts was R1.00 each. The number of points

held by the directors is shown in the table below.

80

Name

Directbenefi cial

(Shares)

Indirect benefi cial

(Points)(1)

Executive DirectorsEC Kieswetter – 6 ,717 ,145

DM Viljoen (2) – 3 ,198 ,870

Total – 9 ,916 ,015

Non-Executive DirectorsMD Collier – –

AC De Beer – –

JE Douin – –

DD Govender – –

L Hall-Kimm – –

NC Kolbe – –

D Konar – –

JS Masondo – –

HP Meyer – –

MS Moloko – 1 ,801 ,034

B Petersen – –

MC Ramaphosa – –

D Ngobeni – –

A Roux – –

RN Waithaka – –

JA van Wyk – –

Total – 11 ,717 ,049

1. Held through the Alexander Forbes Management Trust and the Alexander Forbes Co-Investment Management Trust.

2. In addition, DM Viljoen held 714,089 Shares in AF Pref as of the Last Practicable Date.

There have been no changes in those interests occurring between the end of the preceding fi nancial year and

the date of this pre-listing statement.

No loans have been made or security furnished by the Company or by any of its subsidiaries to or for the

benefi t of any director or manager or any associate of any director or manager of the Company.

No director or promoter had any material benefi cial interest, direct or indirect, in the promotion of the

Company or in any proposed material acquisition out of the proceeds of the Offer or during the three years

preceding the date of this pre-listing statement.

No payments were made to, or have been agreed to be paid to, any director of the Company or any company in

which he/she is benefi cially interested, directly or indirectly, or of which he/she is a director (the “associate

company”) or to any partnership, syndicate or other association of which he/she is a member (the “associate

entity”) either to induce him or her to become, or to qualify him/her as a director of the Company or otherwise

for the services rendered by him or her or by the associate company or the associate entity in connection with

the promotion or formation of the Company.

Directors’ Incentives and Interests in Transactions

Other than as set out below, no directors, including any directors who have resigned during the last 18 months,

have any material direct or indirect benefi cial interests in any of the transactions of the Company either

during the current or immediately preceding fi nancial year or during an earlier fi nancial year, which remain

outstanding or unperformed. There have been no changes to these interests between the end of the preceding

fi nancial year and the date of the pre-listing statement.

2011 Executive Long-Term Incentive Plan as Amended and Revised in June 2014

The Alexander Forbes 2011 Executive Long-Term Incentive Plan was adopted by a resolution of the

Remuneration Committee of the Company on 4 August 2011 and was amended and revised on 3 June 2014.

The plan is constructed and designed as a restricted bonus incentive scheme which is cash-settled. The plan

does not involve the purchase, transfer or issue of shares or share options nor is it linked in any way to

shares. The board of directors is responsible for the operation and administration of the plan and has discretion

to decide whether and on what basis the plan should be implemented including the making of awards to senior

or key employees of any member of the Group. The participation by executive directors in the plan is required

81

to be approved and confi rmed by the Remuneration Committee. 46 Senior managers and directors of the

Company have been designated as eligible employees under the plan. Awards made to eligible employees

(including executive directors) in terms of the plan will vest in two tranches: (i) 50% upon Listing and (ii) 50%

18 months later. An award is conditional upon acceptable performance by participants over the period and

upon participants being employed by a member of the Group at the date of payment.

2014 Exit Transaction Incentive

The 2014 Exit Transaction Incentive (the “2014 ETI”) was adopted by the board of the Company to be

implemented in the event that the Selling Shareholder s’ investment in the Group is successfully realised

either by way of a trade sale or listing in 2014. The terms of the 2014 ETI differ depending on whether a trade

sale or listing is pursued. Only the terms relevant to a listing of the Company are described below .

Participants in the 2014 ETI include the executive directors of the Company and certain other senior managers

of the Group. The 2014 ETI is constructed and designed as a restricted incentive plan which is equity-settled

by the Company. The Shares awarded to eligible participants will be subject to certain disposal restrictions

(see below). An incentive contemplated in the 2014 ETI will be settled on the Listing Date where the

Remuneration Committee has approved the incentive award. Further, an incentive will only be awarded in

terms of the 2014 ETI where the Group Chief Executive (other than in the case of any incentive award to be

made to the Group Chief Executive) and Remuneration Committee, in their sole assessment and discretion,

have approved the participant’s eligibility by determining that the participant has performed his or her duties

and functions in relation to the relevant transaction satisfactorily.

The incentive pool established for purposes of the 2014 ETI is a minimum of R20 million and is guaranteed at

that amount upon a successful realisation of the Selling Shareholders’ investment in the Group at a valuation

multiple of at least 8.0x EBITDA for fi nancial year 2014. The incentive pool will increase in accordance with

a pre-determined schedule in line with an increase in the valuation multiple achieved upon an exit. Based on

the mid-point of the Offer Price Range, it is expected that the incentive pool will total approximately

R 59 million. The incentive awarded to each eligible participant will be settled in Shares on the Listing Date.

Any tax obligations arising from the incentive awards will be subject to the Company’s usual obligations

under the Income Tax Act. A participant in the 2014 ETI will not be entitled to dispose of the Shares awarded

to him or her for (a) 180 days (in relation to 40% of the total number of Shares issued to the participant

pursuant to the 2014 ETI) and (b) 365 days (in relation to the balance of the Shares issued to the participant

pursuant to the 2014 ETI), in each case, calculated from the Listing Date.

As set out above, the 2014 ETI will be equity-settled through the issue of Shares. The number of Shares to be

issued in settlement of awards issued pursuant to the 2014 ETI will be determined by reference to (i) the total

incentive pool; (ii) the extent of each individual participant’s participation in the incentive pool; and (iii) the

Offer Price.

Management Payment Agreement (“Make-Good” Payment)

Since the 2007 Acquisition and up until the Restructure, the Alexander Forbes Management Trust was a

holder of Shares in the Company but did not hold any “A” preference shares in the Company, which effectively

provided inherent leverage to the Alexander Forbes Management Trust. Pursuant to the Restructure, the

Company redeemed all issued “A” preference shares and, in consideration, issued new Shares to the holders

of the “A” preference shares, resulting in signifi cant dilution of the Alexander Forbes Management Trust’s

ordinary shareholding in the Company and the effective loss of the inherent gearing in the Alexander Forbes

Management Trust’s investment in the Company. In order to compensate the Trust and, indirectly, the

benefi ciaries for this loss, the Company entered into an agreement dated 20 March 2014 with the Alexander

Forbes Management Trust in terms of which the Company agreed to pay the Alexander Forbes Management

Trust a compensation amount (the “Compensation Amount”) upon the happening of certain defi ned events

(including but not limited to the Listing). The Compensation Amount will be calculated with reference to the

Offer Price achieved in the Offering. The Compensation Amount is expected to be between R 34 million and

R 79 million based on the Offer Price Range.

Share Schemes

Long-Term Incentive Share Plan

The Company has approved the adoption of the Alexander Forbes Long-Term Incentive Share Plan (the “LTIP”)

to take effect following the Listing. The LTIP will be administered by the Remuneration Committee of the

Company and will be available to executive directors, senior managers and other key employees of the

Company, although the Remuneration Committee may, in its discretion, include any permanent salaried

employee in the LTIP in exceptional circumstances. The aim of the LTIP is to provide a direct alignment

between participants and shareholders. Participants receive Company shares under the LTIP and awards of

shares are subject to achieving performance conditions stipulated by the Remuneration Committee. The

vesting of the LTIP awards will occur on a sliding scale and will depend on, among other things, the fulfi lment

of performance conditions.

82

In line with the requirements of the King III Report and best practice requirements, the Company will make

regular annual awards of shares based on an individual’s performance (“performance shares”). Award levels

for performance shares will be set by reference to the individual’s salary, grade, performance, as well as the

Company’s retention requirements and market benchmarks. The award levels will be determined by the

Remuneration Committee and will be benchmarked against market remuneration, while considering the

overall affordability thereof to the Company. An initial award of 1 ,315 ,214 conditional shares under the

scheme will be made to EC Kieswetter and 881 052 conditional shares to DM Viljoen. These awards are

conditional upon fulfi lment of performance conditions measured over the next three fi nancial years.

In addition, restricted shares may be awarded on an ad hoc basis to address employee retention risks and to

address broad-based employee share ownership requirements identifi ed by the Remuneration Committee

(“restricted shares”). Awards of restricted shares will only be made on a selective basis and only in exceptional

circumstances, subject to sustained individual performance by the specifi c employee. Restricted shares may

also be awarded as sign-on bonuses to attract new employees as identifi ed by the Remuneration Committee.

The rules of the LTIP allow for settlement through the purchase of Shares on the open market, the use of

treasury shares or the issue of new Shares. The maximum number of shares permitted to be allocated under

the plan at any time is 64 ,000 ,000 shares and the maximum number of shares that can be allocated to any

individual is 13 ,000 ,000 shares. See Annexure 16 for more details.

Board Practices and Corporate Governance

The Company is committed to the principles of effective corporate governance and application of the highest

ethical standards in the conduct of its business and affairs. The directors endorse the King Code and recognise

the need to conduct the affairs of the Company with integrity and in accordance with generally accepted

corporate practices. The board of directors continues to improve on the recommended practices in its

governance systems, processes and procedures. The directors recognise that they are ultimately responsible

for the fi nancial performance of the Company. A full analysis of the corporate governance in the Group and

the steps taken by the Company to comply with the King Code is set out in Annexure 15.

83

SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION

The following selected consolidated fi nancial information is derived from the Consolidated Financial

Statements , which were prepared in accordance with IFRS and the Listings Requirements. The fi nancial

information for the years ended 31 March 2013 and 2012 has been restated for the effects of the disposal of

Guardrisk and other businesses, which are refl ected as discontinued operations, and the adoption of IAS 19

Employee Benefi ts (Revised) and IFRS 10 Consolidated Financial Statements . See “Presentation of Financial

and Other Information” for more details. In addition, the Consolidated Financial Statements refl ect the effects

of certain adjustments resulting from the SARS Settlement, which was a post-balance sheet event. See Notes

8, 37.3, 44 and 50 to the Consolidated Financial Statements and “Business —Investigations and Legal

Proceedings —SARS Settlement” .

The consolidated fi nancial information of the Group as at and for the fi nancial years ended 31 March 2014,

2013 and 2012 presented in this pre-listing statement has been audited by PricewaterhouseCoopers, auditors

and independent reporting accountants, as stated in their report included in Annexure 3 to this pre-listing

statement.

The selected consolidated fi nancial information presented below should be read in conjunction with the section

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated


The directors accept responsibility for the report of historical fi nancial information contained in this

pre- listing statement.

Consolidated Income Statement Data

Year ended 31 March

2014 2013 2012

(R million)

Continuing operationsFee and commission income 4 ,776 4 ,038 3 ,603

Direct expenses attributable to fee and commission income (801) (651) (591)


Net revenue 4 ,392 3 ,737 3 ,322Operating expenses (3 ,352) (2 ,812) (2 ,460)

Trading profi t 1 ,040 925 862Non-trading and capital items (108) (113) (108)

Operating profi t 932 812 754Investment income 233 129 161

Finance costs (843) (848) (816)

Share of net profi t of associates (net of income tax) 2 1 1

Profi t before taxation 324 94 100Income tax expense (487) (192) (316)

Loss for the year from continuing operations (163) (98) (216)Discontinued operationsProfi t/(loss) on discontinued operations (net of income tax) 542 (10) 157

Profi t/(loss) for the year 379 (108) (59)

Profi t/(loss) attributable to:



379 (108) (59)

84

Consolidated Balance Sheet Data

As at 31 March

2014 2013 2012

(R million)

ASSETSFinancial assets held under multi-manager investment

contracts 253 ,747 222 ,790 209 ,994

Financial assets of cell-captive insurance facilities 315 11 ,374 9 ,484

Property and equipment 335 239 165

Purchased and developed computer software 80 129 166

Goodwill 3 ,985 4 ,490 4 ,652

Intangible assets 886 1 ,211 1 ,437

Investments in associates 6 4 3

Deferred tax assets 117 164 110

Financial assets 409 2 ,064 1 ,209

Insurance receivables 814 1 ,073 896



Assets of disposal group classifi ed as held for sale 91 29 ,938 288

Total assets 265 ,565 278 ,037 232 ,379

EQUITY AND LIABILITIESShare capital and premium 5 ,819 3 ,261 3 ,261




Equity holders’ funds 4 ,627 2 ,070 2 ,092


Total equity 4 ,837 2 ,264 2 ,277


contracts 253 ,747 222 ,790 209 ,994

Liabilities of cell-captive insurance facilities 315 11 ,374 9 ,484

Borrowings 1 ,652 5 ,409 5 ,448

Employee benefi ts 168 181 170

Deferred tax benefi ts 432 450 491

Provisions 284 284 265

Finance lease liability 90 93 –

Operating lease liability 119 40 29


Insurance payables 2 ,270 3 ,985 2 ,693

Trade and other payables 1 ,591 1 ,353 1 ,328

Liabilities of disposal group classifi ed as held for sale 35 29 ,742 131

Total liabilities 260 ,728 275 ,773 230 ,102

Total equity and liabilities 265 ,565 278 ,037 232 ,379

85

Consolidated Cash Flow Data

Year ended 31 March

2014 2013 2012

(R million)

Cash fl ows from operating activitiesCash generated from operations 1 ,331 1 ,101 830

Interest received 228 137 169

Finance costs paid (2 ,125) (593) (567)

Movement in working capital and insurance balances 501 300 728

Cash settlement of cash management claims (7) – (3)

Cash settlement of retirement benefi t obligations (7) (7) (6)

Cash fl ows from policyholder investment contracts (5 ,054) (2 ,482) (3 ,223)

Taxation paid (387) (426) (242)

Cash fl ows from operating activities – discontinued

operations 163 227 246

Net cash outfl ow from operating activities (5 ,357) (1 ,743) (2 ,068)

Cash fl ows from investing activitiesNet proceeds from sale of subsidiaries, associates and

businesses 1 ,236 279 (153)

Repayment of assumed debt by acquirer – – 511

Investment in fi nancial assets (594) (617) (759)

Proceeds on disposal of fi nancial assets 580 597 10

Movement in premium fi nance receivables – – (37)

Capital expenditure incurred on property, equipment and

computer software (208) (106) (119)

Capital expenditure incurred on goodwill – – (12)

Proceeds from sale of property, equipment and computer

software 6 3 1

Cash fl ows from investing activities – discontinued

operations 22 (5) (2)

Net cash infl ow/(outfl ow) from investing activities 1 ,042 151 (560)

Cash fl ows from fi nancing activitiesIssue of shares 1 ,903 – –

Increase in shareholder loan 4

Borrowings raised by SPVs in order to purchase shares 386 – –

Borrowings raised 1 ,250 – –

Repayment of borrowings (4 ,095) (252) (642)

Payments made to non-controlling interests (126) (74) (76)

Cash fl ows from fi nancing activities – discontinued

operations – – 29

Net cash outfl ow from fi nancing activities (678) (326) (689)

Decrease in cash and cash equivalents (4 ,993) (1 ,918) (3 ,317)

Cash and cash equivalents at beginning of year 16 ,975 18 ,833 22 ,06 8

Foreign subsidiaries exchange differences 147 60 82

Cash and cash equivalents at end of year 12 ,129 16 ,975 18 ,83 3

86

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS

The following discussion of the Group’s financial condition and results of operations should be read in

conjunction with the Consolidated Financial Statements included in Annexure 2 to this pre-listing statement,

as well as the information presented under “Presentation of Financial and Other Information” and “Selected

Financial and Other Information”.

In connection with the preparation of the Consolidated Financial Statements, the Group has made certain

adjustments to its previously reported historical financial information. The Group has restated certain comparable

figures for financial year 2013 and financial year 2012 in accordance with IFRS to reflect the impact of the

disposal of Guardrisk and other businesses and their reclassification as discontinued operations, and the

adoption of IAS 19 Employee Benefits (Revised) and IFRS 10 Consolidated Financial Statements. See Note 50

to the Consolidated Financial Statements.

In addition, the Consolidated Financial Statements reflect the effects of certain adjustments resulting from the

SARS Settlement, which was a post-balance sheet event that occurred between the date of authorisation of the

Group’s annual financial statements on 9 June 2014 and the date of authorisation of the Consolidated Financial

Statements. See Notes 8, 37.3, 44 and 50 to the Consolidated Financial Statements and “Business —Investigations

and Legal Proceedings —SARS Settlement”. All financial information for financial year 2013 and financial

year 2012 in this pre-listing statement is presented on a consistent basis with the financial information for

financial year 2014.

Unless otherwise noted, all financial information in this pre-listing statement is presented on a continuing

operations basis. See “Presentation of Financial and Other Information”.

The following discussion contains forward-looking statements that involve risks and uncertainties. Actual

results may differ materially from those discussed in the forward-looking statements as a result of various

factors, including those set forth in “Special Note Regarding Forward-Looking Statements” and “Risk Factors”.

Summary

In financial year 2014, the Group generated net revenue of R4.4 billion and trading profit of R1.0 billion as

compared with R3.7 billion and R0.9 billion, respectively, for financial year 2013. In financial year 2014,

64.2% of the Group’s net revenue and 80.3% of trading profit was derived from the South African operations,

5.7% of net revenue and 4.6% of trading profit was derived from the sub-Saharan African (excluding South

Africa) operations, and 30.1% of net revenue and 19.6% of trading profit was derived from the non-African

(primarily UK) business. Unless otherwise noted, all financial information in this pre-listing statement is

presented on a continuing operations basis. See “Presentation of Financial and Other Information”.

The Group has a number of operating segments for financial reporting purposes, which are categorised by

their geographic regions: Africa (which includes AFFS, Investment Solutions, AFI and AfriNet) and

International (which includes AF International, mainly comprising LCP). The accounting policies of the

segments are the same as those for the Group on a consolidated basis. See “ —Factors Affecting Comparability

of Results —Divestments and Changes in Segment Reporting” for a description of changes in the Group’s

segment reporting due to the disposal of certain businesses in recent years.

Key Income Statement Line Items

Net Revenue

Net revenue consists of income earned net of direct expenses, such as underlying asset manager fees paid by

Investment Solutions and reinsurance premiums paid by the short- and long-term insurers in the Group.

Given the diverse nature of the Group’s activities, the Company believes net revenue is a more appropriate

measure for the purpose of financial analysis of the Group’s results than gross revenue from operations.

The Group generates net revenue primarily from two sources:

• commissions (when the Group acts in the capacity of an agent rather than as the principal in a transaction)

and fees in respect of actuarial and consultancy services, asset management, administration services,

individual financial planning and advisory services and brokerage. Direct expenses attributable to fee and

commission income include fees paid to underlying asset managers, directly related commissions paid to

consultants and sub-brokers and administration fees paid to outsource partners where such administration

relates directly to income generating activities; and

• net underwriting profit from the risk-taking activities of long-term and short-term insurance operations.

87

Operating Expenses

As a financial services group, the Group’s principal operating expense is staff costs, primarily salaries,

bonuses, wages and other benefits. The Group also incurs operating lease charges, mainly related to premises

occupied by its operations in all geographies in which it operates, and computer and IT costs. To improve

efficiency and operating integrity, the Group has invested significant amounts in its core operating IT systems,

resulting in IT being a material, albeit consistent, part of its operational expenditure. In addition, the Group

pays annual premiums towards a comprehensive insurance programme which covers professional indemnity

insurance against E&O claims and general asset and other insurance.

Non-Trading and Capital Items

The trading profit is made up of trading activities of the Group. The trading activities are those revenues and

expenses generated by the business operations of the Group that are regularly reported to the board of

directors when making resource allocation decisions and assessing operational performance. Items of an

exceptional nature that are not considered to be fundamental to the resource allocation and performance of

business operations are thus disclosed separately as non-trading and capital items.

Non-trading activities relate to items such as the Group professional indemnity insurance cell, adjustments

arising due to business combinations, non-recurring items linked to corporate finance activities, items related

to historical client settlement, impairment losses and recoveries and capital gains or losses on sale of non-

current assets. Items of non-trading nature do not typically form part of management’s consideration of the

operational performance or allocation of resources of the Group.

Other Line Items

Investment income (except as noted below) comprises interest income on invested funds, largely for regulatory

purposes, dividend income and fair value gains on financial assets designated at fair value through profit or

loss. Interest income is recognised on a time -proportionate basis in profit or loss, using the effective interest

method. Dividend income is generally recognised when the right to receive payment is established, which is

the ex-dividend date for equity securities. Also included in investment income is income recognised in respect

of individual policyholder funds of long-term insurance operations to the extent of tax liabilities related to

linked investment policyholders where such funds are disinvested from policyholder assets in order to fund

related tax liabilities.

Finance costs comprise interest expense on borrowings and unwinding of discount on provisions and

contingent consideration and fair value losses on financial assets at fair value through profit or loss. All

borrowing costs are recognised in profit or loss using the effective interest method.

Income tax expense comprises current and deferred taxes, capital gains tax, as well as secondary tax on

companies applicable in South Africa. Due to the nature of indirect taxes, including non-recoverable value-

added tax, stamp duty and skills development levies, these are included in operating expenses in profit or loss.

Current tax and deferred tax is recognised in profit or loss, except to the extent that it relates to a business

combination, or items recognised directly in equity or in other comprehensive income. Also included in

taxation is tax in respect of taxed individual policyholder’s funds of long-term insurance operations.

Profit/(loss) on discontinued operations (net of income tax) comprises the results of operations that have been

disposed of or are held for sale. Classification as a discontinued operation occurs upon disposal or when the

operation meets the criteria to be classified as held for sale under IFRS, if earlier. When an operation is

classified as a discontinued operation, the comparative income statement and statement of cash flows are

represented as if the operation had been discontinued from the start of the comparative year.

Non-controlling interests in the net assets of subsidiaries are separately identified and presented from the

Group’s equity therein. Non-controlling interests can initially be measured either at fair value or at the

non-controlling interest’s proportionate share of the subsidiary’s identifiable net assets at the acquisition date.

The method of measurement is determined on an acquisition-by-acquisition basis.

Non-controlling interest in the profit or loss for the year represents the interests of minority shareholders of

consolidated subsidiaries in the reported profits or losses of each such entity for the year.

Key Balance Sheet Line Items

Financial Assets/Liabilities Held Under Multi-Manager Investment Contracts

The financial assets held by the Group’s multi-manager investment subsidiaries under insurance contracts

are, in the form of linked investment contracts, directly matched by linked obligations to policyholders in

these subsidiaries, and the financial assets held in unit trusts managed by these subsidiaries are also directly

matched to link obligations to unitholders. These investments are consolidated in the Group financial

statements. The balances of these assets are impacted principally by premium inflows, withdrawals, investment

returns, fees, deconsolidation of mutual funds (reductions in portfolios below majority holdings) and foreign

exchange fluctuations. The Group has no direct interest in the risk and reward or profit and loss arising from

such assets other than fees it earns from the management of such assets.

88

Goodwill

Goodwill arises from the acquisition of subsidiaries, associates and joint ventures. The carrying value of

goodwill is assessed for potential impairment annually. In addition, the carrying values of goodwill associated

to operations which are discontinued are reclassified to the “assets of disposal groups classified as held for

sale” and if required these goodwill balances are impaired. Valuation of goodwill balances resulted in

impairment charges of R114 million in financial year 2014, these impairments were for discontinued

operations. The Group recorded no goodwill impairment losses in the prior financial year. The largest

component of goodwill arose in the 2007 Acquisition, when an acquiring holding company was created.

Other Intangible Assets

Other intangible assets arise largely from the acquisition of subsidiaries, associates and joint ventures, and

comprise values attributed to contractual customer relationships and market-related intangible assets. All

intangible assets are non-current in nature. The carrying value of other intangible assets was R886 million at

31 March 2014, compared to R1 ,211 million at 31 March 2013. As with goodwill balances the carrying values

of other intangible assets associated to operations which are discontinued are reclassified to the “assets of

disposal groups classified as held for sale”. The reduction of the balance from 2013 to 2014 was primarily due

to this reclassification and subsequent disposal of discontinued operations, as well as ongoing accounting

amortisation. Similar to goodwill above, most of the intangible assets arose at the time of the 2007 Acquisition.

Employee Benefits

Employee benefits reflected on the balance sheet comprise a defined benefit pension fund, which is in a surplus,

a post-retirement medical benefit obligation and a provision for leave pay. Both the defined benefit pension

fund and the post-retirement medical benefit subsidy are closed to new entrants and are applicable to certain

South African employees only. The post-retirement medical benefits that the Group provides are conditional

on employees remaining in service up to retirement age. The majority of employees participate in defined

contribution pension funds.

While the Alexander Forbes Staff Pension Fund, a defined benefit pension fund for certain of the Group’s

employees, has for a number of years been closed to new entrants and its trustees are employees of the Group,

the trustees of this fund are entitled to determine the amounts payable by the participating companies within

the Group as employer contributions to the fund. The Group may not control the amount of the contributions

payable by employers to this fund, as this decision is made at the discretion of the trustees. If the fund is in

deficit in the future, the participating companies within the Group would assume the risk of any shortfall.

Insurance Receivables/Payables

Insurance receivables and payables include amounts due from and owing to third-party insurance and

reinsurance companies, including amounts for premiums and commissions, as well as short-term insurance

technical liabilities (in payables) and related assets recoverable from reinsurers (in receivables) for unearned

premiums, outstanding claims and incurred but not reported claims. Long-term insurance liabilities payable

to policyholders and the related assets recoverable from reinsurers are included in insurance-related payables

and receivables, respectively.

Cash and Cash Equivalents

Cash and cash equivalents include: cash on hand, deposits held on call with banks, other short-term highly

liquid investments with original maturities of three months or less, and bank overdrafts offset against cash

balances in terms of the Group’s cash management arrangements with its transactional bankers. Cash and

cash equivalents also include cash held in a nominee capacity such as premium received to be paid to third-

party insurers in the Group’s short-term insurance broking business. A significant portion of the cash and

cash equivalents balance is restricted or relates to linked investment policyholder cash.

Insurance Operations

The Group writes various lines of insurance, including short-term and long-term insurance. It has limited

underwriting exposure primarily due to the type and level of reinsurance protection taken out. Management

determines the optimal level of risk exposure based on overall risk appetite and claims experience. The ultimate

decision as to the level of exposure the Group retains is subject to approval by the board of directors.

The Group’s short-term insurance business provides personal lines insurance to the general public in their

individual capacities. Personal lines cover offered includes property, casualty, personal accident and motor.

These contracts are generally monthly renewable contracts, with a few annual policies, and tend to be “short-

tail”, meaning that the loss is expected to be settled with one year of the date of loss. “Long-tail” exposure,

which arises in personal accident, third-party motor and public liability cover, represents less than 0.1% of an

average year’s claims. The Group reinsures between 75% and 90% on a proportional basis and also has non-

proportional reinsurance providing protection on a per risk and catastrophe basis. Assets and liabilities from

short-term insurance operations are included in the Group’s consolidated balance sheet in the appropriate line

item within its assets and liabilities.

89

The Group’s long-term insurance contracts consist of annually renewable group life mortality and morbidity

contracts and individual life contracts. The group life business consists of insurance for retirement funds and

other group schemes and covers the contingencies of death and disability, while the individual life business

covers death, disability and impairment contingencies. There are no surrender values or investment

components inherent in any of these policies. The Group reinsures approximately 80% of the group risk cover

and individual life cover books, while a small group funeral book is not reinsured. It has catastrophe

reinsurance to cover accumulation or concentration risk on both group life and individual life businesses.

Assets and liabilities from long-term insurance operations are included in the Group’s consolidated balance

sheet in the appropriate line item within its assets and liabilities.

Factors Affecting Results of Operations

Inflows and Outflows of Client Assets

The level of revenue in Investment Solutions and, to an extent, in AFFS, is impacted by net client cash flows

into or out of multi-manager portfolios, pension funds under advisement or administration and living annuity

products. In addition to inflows from new clients and outflows from lost clients, there is also the effect of

ongoing cash flows mainly from the normal course of business of pension fund clients making ongoing

monthly contributions and to pay benefits to members of these funds. Over time, the Group has experienced

an increase in the level of cash outflows in the form of ongoing benefit payments to members of retirement

funds as these members move out of and/or transfer from their retirement fund, which may be due to a variety

of factors including a change in employment. This increase is the result of a number of factors:

• The ongoing restructuring of corporates in South Africa resulting in the reduction of the number of

people employed and the offer of early retirement. There is a greater number of individuals leaving formal

employment than the number of individuals joining retirement schemes contracted to us.

• The ongoing shift from formal employment to more temporary arrangements where employers are not

obligated to offer retirement options to temporary workers.

• The performance of the capital markets in recent years has resulted in an increase in the value of pension

fund members’ credits leading to the withdrawal amounts being higher than they were previously.

In contrast, the cash inflows from the normal course of business in the form of ongoing contributions from

clients is generally driven by the level of payroll inflation, which has been significantly lower than the

investment returns, and by higher employment rates, which result in new members joining retirement funds.

Conditions in Equity and Debt Markets

The overall movement in capital markets is the single biggest variable in the funds under management and

the Group’s revenues and profitability are strongly correlated with capital market movements. The fees earned

for multi-manager and other investment advisory services, as well as the overall level of client satisfaction,

which consequently affects client retention, depend in large part on how well the multi-managers’ investment

portfolios and other advised investments perform. This performance, in turn, can be affected by the performance

of the markets (particularly the equity markets, where the Group’s total asset base has the greatest exposure)

in which such managers choose to place client funds. In periods in which capital markets are unsettled or

volatile, the multi-managers’ investment portfolios may perform less satisfactorily in the short term, and the

Group’s revenues may exhibit similar signs of volatility during such periods.

Conditions in Insurance Markets

The short-term insurance business is impacted by the cycles in the insurance markets. “Soft” markets arise

where there is excess underwriting capacity and strong price competition, and result in lower premium levels.

In a soft market, the Group’s short-term insurance business is affected by the resultant lower reinsurance

commission (which is based on a percentage of premiums), lower premium flows and, hence, interest earnings,

high client churn and worsening loss ratios and contribution from underwriting. When insurance markets

“harden”, the opposite typically occurs. Furthermore, in the short-term insurance market, loss ratios are

often impacted by weather-related incidents, such as hailstorms and floods.

Currency Rate Fluctuations

The Group operates business units and transacts business in several jurisdictions and, as such, is subject to

risks of exchange rate fluctuations. Its single largest exposure is to the pound sterling. The treatment of

gains or losses arising from exchange rate movements is detailed below. See also “Exchange Rates and

Exchange Control”.

Functional and presentation currency

The financial statements of each of the Group’s subsidiaries are compiled using the currency of the primary

economic environment in which they operate (the “functional currency”). The Consolidated Financial

Statements are presented in Rand, which is its presentation currency.

90

Foreign exchange gains and losses arising on transactions

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing

on the date of the transactions. Foreign exchange gains and losses resulting from the settlement of such

transactions are recognised in the income statement.

Foreign exchange gains and losses arising on consolidation

The results and financial position of all the Group’s subsidiaries that have a functional currency other than

the Rand are translated into Rand as follows: all assets and liabilities for each balance sheet item are translated

at the closing rate at the relevant balance sheet date; all income and expenses for each income statement item

are translated at the average exchange rates for the relevant financial period (unless this average is not a

reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which

case income and expenses are translated using the applicable exchange rates at the dates of the transactions);

and all resulting exchange differences are recognised in the foreign currency translation reserve in equity.

Foreign exchange gains and losses on borrowings and other currency instruments designated as hedges of

such investments are similarly transferred to, and recognised in, the foreign currency translation reserve in

other comprehensive income and accumulated in the foreign currency translation reserve. On disposal of a

foreign entity, all of the exchange differences accumulated in equity of such entity are reclassified to profit or

loss. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as the

foreign entity’s assets and liabilities and are translated at the closing rate.

Factors Affecting Comparability of Results

Divestments and Changes in Segment Reporting

The Group has engaged in a series of divestments in recent years as it optimised its portfolio of companies and

services in line with its strategic focus. In line with the requirements of IFRS, assets and liabilities held at the

end of the period in respect of discontinued operations, where the disposal process is ongoing, have been

reclassified as assets and liabilities of asset groups held for sale. The segmental report has been presented to

take account of the effects of discontinued operations including the reallocation of shared services expenses

that were previously allocated to currently discontinued operations, but which remain in the continuing cost

base of the Group. These expenses amounted to R31 million in financial year 2014, R59 million in financial

year 2013 and R56 million in financial year 2012.

On 4 November 2013, the Group announced the disposal of the Guardrisk business unit, which represented

8% and 12%, respectively, of its financial year 2013 net revenue and trading profit, for R1.6 billion, which

amounted to R1.5 billion of net proceeds, taking into account related expenses and capital gains tax. The

disposal was completed in March 2014 and the Guardrisk business unit has been reclassified as a discontinued

operation for financial year 2014.

During financial year 2013, the Group disposed of AFCA UK for R238 million. In addition, the board decided

to dispose of the Investment Solutions UK business, the Media Insurance Services (Direct Marketing) businesses

in the United Kingdom, the LCP Libera business in Switzerland and other smaller operations in southern

Africa. These disposals did not affect the holdings in the consulting actuarial partnership of LCP or Investment

Solutions SA. For financial year 2013, these businesses were treated as discontinued operations and the

Investment Solutions business unit within the International segment was eliminated from the Group’s

segmental reporting.

In financial year 2012, the Group announced the disposal of its Risk Services businesses, which engaged in

short-term insurance broking activities in Africa. Following the completion of the core transaction in financial

year 2012, the sales of remaining insurance broking operations in parts of Africa were completed during

financial year 2013. The proceeds from these transactions, net of assumed debt of R51 1 million, amounted to

R7 1 million, with a further amount of R17 million received in financial year 2013. For financial year 2012,

all of these businesses were treated as discontinued operations and the Risk and Insurance Services segment

was unbundled in order to eliminate the South Africa Risk Services business unit and to present Guardrisk

and AFI as separate segments. At the same time, the Risk Service operations within the AfriNet reporting

segment were also treated as discontinued operations and the operational management and control of the

AFCT business were transferred to the AFFS business unit.

Results of Operations

The following discussion is based on the Consolidated Financial Statements. You should read it together with

these financial statements, and it is qualified in its entirety by reference to them.

91

Year Ended 31 March 2014 Compared to Year Ended 31 March 2013

Set forth below are the Group’s results of operations for financial years 2014 and 2013:

Year ended 31 March

2014 2013

(R million)

Continuing operations Fee and commission income 4 ,776 4 ,038

Direct expenses attributable to fee and commission income (801) (651)

Net income from insurance operations 417 350

Net revenue 4 ,392 3 ,737Operating expenses (3 ,352) (2 ,812)

Trading profit 1 ,040 925Non-trading and capital items (108) (113)

Operating profit 932 812Investment income 233 129

Finance costs (843) (848)

Share of net profit of associates (net of income tax) 2 1

Profit before taxation 324 94Income tax expense (487) (192)

Loss for the year from continuing operations (163) (98)Discontinued operationsProfit/(loss) on discontinued operations (net of income tax) 542 (10)

Profit/(loss) for the year 379 (108)

Profit/(loss) attributable to:

Equity holders 269 (191)

Non-controlling interest 110 83

Profit/(loss) for the year 379 (108)

Net revenueThe Group continued to show good growth in net revenue across all of the continuing operations in financial

year 2014. Net revenue increased by R655 million, or 17.5%, from R3 ,737 million in financial year 2013 to

R4 ,392 million in financial year 2014, primarily due to strong new business flows in the South African and

International Financial Services businesses and Investment Solutions benefiting from good new business

flows and strong equity market performance. The weakening Rand had an additional positive effect on

revenue contribution from the International operations for financial year 2014. The strategy to grow the

geographical segment throughout the Group’s African operations continued to show good progress, with

Retails combined net revenue increasing by 12%.

Of the total net revenue growth described above, net fee and commission income increased by R738 million,

or 18.3%, from R4 ,038 million in financial year 2013 to R4 ,776 million in financial year 2014, while net

income from insurance operations increased by R67 million, or 19.1%, from R350 million in financial year

2013 to R417 million in financial year 201 4.

Net revenue by business unit for financial years 201 4 and 201 3 is set forth below:

Year Ended 31 March Change

2014 2013 %

(R million, unless otherwise noted)

Africa continuing operationsAFFS 1 ,754 1 ,603 9

Investment Solutions 717 635 13

AFI 350 307 14

AfriNet 249 202 23

Total Africa continuing operations 3 ,070 2 ,747 12

92

Year Ended 31 March Change

2014 2013 %


International (£m)Financial Services 81 73 11

Total International (£m) 81 73 11

Total International 1 ,322 990 34

Total continuing operations 4 ,329 3 ,737 18

In the Africa segment, net revenue increased by R323 million, or 11.8%, from R2 ,747 million in financial year

2013 to R3 ,070 million in financial year 2014. The results by business unit are described below:

• AFFS – Net revenue increased by R151 million, or 9.4%, from R1 ,603 million in financial year 2013 to

R1 ,754 million in financial year 2014. Strong new business growth was achieved in all major divisions,

with annualised institutional new business volumes growing by 34% year-on-year and Retail new business

assets under advisement growing by 26% year-on-year. Client retention remained high.

Growth in members under administration in the retirement fund administration business continued, with

the number of active member records under administration exceeding 997 ,000 at 31 March 2014, which

represents a growth of 11% year-on-year. The Group’s client base to which AFFS provides advice and

administration services increased by 7%. Importantly, AFFS saw an increase in the proportion of assets, in

respect of members exiting funds administered by it, being advised by the Financial Planning Consultants

division. A continued focus on Retail resulted in the Retail assets under advisement growing by 21% year-

on-year to R48.5 billion at 31 March 2014.

Total umbrella fund assets under management were R57.3 billion at 31 March 2014, a growth of 24% year-

on-year.

AFFS continued to focus on the public sector division and showed good progress in building its brand

within the sector and strengthening strategic networks and relationships. This has resulted in strong new

business growth in this sector. AF Healthcare also achieved strong new business flows. The retirement

fund consulting and actuarial division improved its contribution and increased its trading margin.

Despite a decline in trading profit, AFCT has achieved some significant new business wins in financial year

2014. Most of the revenue generation from this new business will not, however, be recognised until fiscal

year 2015.

• Investment Solutions – Net revenue increased by R82 million, or 12.9%, from R635 million in financial

year 2013 to R717 million in financial year 2014. Closing assets under management and administration

increased by 20% to R285 billion as at 31 March 2014, of which R256 billion were assets under investment

management. Average assets under management increased by 18% compared to the previous financial

year. Income from operations, net of underlying asset manager fees, increased by 13% year-on-year to

R717 million. Trading profit grew by 16% to R360 million, driven by growth in equity markets and improved

asset accumulation. The clients under administration utilising the business’s investment management

platform continued to deliver strong growth, although this business line operates at lower margins.

New business flows increased during financial year 2014, although the ongoing benefit payments to fund

members remained relatively high compared to ongoing contributions into funds, reflecting the underlying

cash negative trend in the South African retirement fund space. Investment Solutions recorded R14 billion

gross new flows, driven mainly by the R7 billion of new flows into the platform business (administration).

Investment Solutions continues to focus on improving its wider asset accumulation strategies in line with

its long-term growth plan.

Most of Investment Solutions investment portfolios performed well against peers and were ahead of their

respective benchmarks over the medium- to long-term measurement periods. During financial year 2014,

approximately 88% of funds were ahead of benchmark on a rolling 12-month period.

• AFI – Net revenue (net income from insurance operations and administration) increased by R43 million,

or 14.0%, from R307 million in financial year 2013 to R350 million in financial year 2014. Gross written

premiums increased by 15% to R1 ,224 million, in a highly competitive market. New business gains from

Alexander Forbes Business Insurance (launched in April 2012) continued, with annualised gross new

business written increasing by 58% to R29 million for the year.

Short-term insurers in South Africa continue to face a tough underwriting business cycle with significant

increases in loss ratios. AFI experienced a number of weather-related claim events, including severe hail

storms in Gauteng and flooding in various parts of the country. These events, coupled with the decrease in

93

the Rand-dollar exchange rate, contributed to AFI not achieving its long-term targeted loss ratio in

financial years 2013 and 2014.

Despite the negative impact on underwriting results, net operating income, net of reinsurance, increased

by 14% to R350 million. Expenses increased 15%, driven in part by AFI’s ongoing commitment to increase

its sales capacity as well as its continued investment in Alexander Forbes Business Insurance.

Profit from operations for fiscal year 2014, including the negative impact of underwriting and sustained

investment in AFI’s sales capacity, increased by 10% to R88 million.

• AfriNet – Net revenue increased by R47 million, or 23.3%, from R202 million in financial year 2013

to R249 million in financial year 2014. The increase was primarily due to the initiatives focused on

strengthening AfriNet’s existing operations through better market positioning, deeper, multi-product

penetration, selective introduction of new products and stronger governance and control measures.

The operating environment in the AfriNet operations remains challenging and highly competitive in

certain areas. Positive legislation changes occurred in the year in Kenya with the National Social Security

reform being enacted in December 2013 and similar pending legislation to be enacted in Uganda in 2015.

These changes are expected to have a positive impact on retirement savings levels in those countries and

AfriNet believes it is well placed to pursue these opportunities.

AfriNet’s operations in Namibia and Botswana continued to deliver solid results, with the Group’s short-

term insurer in Namibia, Alexander Forbes Insurance, continuing to show significant growth in premium

income and new business and gaining market share. The operations in Kenya experienced another good

year, demonstrating AfriNet’s strong position in that market. AfriNet’s Nigerian and Zambian financial

services operations, although in the start-up phase, are showing good new market growth prospects.

In the International segment, net revenue increased by £8 million, or 11%, from £73 million in financial year

2013 to £81 million in financial year 2014. Revenue growth across the UK and European operations continued

to be affected by the economic environment and pressure on charge-out rates as clients manage their

expenditure. Despite this, the businesses continued to win new business and capitalise on the demand for

trustee, consulting and investment advice as well as de-risking solutions.

The significant growth in Rand earnings resulted from a 21% deterioration in the average sterling exchange

rate. LCP continues to provide the Group with a component of Rand hedge.

During financial year 2014, the Group largely concluded the disposals of non-core and sub-scale investments

in the United Kingdom and Europe. This included the disposals of the Investment Solutions UK business, the

Media Insurance Services (Direct Marketing) businesses in the UK and the LCP Libera (Switzerland) business.

These businesses were already treated as discontinued operations in financial year 2013. In addition,

AF Trustee Services was disposed of in March 2014. Continuing operations in the International segment now

mainly comprise LCP.

Operating Expenses

Operating expenses (excluding non-trading items) of continuing operations increased by R540 million, or

19.2%, from R2 ,812 million in financial year 2013 to R3 ,352 million in financial year 2014, which includes the

impact of the weaker Rand when converting the expenses incurred in pound sterling to the reporting currency.

The Group continues to balance disciplined cost management in the established business areas with investment

in the strategic growth areas, particularly in support of its expansion in the individual Retail segment.

The following table sets forth the components of the Group’s operating expenses in financial years 201 4

and 201 3:

Year ended 31 March

2014 2013

(R million)

Amortisation (7) (6)

Computer and IT costs (127) (88)

Depreciation (73) (74)

External auditors’ remuneration (31) (26)

Insurance costs (94) (86)

Operating lease charges (223) (183)

Staff costs (2 ,316) (1 ,942)

Other operating expenses (481) (407)

Total operating expenses (3 ,352) (2 ,812)

94

Apart from the impact on expenses resulting from the weaker exchange rate used to translate the international

operating expenses to Rand, the increase in operating expenses in financial year 2014 was primarily due to

further investment in the strategic growth areas of the Group, including the appointment of further new

business consultants in AFI and financial planners and advisors supporting the retail strategy. In addition,

the Group has experienced significant increase in regulatory compliance and related cost in preparation for,

among others, the introduction of the SAM regime and various new developments in regulation and legislation.

See “Regulation”. The recent disposals of businesses resulted in some shared services cost, previously absorbed

by those businesses, having to be absorbed by the remaining continuing operations of the Group. In addition,

financial year 2014 also reflects a significant negative impact resulting from the prescribed method used to

account for operating leases, resulting from the move of the Group’s head office to the new premises in

Sandton. In terms of IFRS accounting standards, the annual contractual rent escalations, despite being

market-related, are required to be accounted for on a straight-line basis over the term of the lease. This

increases the lease cost in the first half of the 12-year rental period and reduces the lease cost in the latter half

of the rental period. The impact of this accounting is therefore significantly pronounced in the year of

transition from the previous premises to the new premises, notwithstanding the fact that the actual rental

cost is slightly less than before. The net impact on year-on-year cost amounted to R47 million. Once the

transition is complete, the accounting cost of rental will remain the same for the remainder of the 12-year

lease until the next renewal. This effect has been isolated in the Group’s segmental reporting for clarity.

Trading Profit

Trading profit from continuing operations increased by R115 million, or 12.4 %, from R925 million in financial

year 2013 to R1 ,040 million in financial year 2014. Adjusting for the impact of the accounting treatment for

the long-term operating leases, the adjusted growth rate in trading profit would have been 16.5%.

Trading profit by business unit for financial years 201 4 and 201 3 is set forth below:

Year ended 31 March Change

2014 2013 %


Africa continuing operationsAFFS 387 365 6


AFI 88 80 10

AfriNet 48 36 33

Total Africa continuing operations 883 792 11



Total International 204 141 46

Total continuing operations – excluding property lease 1,087 933 17

Accounting for property lease (47) (8) 500

Total continuing operations – including property lease 1,040 925 12

Investment Income

Investment income related to individual linked investment policyholder funds amounted to R162 million in

financial year 2014, compared to R100 million in financial year 2013. The remaining investment income

increased by R42 million, or 145%, from R29 million in financial year 2013 to R71 million in financial year

2014, and related mainly to the interest earned on cash and cash equivalents held to fulfil regulatory capital

requirements and the related asset spreading requirements. The increase was mainly due to increases in

regulatory capital requirements and liquidity requirements of regulated entities across the Group.

Finance Costs

Finance costs decreased by R5 million, or 0.6%, from R848 million in financial year 2013 to R843 million in

financial year 2014. The finance cost reflects the cost related to the previous capital structure of the Group

which contained significant amounts of interest bearing debt. These debt instruments were repaid as part of

the Restructure that was implemented on the last day of financial year 2014. As a result of the Restructure,

finance costs moving forward will therefore reflect the Group’s lower leverage level.

95

Income Tax Expense

Income tax expense increased by R295 million, or 153%, from R192 million in financial year 2013 to

R 487 million in financial year 2014. The income tax expense includes a component of tax related to individual

linked investment policyholders that are taxable and is the tax is funded by the fund level investment income

amounting to R162 million as described above under “ —Investment Income” . This component therefore results

in an effective tax rate of 100% against such recognised investment income. The tax expense for financial year

2014 also reflects the adjustments required for the SARS Settlement amounting to R126 million. See “Business

—Investigations and Legal Proceedings —SARS Settlement” . The remainder of the tax expense represents

mainly normal taxation paid by various entities in the Group. The effective tax rate appears high as there is

no group relief concept in South African tax law resulting in the tax deduction for interest of certain

subsidiaries being limited to their taxable income levels while other entities are in a tax paying position.

Profit/(Loss) from Continuing Operations

Loss from continuing operations (net of income tax) increased by R65 million, from a loss of R98 million in

financial year 2013 to a loss of R 163 million in financial year 2014.

The absolute value of and movement in profit after tax should be viewed in the context of the funding structure

of the Group that was in place until the completion of the Restructure which became effective only on the last

day of financial year 2014. In addition, the ongoing accounting amortisation of the intangible assets which

arose from the acquisition by the current shareholders in 2007, amounting to R144 million for financial year

2014, should also be taken into account. This amount is included in non-trading and capital items but as it is

a non-cash flow accounting amortisation effect of the 2007 Acquisition, does not impact on the economic

profits of the Group.

Profit/(Loss) on Discontinued Operations

Profit on discontinued operations (net of income tax) was R542 million in financial year 2014, compared to a

loss (net of income tax) of R10 million in financial year 2013, primarily due to the profit on disposal of the

Guardrisk group of companies. All profits and losses of discontinued operations are reflected in this line item

up to the point of the relevant disposal becoming effective and it is therefore not comparable between the

periods.

Profit Attributable to Non-Controlling Interests

Profit attributable to non-controlling interests increased by R27 million, or 32.5%, from R83 million in

financial year 2013 to R110 million in financial year 2014. The profit attributable to non-controlling interests

resulted mainly from a 40% non-controlling interest in LCP and, to a lesser extent, in certain operations

within AfriNet where minority shareholders are typically present.

Profit/(Loss) Attributable to Alexander Forbes Equity Holdings Proprietary Limited

As a result of the foregoing, the profit attributable to Alexander Forbes Equity Holdings Proprietary Limited

(currently known as Alexander Forbes Group Holdings Limited) increased by R460 million, from a loss of

R191 million in financial year 2013 to a profit of R269 million in financial year 2014. As mentioned above,

these losses should be viewed in light of the historical capital structure and the amortisation of intangible

assets arising on the 2007 Acquisition.

Year Ended 31 March 2013 Compared to Year Ended 31 March 2012

Set forth below are the Group’s results of operations for financial years 2013 and 2012.

Year ended 31 March

2013 2012

(R million)

Continuing operationsFee and commission income 4,038 3,603 Less: Direct expenses attributable to fee and commission income (651) (591)

Net income from insurance operations 350 310

Net revenue 3 ,737 3 ,322Operating expenses (2 ,812) (2 ,460)

Trading profit 925 862Non-trading and capital items (113) (108)

96

Year ended 31 March

2013 2012

(R million)

Operating profit 812 754Investment income 129 161

Finance costs (848) (816)

Share of net profit of associates (net of income tax) 1 1

Profit before taxation 94 100Income tax expense (192) (316)

Profit/(loss) for the year from continuing operations (98) (216)Discontinued operations(Loss)/profit on discontinued operations (net of income tax) (10) 157

Loss for the year (108) (59)

Loss attributable to:

Equity holders (191) (136)

Non-controlling interest 83 77

Profit/( loss) for the year (108) (59)

Net Revenue

Net revenue increased by R415 million, or 12.5%, from R3 ,322 million in financial year 2012 to R3 ,737 million

in financial year 2013. This reflects growth across all of the Group’s businesses, with three of the businesses

(Investment Solutions, AfriNet and International Financial Services) achieving double-digit growth. The

strategic growth areas of Retail, public sector division and Africa also delivered good revenue growth.

The Group’s retail initiatives contributed to revenue growth with a growth rate of 13.4%. Equity markets in

South Africa performed strongly during financial year 2013 benefiting both the AFFS and the Investment

Solutions businesses. The weakening Rand had a positive effect on revenue contribution from the International

operations for financial year 2013.

Fee and commission income increased by R435 million, or 12.1%, from R3 ,603 million in financial year 2012

to R4 ,038 million in financial year 2013, primarily due to increases of 11.7% and 11.6%, respectively, in fee

income from consulting and administration services and fee income from investment activities, which were

only partially offset by a 10.2% increase in direct expenses attributable to fee and commission income. Net

income from insurance operations increased by R40 million, or 12.9%, from R310 million in financial year

2012 to R350 million in financial year 2013 primarily due to a 20.9% increase in net earned premiums, which

was only partially offset by a 40.5% increase in net claims and transfers to policyholders’ funds.

Net revenue by business unit for financial years 2013 and 2012 is set forth below:


201 3 2012 %


Africa continuing operationsAFFS 1 ,603 1 ,485 8


AFI 307 289 6

AfriNet 202 170 18

Total Africa continuing operations 2 ,747 2 ,497 10



Total International 990 825 20

Total continuing operations 3 ,737 3 ,322 12Discontinued operations 994 941 6

97

In the Africa segment, net revenue increased by R250 million, or 10.0%, from R2 ,497 million in financial year

2012 to R2 ,747 million in financial year 2013. The results by business unit are described below:

• AFFS – Net revenue increased by R118 million, or 7.9%, from R1,485 million in financial year 2012 to

R1 603 million in financial year 2013. Strong new business growth was achieved in all the major divisions

and client retention remained strong despite a competitive operating environment.

Active member records in the retirement fund administration business increased by 5% compared to the

previous year to over 902 ,000 members and the retail (individual) client base increased by 6% to over

38 ,000 clients, with assets under management on the retail platform increasing by 21%. In addition, AFFS’

continued focus on its public sector division improved its brand within the sector and strengthened

strategic networks and relationships, which resulted in new business growth.

The healthcare consulting division also achieved positive new business flows and the retirement fund

consulting and actuarial division improved its contribution, increasing its trading margin. AFCT

experienced a positive year with the new business and management team achieving significant traction in

growing the business.

• Investment Solutions – Net revenue increased by R82 million, or 14.8%, from R553 million in financial

year 2012 to R635 million in financial year 2013 driven by growth in equity markets and improved asset

accumulation. The clients under administration using the business’s investment management platform

also grew.

Closing assets under administration and management increased by 22% to R238 billion as at 31 March 2013

of which R216 billion are assets under management. Average assets under management increased by 15%

compared to the previous financial year. Gross new flows of R17 billion were recorded, mainly driven by

the R11 billion of new flows from the platform business. New business flows were on an upward trend

during the year, although the ongoing benefit payments to fund members remained relatively high

compared to ongoing contributions into funds, reflecting the underlying cash negative trend in the South

African retirement fund space.

• AFI – Net revenue increased by R18 million, or 6.2%, from R289 million in financial year 2012 to

R307 million in financial year 2013. AFI continued the trend of strong gross written premium growth

in a market segment where overall growth remains somewhat depressed during the year. Gross written

premium reached R1.2 billion, 15% higher than the previous year. In financial year 2013, the South

African insurance industry experienced unusually high weather-related claims which, combined with the

fires in St Francis Bay, impacted heavily on underwriting results. However, AFI reinsures a significant

portion of its risk and this reduced the impact of the increase in claims on AFI’s results. Premium written

in Alexander Forbes Business Insurance, launched in April 2012, increased throughout the year with

annualised gross new business written reaching R18 million in the first year of its launch.

• AfriNet – Net revenue increased by R32 million, or 19%, from R170 million in financial year 2012 to

R202 million in financial year 2013. The increase was due to the focus on strengthening AfriNet’s existing

operations through better market positioning, deeper/multi-product penetration, selective introduction of

new products and stronger governance and control measures.

The operating environment in the AfriNet operations remains challenging and highly competitive in

certain areas. The larger operations of Namibia and Botswana delivered solid results and the Kenya

Financial Services operations continued to grow. The Nigerian and Zambian financial services operations,

although in start-up phase, also performed well.

In the International segment, net revenue increased by £3 million, or 4.3%, from £70 million in financial year

2012 to £73 million in financial year 2013. Revenue growth across the United Kingdom and European

operations continued to be affected by the economic environment and pressure on charge-out rates as clients

manage their expenditures. Despite this, the businesses won significant new business and capitalised on the

demand for trustee, consulting and investment advice as well as de-risking solutions.

Operating Expenses

Operating expenses (excluding non-trading items) of continuing operations increased R353 million, or 14.4%,

from R2 ,460 million in financial year 2012 to R2 ,812 million in financial year 2013 due primarily to a

R245 million increase in staff costs. The following table sets forth the components of the Group’s operating

expenses in financial years 2012 and 2013:

98

Year ended 31 March

2013 2012

(R million)

Amortisation (6) (8)

Computer and IT costs (88) (80)

Depreciation (74) (68)

External auditors’ remuneration (26) (24)

Insurance costs (86) (64)

Operating lease charges (183) (156)

Staff costs (1 ,942) (1 ,697)

Other operating expenses (407) (36 3)

Total operating expenses (2 ,812) (2 ,460)

In financial year 2013, the Group continued to balance disciplined cost management in the established

business areas with investment in the strategic growth areas, particularly to support its expansion in the

retail client market through brand building and marketing. In addition, the disposals of the Risk Services

businesses resulted in some shared services cost, previously absorbed by those businesses, having to be

absorbed by the remainder of the Group.

In addition, the requirement to account for long-term operating leases on a straight-line basis, as required by

IFRS, increased lease expenses by R45 million compared to financial year 2012 due to the long-term lease

entered into in connection with the relocation of the Group’s head office during the year.

Trading Profit

Trading profit from continuing operations increased by R63 million, or 7%, from R862 million in financial

year 2012 to R925 million in financial year 2013. Trading profit by business unit for financial years 201 3 and

201 2 is set forth below:


2013 201 2 %


Africa continuing operationsAFFS 365 330 11%

Investment Solutions 311 279 1 1%

AFI 80 81 ( 1%)

AfriNet 36 27 3 3%

Total Africa continuing operations 792 717 10%

International (£m)Financial Services 10 9 11%

Total International (£m) 10 9 11%

Total International 141 108 31%

Total continuing operations – Excluding property lease 933 825 13%Accounting for property lease (8) 37 (122%)

Total continuing operations – including property lease 925 862 7 %

Non-Trading Items

The primary non-trading item in both financial year 2012 and financial year 2013 was a R144 million charge

related to the amortisation of intangible assets resulting from the acquisition by current shareholders in

2007. Operating profit increased R58 million, or 7.7%, from R754 million in financial year 2012 to R812 million

in financial year 2013.

Investment Income

Investment income decreased R32 million, or 19.9%, from R161 million in financial year 2012 to R129 million

in financial year 2013. Included in investment income is the income related to individual linked investment

policyholder funds which are liable for taxation and this income therefore reflects the portion attributable to

99

the funding of the related tax liability of these policyholders. This amounted to R100 million in 2013 and

R123 million in 2012. The remaining investment income of R29 million in financial year 2013 and R38 million

in financial year 2012 relates mainly to the interest earned on cash and cash equivalents held to back

regulatory capital requirements and the related asset spreading requirements.

Finance Costs

Finance costs increased R32 million, or 3.9%, from R816 million in financial year 2012 to R848 million in

financial year 2013 primarily due to the roll up of interest on various instruments. The finance cost reflects

the cost related to the previous capital structure of the Group which contained significant amounts of interest

bearing debt. These debt instruments were repaid as part of the Restructure.

Income Tax Expense

Income tax expense decreased by R124 million, or 39%, from R316 million in financial year 2012 to R192 million

in financial year 2013. The income tax expense includes a component of tax related to individual linked

investment policyholders that are taxable and the tax is funded by the fund level investment income amounting

to R100 million as described above. This component therefore results in an effective tax rate of 100% against

such recognised investment income. The remainder of the tax expense of R92 million represents mainly

normal taxation paid by various entities in the Group. The effective tax rate appears high as there is no group

relief concept in South African tax law resulting in the tax deduction for interest of certain subsidiaries being

limited to their taxable income levels while other entities are in a tax paying position.

Profit/(Loss) from Continuing Operations

Loss from continuing operations (net of income tax) decreased by R118 million from a loss of R216 million in

financial year 2012 to a loss of R98 million in financial year 2013. The absolute value of and growth in profit/

(loss) after tax should of course be viewed in the context of the historical funding structure of the Group as

well as the fact that it included the ongoing accounting amortisation of the intangible assets which arose from

the acquisition by the current shareholders in 2007, amounting to R144 million for financial year 2013.

(Loss)/Profit on Discontinued Operations

(Loss)/ profit on discontinued operations (net of income tax) decreased by R167 million from a profit of

R157 million in financial year 2012 to a loss of R10 million in financial year 2013 primarily due to a

R137 million decrease in operating profits related to the disposed businesses, the related tax thereon and to a

loss on the disposal of the Risk Services businesses in financial year 2013.

Profit Attributable to Non-Controlling Interests

Profit attributable to non-controlling interests increased by R6 million, or 7.8%, from R77 million in financial

year 2012 to R83 million in financial year 2013. The profits attributable to non-controlling interest results

mainly from non-controlling interests in LCP (in the United Kingdom) and certain operations within AfriNet.

Loss Attributable to Alexander Forbes Equity Holdings Proprietary Limited

As a result of the foregoing, the loss attributable to Alexander Forbes Equity Holdings Proprietary Limited

(currently known as Alexander Forbes Group Holdings Limited) increased by R55 million, from a loss of

R136 million in financial year 2012 to a loss of R191 million in financial year 2013. As mentioned above, these

losses should be viewed in light of the historical capital structure and the amortisation of intangible assets

arising on the 2007 Acquisition.

Liquidity and Capital Resources

General

The Group’s financial condition and liquidity is and will continue to be influenced by a variety of factors,

including:

• its ability to generate cash flows from its operations;

• the level of outstanding indebtedness and the interest it is obligated to pay on this indebtedness;

• divestments of businesses;

• capital expenditure requirements; and

• regulatory changes affecting capital adequacy requirements.

The following table sets forth the Group’s cash flows for the periods indicated:

100

Year ended 31 March

2014 2013 2012

(R million )

Cash flow from operations (excluding policyholder

cash flows) ( 303) 739 1 ,155

Policyholder cash flows (5 ,054) (2 ,482) (3 ,223)

Net cash (outflow ) from operating activities (5 ,3 57) (1 ,743) (2 ,068)

Net cash (outflow)/inflow from investing activities 1 ,042 151 (560)

Net cash (outflow) from financing activities (678) (326) (689)

Net movement in cash and cash equivalents (4 ,9 93) (1 ,918) (3 ,317)

A significant portion of cash flows have “annuity-type” characteristics, with high client retention rates on

annually renewable business. In addition, in many areas of the Group’s business, the collection of income is

largely within the Group’s control. For example, in Investment Solutions, management fees are accrued on a

daily basis during the month and are collected at the end of each calendar month. Similarly, in the retirement

fund administration business, fees are paid from the various funds under administration, while in the insurance

business, receipt of a substantial part of income is typically linked to the flow of clients’ insurance premiums.

The Group is not a capital intensive business and therefore its capital expenditure requirements are not

significant and have generally tracked the depreciation of property and equipment and computer software.

The capital expenditure of R208 million for the 2014 financial year included the refurbishment of the LCP

offices in London. Historically, liquidity requirements have arisen primarily from the need to fund regulatory

capital increases. These increases have been significant over the past three years as more fully explained in

“ Regulation — Capital Adequacy Requirements”.

Net Cash Inflow/(Outflow) from Operating Activities

Policyholder cash flows

The IFRS presentation of operational cash flows requires the inclusion of cash flows received and paid in

respect of linked policyholder investment contracts. This creates a distortion on the operational cash flows

which amounted to R5 ,054 million, R2 ,482 million and R3 ,223 million in the 2014, 2013 and 2012 financial

years, respectively. These policyholder cash flows result in a directly related increase or decrease in the cash

held under multi-manager investment contracts. Cash flow impacts resulting from policyholder activities

should typically be disregarded when assessing the cash flows of the underlying operations of the Group. The

Group has little influence over, and no direct benefit from, policyholder cash flow movements. The nature of

assets under management will consequently impact fee levels.

Cash flows from operations excluding policyholder cash flows

Excluding these policyholder cash outflows, the Group recorded net operational cash inflows of R739 million

and R1 ,155 million for the 2013 and 2012 financial years and a net operational cash outflow of R 303 million

for the 2014 financial year. The increase in cash outflow from operating activities in financial year 2014 was

due to the payment of accumulated interest on debt instruments of R2 ,125 million when these instruments

were repaid in the Restructure.

Net cash outflow from operating activities was R5 ,3 57 million for financial year 2014 compared to

R1 ,743 million for financial year 2013 and R2 ,068 million for financial year 2012.

Net Cash (Outflow)/Inflow from Investing Activities

Net cash inflow from investing activities was R1 ,042 million for financial year 2014 compared to net cash

inflow of R151 million for financial year 2013 and net cash outflow of R560 million for financial year 2012.

The increase in cash inflow in financial year 2014 was due to the proceeds on sale of Guardrisk and other

subsidiaries. The movement in cash flows from investing activities in financial year 2013 and 2012 was due

to movements of financial assets, which are largely related to policyholder and life fund investments.

Net Cash Outflow from Financing Activities

Net cash outflow from financing activities in financial year 2014 was R678 million as compared to R326 million

for financial year 2013 and R689 million for financial year 2012. The financing activities in these years

primarily related to the repayment of debt instruments. The cash outflow in financial year 2014 was due to

the repayment of borrowings net of proceeds received on an issue of shares and related to the Restructure. In

addition, the higher outflow during financial year 2012 reflects additional repayment of debt funded from the

sale of the Risk Services businesses in South Africa. See “ —Indebtedness” for more information.

101

Current Trading

The results reported from operating divisions for the first two months of financial year ending 31 March 2015

(“FY15 YTD”) were broadly in line with management’s expectations. While the first two months of each financial

year typically record lower than average net revenue, budgets take into account these seasonal trends.

Net revenue from continuing operations for FY15 YTD improved compared to the first two months of financial

year 2014 and was is in line with management’s expectations. While expenses for FY15 YTD increased by a

slightly higher rate than the growth in net revenue, this increase was slightly lower than management’s

expectations and was largely attributable to management’s ongoing investment in resources and systems as

part of the execution of the Group’s growth strategies. Trading profit from continuing operations for FY15 YTD

remained broadly flat compared to the corresponding period of financial year 2014 and was marginally ahead

of management’s expectations.

Based on the FY15 YTD results as well as the Group’s key revenue drivers, including institutional client

retention and growth, the number of members under advisement and administration, insurance loss ratios

and developments in E&O claims, there were no indications as of the date of this pre-listing statement that

adjustments should be made to the budgeted trading results for financial year 2015.

Capital Adequacy

Under the current FSB rules, a minimum level of solvency is required to be held within each insurance

subsidiary to meet the regulatory capital adequacy requirements. For the long-term insurance subsidiaries,

the CAR is calculated to determine whether the excess of assets over liabilities is sufficient to provide for the

possibility of actual future experience departing from the assumptions made in calculating the policyholder

liabilities and against fluctuations in the value of assets. CAR statutory returns are submitted to the Registrar

of Long-Term Insurance on a quarterly basis and valuations are performed by the statutory actuary on an

annual basis. As at 31 March 2014, the CAR held by the long-term insurance companies amounted to

R172 million (2013: R139 million) for AF Life, R456 million (2013: R321 million) for Investment Solutions

and R128 million (2013: R91 million) for AFI, representing shareholder funds coverage ratios of 1.69 (2013:

1.78), 2.2 (2013: 2.9) and 1.3 (2013: 1.3).

The short-term insurance subsidiary companies were in the past required to maintain a solvency margin

of 15% of net written premiums. With effect from 1 January 2012, there is no longer a requirement to

maintain a solvency margin and instead the short-term insurance subsidiaries are required to maintain a

solvency capital reserve. The solvency capital reserve coverage, for statutory purposes, was 1.59 times at

31 March 2014 (2013: 1.59).

The new SAM regime, which will be implemented on 1 January 2016, will impose more stringent regulatory

requirements on both long-term and short-term insurers, requiring them to maintain adequate solvency

capital based on risks faced on a day-to-day basis. This is likely to have a positive impact on Investment

Solutions given that it assumes no underlying risk. For more information, see “Regulation — Solvency

Assessment and Management” and “Regulation —Capital Adequacy Requirements”.

Consolidated Supervision

Under the broader SAM framework, the Group will be subject to group-wide regulation and supervision. See

“Regulation – Solvency Assessment and Management” . The Group will be subject to regulation by the FSB at

the ultimate holding company level. Based on the initial assessment, the deficit was estimated at R305 million

as at 31 March 2014. This assessment was further adjusted for the effects of the SARS Settlemen t. See

“Business — Investigations and Legal Proceedings — SARS Settlement” . The FSB has the right, after consultation

with the insurer, to impose a capital add-on where the risks, including those posed by the non-regulated

entities, are not adequately taken into account in the group capital adequacy or deduct the value of holdings

in non-regulated entities from the capital resources of the insurance legal entities in the Group. The Group is

still in the process of obtaining clarity from the FSB with regard to such adjustments and as a result has not

factored this into the estimated deficit.

As at 31 March 2014

(R million)

Total available Group capital 1 ,221

Total latest proposed required Group capital (when consolidated supervision

becomes effective) 1 ,526

Surplus/Deficit Capital (305)

Adjusted for tax settlement (126)

Adjusted deficit (431)

102

Indebtedness

All of the existing primary borrowings were repaid or refinanced as part of the Restructure. See “Restructure”.

On 26 March 2014, Alexander Forbes Acquisitions Proprietary Limited (“AF Acquisition”), as borrower, and

FirstRand Bank Limited (acting through its Rand Merchant Bank division), as lender, entered into a term loan

facility agreement in the amount of R1 ,250 ,000 ,000 (the “Term Loan Facility”). In addition, on 20 March

2014, AF Acquisition, as borrower, and FirstRand Bank Limited (acting through its Rand Merchant Bank

division) as lender, entered into a revolving credit facility (“RCF”) in the amount of R191 ,101 ,000 and a

settlement facility in the amount of R480 ,000 ,000 (the “Settlement Facility”). See Annexure 10 for more

details.

Capital Expenditure

Despite the regulatory capital requirements, the Group is not a capital-intensive business. Its most significant

operational capital expenditure is for technology, specifically computer software and hardware, to maintain

and improve its broking, consulting, administration and multi-manager systems. Historically, the Group’s

annual capital expenditure has approximated its depreciation and amortisation charge for the financial year.

Capital expenditure on property, equipment and computer software in financial year 2014 was unusually

high at R208 million (2013: R106 million). The increase in capital expenditure in financial year 2014 was

largely related to the building refurbishment of the new LCP London offices.

The Company does not expect the Group’s capital expenditure requirements to change significantly in the

near term and expect them to continue to be funded through cash generated from operations.

Contractual Obligations and Commitments

The following table sets forth the Group’s contractual obligations as at 31 March 2014:

Payment Due by Period

Total <1 year 1 – 5 years 5+ years

(R million)

Capital lease obligations(1) 108 7 34 67

Operating lease obligations 2 ,480 164 815 1 ,501

Contractual purchase obligations – – – –

Long-term borrowings(1) 2 ,025 123 1 ,886 16

Derivative instruments – – – –

Total 4 ,613 294 2 ,735 1 ,584

1. Includes interest payments.

Off-Balance Sheet Arrangements

Investment Solutions administers and manages various unit trust portfolios. These unit trusts are assessed

individually for consolidation in terms of IFRS and, as a result, certain trusts are consolidated while others

may not be consolidated. All such unit trusts are however similar in nature and the Group effectively acts as

the managing agent. Consequently, these unit trusts should not be regarded as off-balance sheet liabilities.

Quantitative and Qualitative Disclosures About Market Risk

The Group’s activities expose it to various financial risks arising from its financial assets and liabilities.

Financial risks comprise:

• Credit risk, which includes:

– Counterparty risk —Counterparty risk is the risk that a counterparty to a financial instrument

receivable or re-insurance contract will fail to discharge an obligation, thereby causing the Group to

incur a financial loss.

– Cash deposit risk —Cash deposit risk is the risk associated with the holding of Group funds with an

intermediary, such as a banking institution.

• Market risk, which includes:

– Interest rate risk —Interest rate risk is the risk that the fair value or future cash flows of a financial

instrument will fluctuate due to changes in market interest rates.

– Currency risk — Currency risk is the risk that the fair value or future cash flows of a financial instrument

will fluctuate in Rand due to changes in foreign exchange rates.

103

– Other price risk – Other price risk is the risk that the fair value or future cash flows of a financial

instrument will fluctuate because of changes in market prices (other than those arising from interest

rate risk and currency risk).

The financial risks relating to the Group’s activities can be split into various operations of the Group that

reflect the risk profiles of these operations. The operations are: (i) multi-manager investment operations,

conducted through Investment Solutions and (ii) general operations, including: (a) the insurance broking and

consulting operations, (b) employee benefit consulting, administration and management operations and

(iii) insurance operations, conducted by the Group’s short-term personal lines insurer, AFI, and the Group’s

long-term group life insurer, AF Life.

Credit Risk

The Group’s primary credit risk is the counterparty credit risk that predominantly arises from the reinsurance

of its insurance contracts. Reinsurers are utilised in the Group’s underwriting activities conducted in the

insurance-licensed subsidiary companies. Under the terms of the reinsurance agreements, reinsurers agree to

reimburse the ceded amount in the event that a claim is paid. However, the Group remains liable to its

policyholders regardless of whether the reinsurer meets the obligations it has assumed. Consequently, the

Group is exposed to credit risk. The Group does not consider there to be a significant concentration of credit

risk to reinsurers or other receivables from insurance contracts which has not been adequately provided for.

The Group has specific reinsurer mandates established by the various risk committees which stipulate the

minimum security rating required of a reinsurer for business to be placed with them. The Group monitors the

financial condition of reinsurers and reviews its reinsurance arrangement periodically. Various market

security and underwriting committees are in place to evaluate and approve recommendations and the

committees’ decisions are supported by both local and international professional rating agencies. The Group

also has reinsurance vetting procedures in place. These procedures include limiting individual cessions and

accumulations per reinsurer in accordance with their rating. The financial condition of the reinsurers and

intermediaries in relation to their credit standing is evaluated each time they are rated by an external rating

agency. The Group limits the level of credit risk it accepts by placing limits on its exposures to a single

counterparty. The exposure limits of each reinsurer vary depending on their credit rating.

Receivables from insurance contracts, whether from intermediaries or policyholders, are monitored as part of

the credit process. The Group is protected in South Africa by guarantees issued by the Intermediary Guarantee

Facility for the non-payment of premiums, collected by intermediaries as provided in the STIA. Non-payment

of premiums from policyholders over the specified time period results in the cancellation of the insurance

cover, reducing the credit risk to the Group.

The Group is also exposed to cash deposit risks and underwriting risks. The Group deposits some of its cash,

including cash held in a fiduciary capacity, with certain financial institutions in the UK. While it is constantly

monitoring and managing exposures associated with those deposits, to the extent these financial institutions

are adversely affected by economic conditions, some or all of those cash deposits could be at risk. The Group

also faces underwriting risk in the event that it inaccurately assesses the risks entailed in writing an insurance

policy or as a result of factors wholly out of its control. As a result, the insurance policy may cost the

insurance business much more than it has earned in premiums.

Liquidity Risk

Liquidity risk management implies maintaining sufficient cash and ensuring the availability of funding

through an adequate amount of cash resources and credit facilities. The Group has a demand credit facility of

R190 million, which can be used for general corporate working capital purposes. The Group has prescribed

authority mandates and borrowing limits. Compliance with debt covenants is monitored by the Group and

divisional boards.

The Group sets limits on the minimum proportion of maturing funds available to meet claims arising from

long-term insurance contracts and unexpected levels of demands. Similarly, the majority of the assets held to

match short-term insurance contracts are in money market instruments, which are highly liquid. Net cash

flows are monitored closely to ensure claim payments under long-term and short-term insurance contracts

can be made when requested. Long-term and short-term insurance subsidiaries are registered financial

institutions and are required to hold minimum capital and reduce policyholder exposure to the Group’s

liquidity risk. The regulatory authority in South Africa, the FSB, regularly reviews compliance with these

minimum capital requirements. See “Regulation —Capital Adequacy Requirements”. Management monitors

compliance with these minimum capital requirements. Assets linked to investments are realisable at short

notice.

Liabilities under linked investment contracts pose no liquidity risk as the insurer, if required, is allowed to

settle its liability by delivering the underlying assets.

104

Market Risk

The Group faces material market risk in both its multi-manager investment operations and its general operations.

Multi-manager investment operations

There is no direct significant market risk, either by interest rate, currency or other price risk, to the Group

on financial assets held in respect of multi-manager investment contracts as the effect of any changes in these

market risks is directly attributable to policyholder assets and policyholder assets are directly matched by

policyholder liabilities. However, fee income earned by the Group on assets from multi-manager investment

operations is based on assets which are exposed to fluctuations in interest rates, foreign currencies and equity

prices. The Group does not hedge against the interest rate and currency exposures and the board has accepted

that changes in interest and exchange rates can result in volatility in the Group’s earnings. As mentioned

above, these operations also pose no liquidity risk.

General operations – Interest rate risk

The Group’s income and operating cash flows are substantially independent of changes in market interest

rates, except for interest costs on provisions for client settlements, which are sensitive to short-term interest

rates. This impact is offset by the effect of short-term interest rate movements on interest earned on cash

balances. The interest rate on borrowings is linked to market reference rates and as such the Group is not

exposed to interest rate risk on these funds.

General operations – Currency risk

The Group operates internationally and is exposed to foreign exchange risk arising from various currency

exposures. As reflected in segmental profit analysis contained in these financial statements, the Group derives

a portion of its trading profit in foreign currencies. In financial year 2014, 20% (2013: 15%) of the Group’s

trading profit was derived from its international operations, primarily in the United Kingdom, and 5% (2013:

4%) from operations in Africa outside of South Africa; and in the same year, 30% (2013: 26%) of the Group’s

net revenue was derived from its international operations, primarily in the United Kingdom, and 6% (2013:

5%) from operations in Africa outside of South Africa

Fee income derived by the Group on assets from multi-manager investment operations will also be impacted

by any changes in value of such assets arising from fluctuations in foreign currency exchange rates. In

addition, a portion of fee income earned in the retail business in AFFS operations in South Africa is impacted

by changes in foreign currencies as this income is linked to assets managed by this business.

The Group’s borrowings are mostly Rand-denominated and thus not exposed to currency risk.

General operations – Other price risk

In addition, a portion of fee income earned in the retail business in the AFFS operations in South Africa is

impacted by changes in equity markets, as this income is linked to assets managed by this business.

Insurance Risk

Management of Insurance Risk

Alexander Forbes employs general insurance risk management controls including:

• Risk Committee. The Risk Committee assists and supports the board with regard to its risk management

responsibilities, together with the other board sub-committees including the Audit, Investment and

Remuneration Committees. The Risk Committee deals with specialised risks related to insurance business

being conducted by the Group. Individuals with specialised industry and product knowledge are invited to

the Risk Committee and are also being co-opted on an ongoing basis.

• Audit committees. There are non-statutory audit committees for each business segment within the Group.

These audit committees report to the Group Audit Committee and to the operational boards of directors.

The relevant business segment audit committee deals with the insurance subsidiary that reports into

that business operation. These committees are responsible for reviewing the financial statements and

accounting policies, the effectiveness of the management information and systems of internal control,

compliance with statutory and regulatory requirements, interim and final reports, the effectiveness of the

internal audit function, external audit plans and findings on their respective reports.

• Statutory actuaries. The independent statutory actuaries of the long-term insurance subsidiaries report

annually on the capital adequacy and the financial soundness at the year-end date and for the foreseeable

future. All new premium rates or premium rates where changes are required are reviewed by the

independent statutory actuaries and dividends are approved prior to payment to ensure that the insurance

subsidiaries remain financially sound thereafter.

105

• Capital adequacy requirements. A minimum level of solvency is required to be held within each insurance

subsidiary to meet the regulatory capital adequacy requirements. Capital adequacy risk is the risk that

there are insufficient reserves to provide for variations in actual future experience that is worse than

assumed in the financial soundness valuation. Each insurance subsidiary must maintain shareholders’

funds that will be sufficient to meet obligations in the event of substantial deviations from the main

assumptions affecting the subsidiary’s business. For the long-term insurance subsidiaries, the CAR is

calculated to determine whether the excess of assets over liabilities is sufficient to provide for the possibility

of actual future experience departing from the assumptions made in calculating the policyholder liabilities

and against fluctuations in the value of assets. CAR statutory returns are submitted to the Registrar of

Long-Term Insurance on a quarterly basis and valuations are performed by the statutory actuary on an

annual basis. As at 31 March 2014, the CAR held by the long-term insurance companies amounted to

R172 million (2013: R139 million) for AF Life, R456 million (2013: R321 million) for Investment Solutions

and R128 million (2013: R91 million) for AFI, representing shareholder funds coverage ratios of 1.69

(2013: 1.78), 2.2 (2013: 2.9) and 1.3 (2013: 1.3), respectively. Short-term insurance subsidiaries are required

to maintain a solvency capital reserve.

• Concentration risk. The Group is not exposed to any significant concentration risk as the insurance

contracts issued by the Group’s insurance subsidiaries are adequately spread across the major classes of

insurance risks.

• Reinsurance. Reinsurance is used to manage the level of underwriting risk accepted by the Group.

Reinsurance vetting procedures are in place and reinsurance programmes are assessed on a regular basis

to ensure appropriateness of the cover obtained, including the individual cessions and accumulations

per reinsurer. The financial condition of reinsurers (identified by their credit rating) is considered when

placing reinsurance cover and evaluated on an ongoing basis. The individual insurance subsidiaries

limit the level of reinsurance counterparty credit risk accepted by placing limits on their exposures to a

single counterparty. The individual insurance subsidiaries hold catastrophe reinsurance to mitigate the

risk of a single event causing multiple accumulation of claims. The Risk Committee evaluates, approves

and monitors the insurance and reinsurance markets that the Group operates in and reports back to the

relevant operational boards with recommendations.

• Enterprise-wide risk management. The Group has implemented an enterprise-wide risk management

programme to entrench risk management into the day-to-day business activities whereby the insurance

subsidiary understands the risk events that may prevent it from achieving its objective; has identified the

risk mitigating controls in place and has assessed their efficiency; and has formulated a plan wherever

additional action is required.

Insurance Risk – Personal Lines Short-Term Insurance

Personal lines insurance is provided to the general public in their individual capacities and includes property,

casualty, personal accident and motor insurance. These contracts are generally monthly renewable contracts,

with a few annual policies. The Group is able to reprice monthly policies based on changing market conditions.

As personal lines business primarily relates to the assumption of the risk or loss from events involving

persons, the Group is exposed to certain uncertainty surrounding the timing, severity and frequency of

claims under insurance contracts. The majority of these insurance contracts are “short-tail”, meaning that

any claim is settled within one year after the loss date. “Long-tail” exposures are limited to personal accident,

third-party motor and public liability claims and claims related to them account for less than 0.1% of an

average year’s claims cost. There is no significant concentration of risk as the risks are adequately spread

geographically as well as across the major classes of insurance risk.

The Group calculates its exposure to catastrophe risk by studying the spread of risk nationwide in Rand

terms and identifying the concentration per certain territories in the event of a natural catastrophe. Its

concentration exposure for the personal lines book is a possible earthquake in the Johannesburg area. This

assessment is done annually at renewal of the catastrophe programme and reinsurance protection is purchased

on a non-proportional basis, thereby limiting the Group’s exposure. The current net exposure is R4 million

(2013: R4 million).

Short-term insurance risk is managed by centralised control of pricing and acceptance criteria, underwriting

limits, reinsurance and continual monitoring of emerging issues. There is proportional reinsurance in place

for between 75% and 90% of the property and motor personal lines insurance book. Hence, the net retention

on book is no more than 25%. There is also non-proportional reinsurance providing protection on a per risk

catastrophe basis, capping the net exposure in the event of a single large loss or loss occurrence constituting

a catastrophe at a gross amount of approximately R5 million.

The personal accident insurance book is a high-volume, low-risk portfolio and is protected on a stop loss basis

whereby reinsurance protection is purchased to protect against the event of adverse claims experience. The

business is written on a monthly basis, further limiting the Group’s exposure. Exposures to individual

policyholders and groups of policyholders are monitored as part of the credit control process. In South Africa,

the Group is also protected against the non-payment of premiums collected by intermediaries by the

106

Intermediary Guarantee Facility, which is a facility set up by the short-term insurance industry for the

purposes of providing security under the STIA. See “Regulation —Short-Term Insurance Act, 1998” . As most

intermediaries are other members of the Group, they are not considered to be a credit risk.

Insurance Risk – Long-Term Insurance

The long-term insurance contracts include annually renewable group life mortality and morbidity contracts

and individual life contracts.

The group life business consists of insurance for retirement funds and other group schemes and covers the

contingencies of death and disability. Policy terms and conditions allow for an annual review of premium

rates allowing the management of premiums in line with emerging claims experience. The annual premium

reviews take all pertinent information from one year to the next into account. There is exposure to concentration

risk on the group life insurance business as there is not yet a wide spread of group schemes and a single event

could result in multiple claims, but catastrophe reinsurance is in place to mitigate this risk.

The individual life business covers death, disability and impairment contingencies. Premiums on this business

line are repriced on an annual basis and are differentiated by age, gender and smoker status, and stringent

socio-economic qualification criteria apply. Future premium rates are also not guaranteed and may be adjusted

if mortality and morbidity experience deteriorates. This business remains a relatively immaterial part of the

overall life insurance exposure.

Both short-term and long-term insurance businesses are exposed to the risk that future claims will exceed

expectations, which could result from epidemics such as AIDS and Avian Flu, as well as unexpected changes

in lifestyles and living patterns.

In respect of group insurance business, free cover limits are set on a per scheme basis and are formula-driven,

taking into account the number of lives and average sums assured. Sums assured in excess of the free cover

limit are subject to underwriting.

In respect of individual insurance business, the major risks are mortality, morbidity, withdrawal and expense.

Withdrawal risk is mitigated to a certain extent by commission clawback clauses in contracts with

intermediaries. Expense risk is mitigated through detailed analysis of costs in determining the expense

assumptions in the valuation, as well as ongoing expense management.

The insurance risks are also managed through reinsurance arrangements (except for the group funeral book,

which is not reinsured). The appropriate reinsurance structures are assessed by conducting scenario analyses

which project outcomes under different reinsurance structures. The retention limits are then set in accordance

with risk appetite. The group life insurance and individual cover businesses have proportional reinsurance

for approximately 80% of the books. There is also non-proportional reinsurance providing protection on a per

risk and catastrophe basis, capping the net exposure in the event of a single large loss or loss occurrence

constituting a catastrophe.

Critical Accounting Policies and Estimates

This management’s discussion and analysis of financial condition and results of operations is based upon the

Consolidated Financial Statements, which have been prepared in accordance with IFRS and the Listings

Requirements. The preparation of these financial statements requires us to make estimates and judgements

that affect the reported amounts of assets, liabilities, revenues and expenses as well as related disclosures. On

an ongoing basis, the management evaluates estimates and judgements based on historical experience and

various other factors that it believes to be reasonable under the circumstances. Actual results may differ from

these estimates under varying assumptions or conditions.

An accounting estimate is considered critical if:

• the nature of the estimates or assumptions is material due to the levels of subjectivity and judgement

necessary to account for highly uncertain matters or the susceptibility of such matters to change; and

• the impact of the estimates and assumptions on our financial condition or operating performance is

material.

Of the Group’s significant accounting policies, the following encompass a higher degree of judgment and/or

complexity:

Retirement Benefit Obligations

The cost of the benefits and the present value of the defined benefit pension funds and post-retirement medical

obligations depend on a number of factors that are determined on an actuarial basis using a number of

assumptions. The assumptions used in determining the charge to profit or loss arising from these obligations

include the expected long-term rate of return on the relevant plan assets, the discount rate and the expected

salary and pension increase rates. Any changes in these assumptions will impact the charge to profit or loss

and may affect planned funding of the pension plans.

107

The assumptions relating to the expected return on plan assets are determined on a uniform basis, considering

long-term historical returns, asset allocation and future estimates of long-term investment returns. The

Group determines the appropriate discount rate at the end of each year, which represents the interest rate that

should be used to determine the present value of the estimated future cash outflows expected to be required to

settle the pension and post-retirement medical obligations. In determining the appropriate discount rate, the

Group considers the interest rate on high-quality corporate bonds and government bonds that are denominated

in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of

the related pension liability. The expected salary and pension increase rates are based on inflation rates,

adjusted for salary scales and country-specific conditions. The inflation rate used is a rate within the

government’s monetary policy target for inflation and is calculated as the difference between the yields on

portfolios of fixed interest government bonds and a portfolio of index-linked bonds of a similar term.

Provisions

Provisions are, by definition, liabilities of uncertain timing or amount. In order to establish a provision,

management makes assessments of the expected amount of any future cash outflows and the estimated timing

thereof. Where the effect of discounting is material, provisions payable in more than one year are discounted

using pre-tax discount rates that reflect the current market assessment of the time value of money and, where

appropriate, the risks specific to the liability.

Valuation of Policyholder Assets and Liabilities in Respect of Long-Term Insurance Contracts

The actuarial value of policyholder assets and liabilities arising from long-term insurance contracts is

determined using the Financial Soundness Valuation method as described in SAP 104 of the Actuarial Society

of South Africa.

The method requires a number of assumptions as inputs to the valuation model. The following process is

followed to determine the valuation assumptions:

• The best estimate for a particular assumption is determined.

• Prescribed margins are then applied, as required by the LTIA in South Africa and Board Notice 72 issued

in terms of that Act.

• Discretionary margins may be applied, as required by the valuation methodology or if the statutory actuary

considers such margins necessary to cover the risks inherent in the contracts.

Best estimate assumptions as to mortality and morbidity, expenses, investment income and tax are used which

may vary at each reporting date. A margin for adverse deviations is included in the assumptions. Improvements

in estimates have a positive impact on the value of the liabilities and related assets, while deteriorations in

estimates have a negative impact.

The process for determining the assumptions used are as follows:

• Mortality and morbidity – For group life insurance contracts, the rate of recovery from disability is

derived from industry experience studies adjusted, where appropriate, for the Group’s own experience. For

individual life insurance contracts, demographic assumptions are set with reference to reinsurer rates and

industry experience.

• Expenses – Expense assumptions are based on an expense analysis, using a functional cost approach. This

analysis allocates expenses between policy and overhead expenses and within policy expenses, between

new business, maintenance and claims.

• Investment income – Estimates are made as to future investment income and are tested against market

conditions as at the valuation date taking into account the terms of the liabilities. Inflation assumptions are

tested against market conditions and, with regard to consistency, are tested against interest rate assumptions.

• Tax – Allowance is made for future taxation and taxation relief.

Ultimate Liability Arising from Claims Under Short-Term Contracts

The estimation of the ultimate liability arising from claims under short-term insurance contracts has several

sources of uncertainty. The risk environment can change suddenly and unexpectedly owing to a wide range

of events or influences. There is no absolute certainty in respect of identifying risks at an early stage,

measuring them sufficiently or correctly estimating their real hazard potential.

Goodwill and Intangible Assets

In line with the requirements of IFRS 3, the Group created significant goodwill and intangible assets upon the

acquisition by the newly established acquiring company as a result of the 2007 Acquisition. These asset

balances are evaluated for impairment on an annual basis. This evaluation is based on the estimation of future

cash flows and discount rates as further explained in Note 15 to the Consolidated Financial Statements. The

108

intangible assets identified at the time of the acquisition are amortised over their expected useful lives but

typically not exceeding 20 years. These assets are also assessed and adjusted for impairment as and when

necessary.

Fair Value

The Group holds a number of financial assets and liabilities that are designated at fair value through profit or

loss. Subsequent to initial recognition, the fair values of financial assets are based on quoted bid prices,

excluding transaction costs. If the market for a financial asset is not active or an instrument is an unlisted

instrument, the fair value is estimated using valuation techniques. These include the use of recent arm’s

length transactions, reference to other instruments that are substantially the same, discounted cash flow

analysis and option pricing models.

When a discounted cash flow analysis is used to determine the value of financial assets, estimated future cash

flows are based on management’s best estimates and the discount rate is a market-related rate, at the reporting

date, for a financial asset with similar terms and conditions. Where option pricing models are used, inputs are

based on observable market indicators at the reporting date, and profits or losses are only recognised to the

extent that they relate to changes in factors that market participants will consider in setting a price.

109

DIVIDENDS AND DIVIDEND POLICY

Following the Listing, the board of directors intends to declare a dividend on at least an annual basis. It is

intended that the total annual dividend will be split between an interim dividend and final dividend. The

Group’s dividend policy is set at a target range of 1.5x – 2.0x earnings cover.

In preparation for the implementation by the FSB of consolidated group supervision, the board of directors

does not anticipate that an interim dividend for the six-month period to 30 September 2014 will be declared.

The board of directors will consider making the final dividend payment for the year ending 31 March 2015,

after taking account of the regulatory capital position on a consolidated basis.

Any regulatory capital shortfall is expected to be eliminated by a portion of the proceeds from the subscription

for the Subscription Shares and as the Group generates positive operational cash flows such that the Group

will be in full regulatory compliance when consolidated group supervision is implemented by the FSB

(currently expected to take place on 1 January 2016).

The board retains absolute discretion to determine actual dividend declarations and will take the following

factors into consideration:

• the growth of the minimum capital requirements of the Group’s businesses;

• the capital requirements to support investments in the Group’s growth initiatives; and

• changes or prospective changes in the operating environment or operational performance of the Group.

It is the Group’s intention to return any excess reserves above its capital targets to shareholders in the form

of dividends and Share repurchases.

In accordance with the memorandum of incorporation of the Company, all unclaimed dividends may be

invested or otherwise held in trust for the benefit of the Company until claimed, provided that dividends

unclaimed for a period of three years from the date they were declared may be forfeited for the benefit of the

Company.

There is no fixed date on which entitlement to dividends arises and the date of payment will be determined by

the board of directors at the time of declaration, subject to the Listings Requirements. There are no current

arrangements under which future dividends are waived or agreed to be waived. Relevant extracts of the

memorandum of incorporation of the Company relating to dividends are set out in Annexure 11 to this pre-

listing statement.

110

INCORPORATION AND SHARE CAPITAL

Incorporation

The Company was incorporated and registered in South Africa on 15 August 2006 under the predecessor to

the Companies Act as a private limited liability company with registration number: 2006/025226/07 . The

registered address and head office of the Company is 115 West Street, Sandton 2196, Johannesburg, South

Africa.

On 23 J une 2014, the Company was converted from a private limited liability company to a public limited

liability company with registration number 2006/025226/06.

There have been no changes to the trading objects of the Company and its subsidiaries during the previous

five years, save for the following:

• in June 2009, Alexander Forbes PIK Funding Proprietary Limited changed its objects to “hold shares in

Alexander Forbes Funding Proprietary Limited, as principal”; and

• in January 2011, Alexander Forbes Retail Client Administration Proprietary Limited changed its objects

to “retail business, financial planning, actuarial services, administration services, advisory services, trust

services and related activities”.

Authorised and Issued Company Shares

The authorised and issued shares of the Company as at the Last Practicable Date is as follows:

(Pro forma)

(R)

Authorised share capital2 ,500 ,000 ,000 ordinary no par value shares –

45 ,000 ,000 non-convertible redeemable “B” Preference Shares each having

a par value of R0.01 450 ,000

Total 450 ,000

Issued share capital1 ,250 ,698 ,297 ordinary no par value shares –

96 ,024 ,745 held as treasury shares –


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 –


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.

111

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/(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


Issued/(Redeemed) –






Issued/(Redeemed) (1) (319 ,461 ,529)

Issued shares at the end of the financial year –

1. Redeemed in terms of the Restructure.

112

“B” Preference Shares

Number of shares in

issue









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,

113

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:


Registration number: BR000005

Registered office: Winchester House, 1 Great Winchester Street, London EC2N 2DB,

United Kingdom

Directors: Colin Grassie

Mitchell Mason

Morgan Stanley & Co. International plcRegistration number: 165935

Registered office: 25 Cabot Square, Canary Wharf,

London E14 4QA, United Kingdom

Directors: James P. Gorman Hutham S. Olayan

Erskine B. Bowles James W. Owens

Sir Howard J. Davies O. Griffith Sexton

Thomas H. Glocer Ryosuke Tamakoshi

Robert H. Herz Masaaki Tanaka

C. Robert Kidder Dr. Laura D. Tyson

Klaus Kleinfeld Rayford Wilkins, Jr.

Donald T. Nicolaisen

Rand Merchant Bank, a division of FirstRand Bank LimitedRegistration number: 1929/001225/06

Registered office: 1 Merchant Place, Rivonia Road, Sandton 2196, Johannesburg, South

Africa

Directors: LL Dippenaar NN Gwagwa

SE Nxasana PK Harris

VW Bartlett WR Jardine

JJH Bester HS Kellan

JP Burger EG Matenge-Sebesho

MS Bomela AT Nzimande

P Cooper D Premnarayen

L Crouse KB Schoeman

JJ Durand BJ van der Ross

GG Gelink JH van Greuning

PM Goss

The Offer is subject to obtaining a minimum subscription and to the attainment of a spread of 300 shareholders acceptable to the JSE. The Listings Requirements require that a minimum of 20 percent of the Shares are held by the public as defined in the Listings Requirements.

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TRANSFER AND SELLING RESTRICTIONS

Because of the following restrictions, investors are advised to consult legal counsel prior to making any offer,

resale, pledge or other transfer of the Shares:

United States

The Shares have not been and will not be registered under the U.S. Securities Act or under the securities laws

of any state of the United States and, subject to certain exceptions, may not be offered or sold within the United

States, except to persons reasonably believed to be QIBs in reliance on Rule 144A or another exemption from,

or in a transaction not subject to, the registration requirements of the U.S. Securities Act, and Qualified

Purchasers within the meaning of Section 2(a)(51) of the U.S. Investment Company Act (“QPs”). The Shares

are being offered and sold outside the United States in offshore transactions in reliance on Regulation S.

The Company has not been and will not be registered under the U.S. Investment Company Act and investors

will not be entitled to the benefits of that Act. The Company is relying on the exemption provided by

Section 3(c)(7) of the U.S. Investment Company Act and as a result the Offer Shares may only be purchased by

persons within the United States who are QPs. Purchasers in the United States or who are U.S. persons will

be required to execute and deliver a U.S. Investment Letter in the form set forth in Appendix A.

South Africa

In South Africa, the Offer will only be made by way of private placement to persons falling within the

exemptions set out in Section 96(1)(a) of the Companies Act or persons acquiring Shares for a minimum

acquisition cost of R1 ,000 ,000 (as contemplated in Section 96(1)(b) of the Companies Act) (“Qualifying

Investors”) and this pre-listing statement is only being made available to such Qualifying Investors. The Offer

does not constitute an offer for the sale of or subscription for, or the solicitation of an offer to buy and

subscribe for, shares to the public as defined in the Companies Act and will not be distributed to any person in

South Africa in any manner which could be construed as an offer to the public in terms of the Companies Act.

Should any person who is not a Qualifying Investor receive this pre-listing statement they should not and will

not be entitled to acquire any Shares or otherwise act thereon. This pre-listing statement does not, nor is it

intended to, constitute a “registered prospectus” prepared and filed under the Companies Act.

European Economic Area

In relation to each member state of the EEA which has implemented the Prospectus Directive (each, a “relevant

member state”), no Offer Shares have been offered or will be offered pursuant to the Offers contemplated by

this pre-listing statement to the public in that relevant member state, except in that relevant member state at

any time under the following exemptions under the Prospectus Directive, if they have been implemented in

that relevant member state:

• to any legal entity which is a qualified investor as defined in the Prospectus Directive;

• by the Joint Bookrunners to fewer than 100 or, if the relevant member state has implemented the relevant

provision of the 2010 PD Amending Directive, 150 natural or legal persons (other than qualified investors

as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining

the prior consent of the Joint Bookrunners; or

• in any other circumstances falling within Article 3(2) of the Prospectus Directive,

provided that no such offer of Offer Shares required the Company or any of the Joint Bookrunners to

publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant

to Article 16 of the Prospectus Directive.

For purposes of this legal notice, the expression an “offer of securities to the public” in relation to any Offer

Shares in any relevant member state means the communication in any form and by any means of sufficient

information on the terms of the Offer and any Offer Shares to be offered so as to enable an investor to decide to

purchase any Offer Shares, as the same may be varied in that member state by any measure implementing the

Prospectus Directive in that member state, the expression “Prospectus Directive” means Directive 2003/71/EC

(and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the relevant

member state) and includes any relevant implementing measure in the relevant member state and the expression

“2010 PD Amending Directive” means Directive 2010/73/EU.

The Company has not authorised and does not authorise the making of any offer of the Offer Shares through

any financial intermediary on its behalf, other than offers made by the Joint Bookrunners with a view to the

final placement of the Shares as contemplated in this pre-listing supplement. Accordingly, no purchaser of the

Offer Shares, other than the Joint Bookrunners, is authorised to make any further offer of the Offer Shares

on behalf of the Company or the Joint Bookrunners.

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United Kingdom

This pre-listing statement is only being distributed to and is only directed at: (i) persons who are outside the

United Kingdom, or (ii) to investment professionals falling within Article 19(5) of the Financial Services and

Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) or (iii) high net-worth entities falling within

Articles 49(2)(a) to (d) of the Order, and other persons to whom it may lawfully be communicated (all such

persons together being referred to as “relevant persons”). This document is directed only at relevant persons

and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment

activity to which this document relates is available only to relevant persons and will be engaged in only with

relevant persons.

Each Joint Bookrunner has represented and agreed that: (i) it has only communicated or caused to be

communicated and will only communicate or cause to be communicated an invitation or inducement to engage

in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000) in

connection with the issue or sale of the Shares in circumstances in which Section 21(1) of such Act does not

apply to the Company and (ii) it has complied and will comply with all applicable provisions of such Act with

respect to anything done by it in relation to any Shares in, from or otherwise involving the United Kingdom.

Singapore

This pre-listing statement has not been registered as a prospectus with the Monetary Authority of Singapore.

Accordingly, this pre-listing statement and any other document or material in connection with the offer or

sale, or invitation for subscription or purchase, of the Offer Shares may not be circulated or distributed, nor

may Offer Shares be offered or sold, or be made the subject of an invitation for subscription or purchase,

whether directly or indirectly, to persons in Singapore, other than: (i) to an institutional investor as defined

under Section 275(2) and under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore

(“SFA”), (ii) to a relevant person as defined under Section 275(2) and under Section 275(1), or any person

under Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA or

(iii) otherwise under, and in accordance with the conditions of, any other applicable provision of the SFA.

Where Offer Shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is:

• a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business

of which is to hold investments and the entire share capital of which is owned by one or more individuals,

each of whom is an accredited investor; or

• a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each

beneficiary of the trust is an individual who is an accredited investor;

shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and

interest (howsoever described) in that trust shall not be transferred within six months after that corporation

or that trust has acquired the Offer Shares under an offer made under Section 275 of the SFA, except:

• to an institutional investor (for corporations, under Section 274 of the SFA) or to a relevant person defined

in Section 275(2) of the SFA, or to any person under an offer that is made on terms that such shares,

debentures and units of shares and debentures of that corporation or such rights and interest in that

trust are acquired at a consideration of not less than US$200 ,000 (or its equivalent in a foreign currency)

for each transaction, whether such amount is to be paid for in cash or by exchange of securities or other

assets, and further for corporations, in accordance with the conditions specified in Section 275 of the SFA;

• where no consideration is or will be given for the transfer; or

• where the transfer is by operation of law.

Australia

This pre-listing statement has not been, and will not be, lodged with the Australian Securities and Investments

Commission as a disclosure document for the purposes of the Australian Corporations Act 2001. This pre-

listing statement does not purport to include the information required of a disclosure document under

Chapter 6D of the Australian Corporations Act 2001. The Offer Shares may not be, directly or indirectly,

offered for subscription or purchased or sold for at least 12 months after issuance, and no invitations to

subscribe for or buy the Offer Shares may be issued, and no draft or definitive offering memorandum,

advertisement or other offering material may be distributed relating to, any Offer Shares in the Commonwealth

of Australia, its territories and possessions or to any resident of Australia, except in circumstances where

disclosure to investors is not required under Chapter 6D of the Australian Corporations Act 2001 or is

otherwise in compliance with all applicable Australian laws and regulations. Each investor acknowledges the

above and, by applying for the Offer Shares under this pre-listing statement, gives an undertaking not to sell

those shares (except in the circumstances referred to above) for 12 months after issuance.

124

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.

125

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.

126

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.

128

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


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.


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

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MonthDecember 2013 10.52 10.38 10.53 10.27

January 2014 11.12 10.87 11.23 10.44

February 2014 10.72 10.95 11.22 10.72

March 2014 10.52 10.74 10.89 10.52

April 2014 10.53 10.54 10.64 10.42

May 2014 10.57 10.41 10.57 10.30

Ju ne 2014 (through 27 June) 10. 62 10.6 9 1 1.23 10. 30

Exchange Control Limitations

The transfer of currency and shares are not freely transferable from South Africa to any jurisdiction falling

outside the geographical borders of South Africa, other than jurisdictions falling within the Common Monetary

Area and must be dealt with in terms of the South African Exchange Control Regulations as described below.

The South African Exchange Control Regulations also regulate the acquisition by former residents and

non-residents of Offer Shares.

Applicants for Offer Shares who are resident outside the Common Monetary Area should seek advice as to

whether any governmental and/or other legal consent is required and/or whether any other formality must be

observed to enable an application to be made in response to the Offer.

The following summary is intended as a guide and is therefore not comprehensive. Investors should consult their

professional advisors to determine the exchange control implications for them, given their facts and circumstances.

Emigrants from the Common Monetary Area

A former resident of the Common Monetary Area who has emigrated from South Africa may use emigrant

blocked Rand accounts (“emigrant blocked Rands”) to acquire Offer Shares pursuant to this pre-listing statement.

All payments in respect of subscriptions for or purchases of Offer Shares by non-residents using emigrant

blocked Rands must be made through an authorised dealer in foreign exchange controlling the blocked assets.

Share certificates issued in respect of Offer Shares acquired with emigrant blocked Rands will be endorsed

“non-resident” in accordance with the South African Exchange Control Regulations. Share certificates will be

placed under the control of the authorised dealer through whom the payment for the Offer Shares was made.

Dematerialised Offer Shares acquired with emigrant blocked Rands will be credited to the emigrant’s blocked

share account at the CSDP controlling their blocked portfolios.

If applicable, refund monies payable in respect of unsuccessful applications for Offer Shares pursuant to this

pre-listing statement, emanating from emigrant blocked Rand accounts will be returned, under the South

African Exchange Control Regulations, to the authorised dealer administering such emigrant blocked Rand

accounts for the credit of such applicants’ blocked Rand accounts.

Applicants Resident Outside the Common Monetary Area

In respect of persons resident outside the Common Monetary Area (including an emigrant not using emigrant

blocked Rands) who are applying for Offer Shares pursuant to this pre-listing statement, there are no

restrictions similar to those placed on emigrants using emigrant blocked Rands.

All share certificates issued to non-residents of South Africa should be endorsed “non-resident” in accordance

with the South African Exchange Control Regulations.

All non-resident holders of dematerialised Shares will have their Shares credited to an electronic share account

at their CSDP or broker through which they dematerialised their Shares and will have the account annotated

non-resident and their statements issued by the CSDP or broker endorsed “non-resident”.

The appointed CSDP or broker is responsible for ensuring compliance with the South African Exchange

Control Regulations.

132

ADDITIONAL INFORMATION

Information on Subsidiaries

Details of the Company’s subsidiaries are set out in Annexures 7 and 8 to this pre-listing statement.

Government Protection and Investment Encouragement Laws

The Group does not benefit from any government protection or investment encouragement law affecting

its business.

Principal Immovable Property Owned or Leased

Details of the principal immovable properties owned or leased by the Company are set out in Annexure 9 to

this pre-listing statement. None of the directors have any material interest in any of the immovable properties

owned or leased by the Company.

Material Acquisitions

There were no material acquisitions by the Company or its subsidiaries in the three years preceding the date of this

pre-listing statement of any of the securities in, or the business undertakings of, any other company or business

enterprise or any immovable properties or other property in the nature of fixed assets (collectively, “property”).

None of the directors or the promoters has a material beneficial interest in any of the property acquired or

proposed to be acquired by the Company out of the proceeds of the Offer or during the three years preceding

the date of this pre-listing statement. As at the date of this pre-listing statement, there are no proposed

acquisitions by the Company of any property, and there are no options to acquire any such property.

Material Disposals

Except as detailed in Annexure 14 to this pre-listing statement, there was no material property disposed of or

to be disposed of by the Company or its subsidiaries in the three years preceding the date of this pre-listing

statement. As at the date of this pre-listing statement, there are no proposed disposals by the Company of any

property and there are no options to acquire any such property.

Additional Financial Information

Pro Forma Consolidated Financial Information

Pro forma consolidated financial information for the Group, the preparation of which is the responsibility of

the directors, is set out in Annexure 4.

The pro forma consolidated financial information should be read in conjunction with the independent reporting

accountant’s report as set out in Annexure 5.

The pro forma consolidated financial information has been prepared for illustrative purposes only and because

of its nature it may not fairly present the Group’s financial position, changes in equity, results of operations

or cash flows, or the effect and impact of the Restructure and Offer going forward.

Independent Reporting Accountants’ Confirmation

The independent reporting accountants have provided confirmation to the JSE that they have reviewed this

pre-listing statement and that the content herein is not contradictory to any of the information contained in

any of their reports.

Interests of Advisors and Promoters

None of the advisors, as set out in the “Corporate Information” section on pages v and vi of this pre-listing

statement, hold any Shares or have agreed to acquire any Shares, except as contemplated in the placement

agreement in respect of the Offer.

The Company has not paid any amount (whether in cash or in securities), nor given any benefit to any

promoters or any partnership, syndicate or other association of which any promoter was a member during the

three years preceding the date of this pre-listing statement.

133

Material Contracts

Annexure 12 to this pre-listing statement sets out:

• material contracts that have been entered into by the Company or its subsidiaries during the two years

preceding the date of this pre-listing statement, other than in the ordinary course of business;

• material contracts entered into at any time prior to the two years preceding the date of this pre-listing

statement, other than in the ordinary course of business, that contain obligations or settlements material

to the Company or its subsidiaries as at the date of this pre-listing statement; and

• particulars of the material inter-company transactions during the two years preceding the date of this

pre-listing statement.

There are no existing or proposed contracts relating to royalties or secretarial or technical fees payable by

the Company.

Third-Party Management

Certain aspects of the Group’s business are managed by third parties pursuant to regulated outsourcing and

binder agreements and other mandate or service agreements. Details of these arrangements are set out in

Annexure 13. In addition, a number of intra-Group outsourcing, binder, mandate and service agreements are

in place, pursuant to which various functions are outsourced to other Group companies.

Material Capital Commitments

The future capital commitments of the Company as at 31 March 2014 were R13 million split into capital

commitments contracted for of R9 million and capital commitments authorised but not contracted of

R4 million.

Contingent Liabilities

In the conduct of its ordinary course of business, the Group is exposed to various actual and potential claims,

lawsuits and other proceedings relating to alleged errors and omissions, or non-compliance with laws and

regulations. The directors are satisfied, based on present information and the assessed probability of claims

eventuating, that the Group has adequate insurance programmes and provisions in place to meet such claims.

However, like all businesses of this type, the risk exists that significant adverse developments in past claims,

or a significant increase in the frequency or severity of future claims for errors and omissions, could have a

material effect on the Group’s reported results.

The contingent liabilities of the Company as at 31 March 2014 are set out in Note 37 to the Consolidated

Financial Statements.

Lease Payments

In 2013, the Group entered into a lease agreement for a new head office building. The lease is for a period of

12 years. The new head office building comes fully furnished with items of furniture and fixtures (including

IT equipment). These items will be used for a majority of their economic lives and consequently have been

classified as a finance lease. The minimum lease payments were therefore split between: (i) land and building

(the operating lease component) and (ii) furniture and fixtures, including IT equipment (the finance lease

component) based on their relative fair values.

Loan Capital and Material Loans

Details of outstanding loan capital in relation to the material borrowings of the Company as at the Last

Practicable Date are set out in Annexure 10 to this pre-listing statement.

Working Capital Statement

The directors of the Company are of the opinion that the working capital available to the Group is sufficient for the

Group’s present requirements, that is, for at least 12 months following the date of this pre-listing statement.

Litigation Statement

Except as disclosed under “Business —Investigations and Legal Proceedings” , no legal or arbitration

proceedings have been instituted that may have or have had in the last 12 months, a material effect on the

Group’s financial position nor is the Company aware of any such proceedings that are pending or threatened.

Material Changes

There have been no material changes to the financial or trading position or the controlling shareholders of

the Group since the date of the last financial statements.

134

Save for the information disclosed in this pre-listing statement under “Business”, there have been no material

changes to the business of the Company during the past five years.

Expenses

The Company has not incurred any preliminary expenses (within the meaning of the Listings Requirements

and the Companies Act) over the last three financial years.

The total expenses of the Offer (including expenses incurred in relation to issuing the new shares, referred to

as the issue expenses), estimated to be in the sum of approximately R 85 million (assuming an Offer Price at

the mid-point of the Offer Price Range and assuming that the Overallotment Option is fully exercised) shall

be paid by the Company and the Selling Shareholders as set out in the table below:

Rand ( million)

Joint Global Coordinator, Joint Bookrunner and Joint Transaction Sponsor – Deutsche

Bank(1) 35 . 1

Joint Global Coordinator and Joint Bookrunner – Morgan Stanley(1) 13. 5

Joint Global Coordinator, Joint Bookrunner, Lead Transaction Sponsor and Stabilisation

Manager – RMB(1) 13. 5

U.S. counsel and English legal advisor to the Company – Davis Polk & Wardwell London LLP 7 .0

South African legal advisor to the Company – Bowman Gilfillan Inc. 7.0

U.S. counsel and English legal advisor to the Joint Global Coordinators and Joint

Bookrunners – Freshfields Bruckhaus Deringer LLP 4 .1

South African legal advisor to the Joint Global Coordinators and Joint Bookrunners –

Edward Nathan Sonnenbergs Inc. 0.9

Auditors and independent reporting accountants 2.2

JSE listing and document inspection fees 1.1

Printing, publication and distribution costs 0. 6

Other expenses 0. 4

Total estimated expenses 85. 3

1. To be paid by the Company and the Selling Shareholders on a pro rata basis, determined in accordance with the amount to be received by

each of the Company and the Selling Shareholders in respect of the Offer Shares.

Commissions Paid or Payable in Respect of Underwriting

Other than as set out below, no consideration has been paid, or has accrued as payable, within the three years

preceding this pre-listing statement as commission to any person (including commission so paid or payable to

any sub-underwriter that is the holding company or a promoter or director or officer of the Company) for

subscribing or agreeing to subscribe or procuring or agreeing to procure subscriptions for any securities of

the Company. No commissions, discounts, brokerages or other special terms were granted during the three

years preceding the date of this pre-listing statement in connection with the issue or sale of any securities,

stock or debentures in the capital of the Company. Should the placement agreement become unconditional, the

Selling Shareholders and the Company will pay to the Joint Bookrunners the commission set out in “Particulars

of the Offer —Placement Agreement” and will reimburse certain related expenses incurred on a pro rata basis,

determined in accordance with the amount to be received by each of the Company and the Selling Shareholders

in respect of the Offer Shares.

Consents

Each of the legal advisors, the competent person, the auditors and independent reporting accountants, the

Joint Bookrunners, the Transaction Sponsors and the transfer secretary, named in this pre-listing statement

have consented in writing to act in the capacities stated, and to their names being stated in this pre-listing

statement, and none of these consents have been withdrawn prior to publication of this pre-listing statement

with the Registrar.

For the purpose of complying with the Listings Requirements in South Africa only, PricewaterhouseCoopers

has given and has not withdrawn its written consent to the issue of this pre-listing statement with the

inclusion herein of, and all references to: (i) its name, (ii) its independent reporting accountant’s report dated

1 July 2014 on the audit of the Group’s consolidated financial information for the years ended 31 March 2014,

2013 and 2012 and (iii) its independent reporting accountant’s report dated 1 July 2014 on the Group’s

pro forma consolidated financial information, in the form and context in which they are, respectively, included

in this pre-listing statement. A written consent in accordance with the Listings Requirements is different

from a consent filed with the U.S. Securities and Exchange Commission under Section 7 of the U.S. Securities

Act, which is applicable only to transactions involving securities registered under the U.S. Securities Act. As

the Offer Shares have not and will not be registered under the U.S. Securities Act, PricewaterhouseCoopers

has not filed a consent under Section 7 of the U.S. Securities Act.

135

Directors’ Responsibility Statement

The directors of the Company, whose names are given under “Management and Corporate Governance —

Directors of the Company”, collectively and individually, accept full responsibility for the accuracy of the

information contained herein and certify that, to the best of their knowledge and belief, there are no facts that

have been omitted that would make any statement false or misleading, and that all reasonable enquiries to

ascertain such facts have been made and that this pre-listing statement contains all information required by

law, the Companies Act and the Listings Requirements.

Documents Available for Inspection

Copies of the following documents will be available for inspection at the Company’s registered office and the

transaction sponsors’ offices set out in the “Corporate Information” section during normal business hours

(Saturdays, Sundays and official South African public holidays excepted) from the date of issue of this pre-

listing statement until the closing date:

• the memoranda of incorporation of the Company and the Company’s subsidiaries;

• the trust deeds of: (i) Alexander Forbes Management Trust, (ii) Alexander Forbes Management

Co -Investment Trust, (iii) Alexander Forbes Staff Share Trust and (iv) Alexander Forbes Community Trust;

• a signed copy of this pre-listing statement;

• the reports of the independent reporting accountants, which are included as Annexures 3 and 5 to this

pre-listing statement;

• the written consents of each of the legal advisors, the auditors and independent reporting accountants,

the Joint Bookrunners (in their respective capacities as bookrunner, global coordinator, financial advisor

and transaction sponsor) and the transfer secretary, named in this pre-listing statement to act in those

capacities;

• the written consent of the auditors and independent reporting accountants to the publication of its reports

included as Annexures 3 and 5 to this pre-listing statement and references thereto in the form and context

in which they are included in this pre-listing statement;

• the Consolidated Financial Statements ;

• service contracts of the Directors of the Company; and

• copies of the material contracts referred to in “ —Material Contracts”.

SIGNED AT JOHANNESBURG ON 7 JULY 2014 BY OR ON BEHALF OF THE DIRECTORS OF

ALEXANDER FORBES GROUP HOLDINGS LIMITED

Date: By:

Name: EC Kieswetter

Title: Group Chief Executive

136

LEGAL MATTERS

The validity of the Subscription Shares and certain other legal matters will be pronounced upon by Bowman

Gilfillan Inc., the Company’s South African counsel. Certain legal matters will be passed upon by Davis Polk

& Wardwell London LLP, U.S. counsel and English legal advisors to the Company. Certain legal matters will

be passed upon by Freshfields Bruckhaus Deringer LLP, U.S. counsel and English legal advisors to the Joint

Global Coordinators and Joint Bookrunners and by Edward Nathan Sonnenbergs Inc., South African counsel

to the Joint Global Coordinators and Joint Bookrunners.

137

INDEPENDENT REPORTING ACCOUNTANTS

The Group’s historical information for the financial years ended 31 March 2014, 2013 and 2012 included in

this pre-listing statement has been audited by PricewaterhouseCoopers, as stated in their independent

reporting accountant’s report set out in Annexure 3 to this pre-listing statement.

138

Annexure 1

DEFINITIONS, GLOSSARY AND INTERPRETATION

In this pre-listing statement, unless otherwise stated or the context clearly indicates otherwise, the words in

the first column have the meanings stated opposite them in the second column, words in the singular shall

include the plural and vice versa, words importing one gender include the other genders and references to a

person include juristic persons and associations of persons and vice versa:

“2007 Acquisition” the 2007 acquisition of the Group by the Private Equity Consortium;

“AF Acquisition” Alexander Forbes Acquisition Proprietary Limited (registration number

2006/023218/07), a private company incorporated in accordance with the

laws of South Africa;

“Actis AF” Actis AF Holdings Limited (subsidiary of funds managed and co-managed

by Actis LLP and members of the Actis LLP group) (registration number

64533), a private company incorporated in accordance with the laws of

Mauritius;

“Actis Affiliates” Actis Investment Holdings No. 86 Limited (a subsidiary of funds managed

by Actis LLP) and Actis Executive Co-Investment Plan, LP (a Guernsey

Limited partnership managed by a subsidiary of Actis LLP) ;

“AF Access” Alexander Forbes Access Fund;

“AF Financial Planning” Alexander Forbes Financial Planning Consultants Proprietary Limited

(registration number 1995/012764/07), a private company incorporated in

accordance with the laws of South Africa;

“AF Health” Alexander Forbes Health Proprietary Limited (registration number


laws of South Africa, or the AF Health business, as the context requires;

“AF International” Alexander Forbes International Limited (registration number 2265613),

a private company incorporated in accordance with the laws of England

and Wales or the AF International business, as the context requires;

“AF Life” Alexander Forbes Life Limited (registration number 1997/022561/06)

a public company incorporated in accordance with the laws of South

Africa, or the AF Life business, as the context requires;

“AF Limited” Alexander Forbes Limited (registration number 1958/001974/06) a public

company incorporated in accordance with the laws of South Africa;

“AF Pref” Alexander Forbes Preference Share Investments Limited (registration

number 2006/031561/06), a public company incorporated in accordance

with the laws of South Africa. According to Nasdaq OMX Advisory

Services, the following shareholders held 3% or more of AF Pref’s share

capital as of 3 0 June 201 4: Liberty Life Association of Africa Limited,

Rand Merchant Bank Limited, Nedgroup Investments Rainmaker Fund,

Allan Gray Balanced Fund, Ethos General Partner SPV (Pty) Ltd, Alteren

Management (Pty) Ltd, Allan Gray Equity Fund, Allan Gray Global

Balanced Portfolio, Allan Gray Stable Fund and Nedgroup Investment

Opportunity Fund;

“AF Pref holders” holders of AF Pref’s “ S” preference shares;

“AFACT” Alexander Forbes Accident Compensation Technologies Proprietary

Limited (registration number 2000/021810/07), a private company

incorporated in accordance with the laws of South Africa;

“AFAS” Alexander Forbes Administration Services Proprietary Limited



“AFCA UK” Alexander Forbes Consultants and Actuaries Limited (registration number

01804276), a private company incorporated in accordance with the laws of

England and Wales;

“AFCT” Alexander Forbes Compensation Technologies Proprietary Limited


accordance with the laws of South Africa or the Alexander Forbes

Compensation Technologies business, as the context requires;

139

“Affected Jurisdiction” a jurisdiction where the dissemination of the pre-listing statement or the

making of the Offer may be illegal or fails to conform to the laws of such

jurisdiction;

“AFFS” Alexander Forbes Financial Services Proprietary Limited (registration

number 1969/018487/07), a private company incorporated in accordance

with the laws of South Africa or the Alexander Forbes Financial Services

business, as the context requires;

“AFFS Holdings” Alexander Forbes Financial Services Holdings Proprietary Limited



“AFGTS” Alexander Forbes Group and Technology Services Proprietary Limited



“AFI” Alexander Forbes Insurance business;

“AFIC” Alexander Forbes Insurance Company Limited (registration number

1976/001547/06), a public company incorporated in accordance with the


“AFICA” Alexander Forbes Individual Client Administration Proprietary Limited



“AFRF” the Alexander Forbes Retirement Fund;

“AfriNet” Alexander Forbes AfriNet Investments Proprietary Limited (registration


with the laws of South Africa; or the AfriNet business, as the context

requires;

“ Alexander Forbes Management

Co-Investment Trust”

Alexander Forbes Management Co-Investment Trust (Master’s IT reference:

337/08);

“ Alexander Forbes Management

Trust”

Alexander Forbes Management Trust (Master’s IT reference: 336/08), a

trust formed for the benefit of certain members of management of the

Group for the purpose of holding an interest in the Company;

“ANC” African National Congress;

“ “B” Preference Shares” the 45 ,000 ,000 “B” redeemable preference shares of the Company each

having a par value of R0.01, authorised as at the Listing Date and

redeemable at an amount of R179 million;

“B-BBEE” broad-based black economic empowerment, as defined by the B-BBEE Act;

“B-BBEE Act” the South African Broad-Based Black Economic Empowerment Act, 2003

(Act 53 of 2003);

“B-BBEE Investors” as defined in “Incorporation and Share Capital —Shareholding”;

“BEE SPV” Alexander Forbes BEE Funding SPV Proprietary Limited (registration


with the laws of South Africa;

“board of directors”, “board” or

“directors”

the board of directors of the Company;

“Bowman Gilfillan” Bowman Gilfillan Inc., South African legal advisors to the Company;

“business day” any day other than a Saturday, Sunday or official public holiday in

South Africa;

“CAGR” compound annual growth rate;

“CAR” capital adequacy requirements;

“Caveo” Caveo Fund Solutions Proprietary Limited (registration number



“CDPQ” Caisse de Dépôt et Placement du Québec, a body constituted under the Act

respecting the Caisse de Dépôt et Placement du Québec of the province of

Québec, Canada;

“certificated shares” Shares that have not been dematerialised;

140

“CGT” capital gains tax, as envisaged in the South African Income Tax Act;

“closing date” the closing date of the Offer, expected to be 17 July 2014, but which may

be amended by way of an announcement in the South African press and

on SENS;

“CMS” the South African Council for Medical Schemes;

“Codes” the B-BBEE Codes of Good Practice;

“Common Monetary Area” collectively, South Africa, the Republic of Namibia, and the Kingdoms of

Lesotho and Swaziland;

“Companies Act” the South African Companies Act, 2008 (Act 71 of 2008), as amended and

substituted from time to time;

“Company” Alexander Forbes Group Holdings Limited, a public company duly

incorporated in accordance with the laws of South Africa under registration

number 2006/025226/06;

“Competition Act” the South African Competition Act (Act 89 of 1998), as amended or

substituted from time to time;

“Competition Commission” the South African Competition Commission, established under the

Competition Act;

“Consolidated Financial

Statements”

the Group’s Report of Historical Financial Information for financial years

2014, 2013 and 2012 contained in Annexure 2 to this pre-listing statement;

“Consortium Member” each of OTPP, Actis AF, Ethos, CDPQ and HarbourVest;

“CSDP” a Central Securities Depository Participant, as defined in the South African

Financial Markets Act, appointed by a shareholder for purposes of, and in

regard to, dematerialisation of shares evidenced by physical documents of

title into the Strate system;

“Davis Polk” Davis Polk & Wardwell London LLP, the Company’s U.S. counsel and

English legal advisors;

“DB” defined benefit;

“DC” defined contribution;

“dematerialisation” the process whereby physical share certificates are replaced with electronic

records evidencing ownership of shares for the purpose of the Strate

system;

“dematerialised shares” Offer Shares issued or transferred in dematerialised form;

“Deutsche Bank” Deutsche Bank AG, London Branch (registration number BR000005), one

of the Joint Bookrunners, or, when referring to the Joint Transaction

Sponsor, Deutsche Securities (SA) Proprietary Limited (registration

number 1995/011798/09);

“DTA” double taxation agreement;

“EBITDA” trading profit before property lease adjustment and depreciation and

amortisation;

“EEA” European Economic Area;

“ENS” Edward Nathan Sonnenbergs Inc., South African legal advisors to the

Joint Global Coordinators and Joint Bookrunners;

“Ethos” Ethos Capital V GP (SA) Proprietary Limited (in its capacity as general

partner of The Ethos Fund V (Non-Opic Investments) Partner SA and The

Ethos Fund V (Opic Investments) Partnership SA); Ethos Capital V GP

(Jersey) Limited (in its capacity as managing general partner of Ethos

U.S. Dollar Fund V (Non-Opic-Jersey), L.P., Ethos U.S. Dollar Fund V-B

(Non-Opic-Jersey), L.P., Ethos SA Rand Fund V (Non-Opic-Jersey), L.P.,

Ethos U.S. Dollar Fund V (Opic-Jersey), L.P., Ethos U.S. Dollar Fund V-B

(Opic-Jersey), L.P.; and Ethos SA Rand Fund V (Opic-Jersey), L.P.) and The

Trustees for the time being of Ethos Fund V Co-Investment Trust

“euro” or “€” lawful currency of the member states of the European Union that adopted

the single currency in accordance with the Treaty establishing the

European Community;

“Exchange Act” the United States Securities Exchange Act of 1934, as amended;

141

“Exchange Control Regulations” the Exchange Control Regulations of South Africa, as amended,

promulgated under Section 9 of the South African Currency and Exchanges

Act, 1933 (Act 9 of 1933), as amended or substituted from time to time;

“FAIS” the South African Financial Advisory and Intermediary Services Act, 2002

(Act 37 of 2002);

“FIC” the South African Financial Intelligence Centre;

“FICA” the South African Financial Intelligence Centre Act, 2001 (Act 38 of 2001);

“Financial Markets Act” the South African Financial Markets Act, 2012 (Act 19 of 2012), as amended

or substituted from time to time;

“First Closing Date” the date on which Mercer acquires 14.9% of the Shares of the Company

pursuant to the Sale of Shares Agreement, which will be the Listing Date

or such later date as may be agreed between the parties;

“FPC” financial planning consultants (including private client wealth managers);

“Freshfields” Freshfields Bruckhaus Deringer LLP, U.S. counsel and English legal

advisors to the Joint Global Coordinators and Joint Bookrunners;

“FS Charter” the South African Financial Sector Charter;

“FS Code” the South African Financial Sector Code;

“FSB” South African Financial Services Board;

“FSLGA” the South African Financial Services Laws General Amendment Act, 2014

(Act 45 of 2014);

“FSP” financial service providers;

“GDP” gross domestic product;

“General Codes” general, non-sector specific Codes;

“Group” the Company and its subsidiaries and its predecessor or successor

companies from time to time, as the context requires;

“Guardrisk” Guardrisk Holdings Limited, its subsidiaries and its associate, Euroguard

Insurance Company PCC Limited;

“HarbourVest” HarbourVest International Private Equity Partners V−Direct Fund L.P., a

limited partnership organised under the laws of the State of Delaware,

USA, and its affiliates;

“IFA” independent financial advisor;

“IFRS” the International Financial Reporting Standards as issued by the

International Accounting Standards Board, as amended from time to time;

“ILAB” the South African Insurance Laws Amendment Bill, 2013;

“Income Tax Act” the South African Income Tax Act, 1962 (Act 58 of 1962), as amended;

“Investment Solutions” Investment Solutions Limited (registration number 1997/000595/06),

a public company incorporated in accordance with the laws of South

Africa, or the Investment Solutions business, as the context requires;

“Investment Solutions Holdings” Investment Solutions Holdings Limited (registration number

1997/022540/06), a public company incorporated in accordance with the


“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


with the laws of South Africa;

“Mercer” Mercer Africa Limited (company number 9093306), a company organised

under the laws of England and Wales;

“Memorandum of Incorporation”

or “MOI”

the memorandum of incorporation of the Company;

“Morgan Stanley” Morgan Stanley & Co. International plc (registration number 2068222),

one of the Joint Bookrunners;

“National Treasury” the South African National Treasury;

“net revenue” operating income net of direct expenses;

“NSSF” the Kenyan National Social Security Fund;

“NSSF Act” the Kenyan National Social Security Fund Act;

“Offer” the offer for sale, subject to certain conditions, by the Selling Shareholders

and the offer for subscription by the Company, subject to certain conditions,

to certain selected institutional and other investors in South Africa and to

selected institutional investors in other jurisdictions;

“Offer Price” the price at which the Offer Shares are offered for sale and subscription

pursuant to this pre-listing statement, to be determined in accordance

with the provisions of the paragraph headed “Particulars of the Offer— Offer Price” and specified in the placement agreement;

“Offer Price Range” the current estimated price at which the Offer Shares will be offered for

sale or subscription pursuant to this pre-listing statement, being between

R 6.90 and R 8. 05 per Offer Share;

“Offer Shares” the shares of the Company subject to the Offer, which comprise

431,940,542 Shares (assuming an Offer Price at the mid-point of the

Offer Price Range) which includes both the Subscription Shares and

the Sale Shares ;

“Order” the UK Financial Services and Markets Act 2000 (Financial Promotion)

Order 2005;

143

“OTPP” Ontario Teachers’ Pension Plan Board, a non-share capital corporation

established under the laws of the Province of Ontario, Canada;

“Overallotment Option” the 30-day option granted by the Selling Shareholders to the Joint

Bookrunners to purchase additional shares up to a maximum of 15 percent

of the Offer Shares, on the same terms and conditions as those applicable

to the Offer, for the purpose of covering short positions resulting from

overallotments or from sales of Offer Shares at or before the end of the

Stabilisation Period;

“Overallotment Shares” the Shares that may be sold by the Selling Shareholders pursuant to the

Overallotment Option, which comprise 64,791,081 Shares (assuming an

Offer Price at the mid-point of the Offer Price Range);

“Participant” a central securities depository participant, in terms of the Financial

Markets Act;

“PFA” the South African Pension Funds Act, 1956 (Act 24 of 1956);

“placement agreement” the agreement which is intended to be entered into between the Joint

Bookrunners, the Selling Shareholders and the Company which, if

concluded, will provide that the Joint Bookrunners will, subject to certain

conditions, procure subscribers and purchasers for, or failing that,

subscribe and purchase themselves, the Offer Shares;

“POPIA” the South African Protection of Personal Information Act, 2013 (Act 4

of 2013);

“pound sterling” and “£” the lawful currency of the United Kingdom;

“pre-listing statement” this entire document and all annexures to it;

“PricewaterhouseCoopers” PricewaterhouseCoopers Inc., Registered Accountants and Auditors,

Chartered Accountants (SA), incorporated in South Africa with registration

number 1998/012055/21, being the auditors and accountants of the

Company;

“Private Equity Consortium” the consortium comprising OTPP, Actis AF, Ethos, CDPQ and HarbourVest;

“Prospectus Directive” Directive 2003/71/EC;

“QIBs” qualified institutional buyers, as defined in Rule 144A;

“QPs” qualified purchasers, as defined in the U.S. Investment Company Act;

“Regulation S” Regulation S under the U.S. Securities Act;

“Relationship Agreement” the Relationship Agreement between the Company and Mercer dated

20 June 2014;

“Restructure” the Group’s capital reorganisation and restructure, which was completed

on 31 March 2014, as described in “Restructure”;

“Retail Cluster” the Group’s dedicated operations relating to the Retail growth strategy;

“Retail growth strategy” Alexander Forbes’ focus on the holistic financial planning and wellbeing

of the individual members within the Group’s institutional client base, as

well as the broader individual market;

“RMB” Rand Merchant Bank, a division of FirstRand Bank Limited (registration

number 1929/001225/06), one of the Joint Bookrunners;

“Rule 144A” Rule 144A under the U.S. Securities Act;

“SAARF” South African Audience Research Foundation;

“Sale of Shares Agreement” the Sale of Shares Ageement among the Selling Shareholders and Mercer

dated 20 June 2014;

“Sale Shares” the Shares to be sold by the Selling Shareholders pursuant to the

Offer, which comprise 387,822,895 Shares (assuming an Offer Price at the

mid-point of the Offer Price Range);

“SAM” Solvency Assessment and Management regulatory framework for

insurance entities and groups in South Africa;

“SARS” the South African Revenue Service;

“SARS Settlement” the settlement between the Company and the SARS as described in

“Business —Investigations and Legal Proceedings — SARS Settlement”;

144

“SEC” the United States Securities and Exchange Commission;

“Second Closing Date” the date o n which Mercer acquires an additional 19.1% of the Shares of the

Company pursuant to the Sale of Shares Agreement, which will be as soon

as possible after the First Closing Date but no later than 1 November 2014;

“Selected Foreign Institutions” selected institutional investors in jurisdictions outside of South Africa to

whom the Offer will specifically be addressed;

“Selling Shareholders” the Company’s existing shareholders who are selling shares in the Offer

as set out in Annexure 17 to this pre-listing statement;

“SENS” the Stock Exchange News Service of the JSE;

“Settlement Date” the date of implementation of the Offer when the Offer Shares will be

transferred to successful Applicants against payment of the Offer Price

in accordance with the paragraph headed “Particulars of the Offer — Application, Payment and Delivery of Offer Shares”, expected to be

24 July 2014;

“Shares” ordinary no par value shares each constituting part of the authorised

share capital of the Company;

“South Africa” the Republic of South Africa;

“ South African Rand”, “Rand”,

“R” and “cents”

the lawful currency of South Africa;

“ South African Securities

Transfer Tax” or “STT”

South African securities transfer tax, levied under the South African

Securities Transfer Tax Act;

“ South African Securities

Transfer Tax Act”

South African Securities Transfer Tax Act, 2007 (Act 25 of 2007),

as amended;

“Stabilisation Manager” RMB;

“Stabilisation Period” the period commencing on the Listing Date and ending 30 days thereafter,

during which RMB, as Stabilisation Manager, may carry out stabilisation

activities as contemplated in, and in accordance with, the Listings

Requirements;

“STIA” the South African Short-Term Insurance Act, 1998 (Act 53 of 1998);

“Strate” Strate Limited, a public company incorporated in South Africa under

registration number 1998/022242/06, and registered as a central securities

depository under the Financial Markets Act;

“Strate system” an electronic custody, clearing and settlement environment, managed by

Strate, for all share transactions concluded on the JSE and off-market, and

in terms of which transactions in securities are settled and transfers of

ownership in securities are recorded electronically;

“STT” South African securities transfer tax, levied under the South African

Securities Transfer Tax Act, 25 of 2007;

“Subscription Shares” the new shares to be issued by the Company pursuant to the Offer, which

comprise 44,117,647 Shares (assuming an Offer Price at the mid-point of

the Offer Price Range);

“Superflex” SuperFlex Limited (registration number 1995/010767/06), a public

company incorporated in accordance with the laws of South Africa;

“TCF” Treating Customers Fairly;

“TLAA” the South African Taxation Laws Amendment Act, 2013 (Act 31 of 2013);

“Transaction Sponsors” the Lead Transaction Sponsor and the Joint Transaction Sponsor;

“Treaty” the Income Tax Treaty between the United States and South Africa;

“United Kingdom” or “UK” the United Kingdom of Great Britain and Northern Ireland;

“United States” or “U.S.” the United States of America, its territories and possessions, any state of

the United States and the District of Columbia;

“U.S. dollar”, “$”, “US$”, “dollars” the lawful currency of the United States;

“U.S. Investment Company Act” the United States Investment Company Act of 1940, as amended; and

“U.S. Securities Act” the United States Securities Act of 1933, as amended.

145

Annexure 2

report of tHe HistoricAl finAnciAl informAtion of tHe group for tHe YeArs ended 31 mArcH 2014, 2013 And 2012

report of HistoricAl finAnciAl informAtion of AleXAnder forBes group Holdings limited (formerly Alexander forbes equity Holdings proprietary limited)

The directors accept responsibility for the report of historical financial information contained in this pre‑listing statement.

1. introduction

The historical financial information for Alexander Forbes Group Holdings Limited and its subsidiaries (the “Group”) for the years ended 31 March 2014, 2013 and 2012 have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board and the Listings Requirements.

The historical financial information of the Group is the responsibility of the directors of Alexander Forbes Group Holdings Limited and were approved and authorised for issue by the board of directors on 4 July 2014 and signed on their behalf by:

ms moloko e christian KieswetterChairman Group Chief Executive

2. commentArY

Detailed commentary on the historical financial information is provided in the Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this pre‑listing statement.

3. HistoricAl finAnciAl informAtion

The historical information for the financial years ended 31 March 2014, 31 March 2013 and 31 March 2012 are presented on pages 145 to 257.

The principal accounting policies applied in the preparation of the Group financial statements are set out below. These policies are consistent with those applied in the previous year, except for the changes required by Standards and Interpretations effective in 2014.

146

ACCOUNTING POLICIES

BASIS OF PREPARATION

The group financial statements have been prepared in accordance with International Financial Reporting

Standards as issued by the International Accounting Standards Board (“IFRS”). They have been prepared in

accordance with the going concern principle under the historical cost basis, except for the following:

• Derivative financial instruments are measured at fair value.

• Financial instruments at fair value through profit or loss are measured at fair value.

• Available-for-sale financial assets are measured at fair value.

The preparation of the consolidated financial statements in conformity with IFRS requires management to

make judgments, estimates and assumptions that affect the application of accounting policies and the reported

amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates

are recognised prospectively.

The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates

are significant to the consolidated financial statements are disclosed in the notes to these financial statements.

These consolidated financial statements are presented in Rands, which is the company’s functional currency

and the group’s presentation currency. All financial information presented in Rands is rounded to the nearest

million except when otherwise indicated.

STANDARDS AND INTERPRETATIONS EFFECTIVE IN 2014

The following standards and interpretations have been adopted by the group as at the reporting date of

31 March 2014:

Title Nature Date Impact

IFRS 1 –

Amendment to IFRS

1 – First-time

adoption –

Government loans

This amendment addresses how a first-time

adopter would account for a government loan

with a below-market rate of interest when

transitioning to IFRS. It also adds an

exception to the retrospective application of

IFRS, which provides the same relief to

first-time adopters granted to existing

preparers of IFRS financial statements when

the requirement was incorporated into IAS 20

in 2008.

The amendment

is effective for

annual periods

commencing on

or after

1 January 2013.

The impact of

this amendment

is not considered

to be relevant to

the group.

IFRS7 – Amendment

to IFRS 7 – Financial

instruments:

disclosures –

Offsetting Financial

Assets and Financial

Liabilities

The IASB has published an amendment to

IFRS 7, ‘Financial instruments: Disclosures’,

reflecting the joint requirements with the

FASB to enhance current offsetting

disclosures. These new disclosures are

intended to facilitate comparison between

those entities that prepare IFRS financial

statements to those that prepare financial

statements in accordance with US GAAP.

The amendment

is effective for

annual periods

commencing on

or after

1 January 2013.

The impact of

this amendment

is not significant

for the group.

IAS 1 – Amendments

to IAS 1 –

Presentation of

financial statements

The IASB has issued an amendment to IAS 1,

‘Presentation of financial statements’. The

main change resulting from these

amendments is a requirement for entities to

group items presented in other comprehensive

income (OCI) on the basis of whether they are

potentially reclassifiable to profit or loss

subsequently (reclassification adjustments).

The amendments do not address which items

are presented in OCI.

The amendment

is effective for

annual periods

commencing on

or after

1 July 2012.

The impact of

this amendment

is not considered

to be significant

for the group.

147


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


This standard builds on existing principles by

identifying the concept of control as the

determining factor in whether an entity

should be included within the consolidated

financial statements. The standard provides

additional guidance to assist in determining

control where this is difficult to assess.

The standard is

effective for

annual periods

commencing on

or after

1 January 2013.

Refer to the

change in

accounting policy

note 50,

Restatement of

comparative

information.

IFRS 11 – Joint

arrangements

This standard provides for a more realistic

reflection of joint arrangements by focusing

on the rights and obligations of the

arrangement, rather than its legal form.

There are two types of joint arrangements:

joint operations and joint ventures. Joint

operations arise where a joint operator has

rights to the assets and obligations relating to

the arrangement. Joint ventures arise where

the joint operator has rights to the net assets

of the arrangement. Proportional

consolidation of joint ventures is no longer

allowed. Equity accounting is mandatory for

participants in a joint venture.

The standard is

effective for

annual periods

commencing on

or after

1 January 2013.

The impact of

this new

standard is not

considered to be

significant for

the group.

IFRS 12 –

Disclosures of

interests in other

entities

This standard includes the disclosure

requirements for all forms of interests in

other entities, including joint arrangements,

associates, structured entities and other

off-balance sheet vehicles.

The standard is

effective for

annual periods

commencing on

or after

1 January 2013.

The additional

disclosure

required by

IFRS 12 in

notes 48 and 49.

IFRS 13 – Fair value

measurement

This standard aims to improve consistency

and reduce complexity by providing a precise

definition of fair value and a single source of

fair value measurement and disclosure

requirements for use across IFRSs. The

requirements, which are largely aligned

between IFRSs and US GAAP, do not extend

the use of fair value accounting but provide

guidance on how it should be applied where

its use is already required or permitted by

other standards within IFRSs.

The standard is

effective for

annual periods

commencing on

or after

1 January 2013.

The impact of

this new

standard is not

considered to be

significant for

the group.

IAS 27 (Revised) –

Separate financial

statements

This standard includes the accounting and

disclosure required for separate financial

statements.

The revised

standard is

effective for

annual periods

commencing on

or after

1 January 2013.

The impact of

this revised

standard is not

considered to be

significant for

the group.

IAS 28 (Revised) –

Investments in

associates and joint

ventures

This standard includes the requirements for

joint ventures, as well as associates,

to be equity accounted following the issue

of IFRS 11.

The revised

standard is

effective for

annual periods

commencing on

or after

1 January 2013.

The impact of

this revised

standard is not

considered to be

significant for

the group.

148


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


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.


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.


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.


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


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:


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.


these

amendments may

be significant for

the group.

150


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.


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.


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.

151

(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

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are considered to form part of the net investment in the foreign operation and are recognised in other

comprehensive income and presented in the foreign currency translation reserve in equity.

On the disposal of a foreign operation (that is, a disposal of the group’s entire interest in a foreign

operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation, a

disposal involving loss of joint control over a jointly controlled entity that includes a foreign operation,

or a disposal involving loss of significant influence over an associate that includes a foreign operation),

all of the exchange differences accumulated in equity in respect of that operation are reclassified to profit

or loss.

In the case of a partial disposal that does not result in the group losing control over a subsidiary that

includes a foreign operation, the proportionate share of accumulated exchange differences are re-

attributed to non-controlling interests and are not recognised in profit or loss. For all other partial

disposals (that is, reductions in the group’s ownership interest in associates or jointly controlled entities

that do not result in the group losing significant influence or joint control) the proportionate share of the

accumulated exchange difference is reclassified to profit or loss.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as the

foreign entity’s assets and liabilities and are translated at the reporting date at the exchange rate at

that date.

PROPERTY AND EQUIPMENT

Items of property and equipment are measured at cost less any accumulated depreciation and accumulated

impairment losses.

Cost includes expenditure that is directly attributable to the acquisition of the asset. Cost may also include

transfers from equity of any gains or losses on qualifying cash flow hedges of foreign currency purchases of

property, plant and equipment.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate,

only when it is probable that future economic benefits associated with the items will flow to the group and the

cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All day-

to-day servicing of property and equipment is recognised in profit or loss as incurred.

Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part

of an item of property and equipment. Leased assets are depreciated over the shorter of the lease term and

their useful lives. Land is not depreciated. The expected useful lives applied are as follows:

Item of property and equipment Period of depreciation

Leasehold property and improvements Shorter of useful life or period of lease

Computer and network equipment 3 to 5 years

Motor vehicles 4 to 10 years

Furniture and fittings 4 to 10 years

Office equipment 4 to 7 years

Depreciation methods, residual values and useful lives are reviewed at each reporting date and adjusted if

required.

Gains and losses on disposals of property and equipment are determined by comparing proceeds from the

disposal with the carrying amount of the relevant asset and are recognised in profit or loss. When revalued

assets are sold, the amounts included in the revaluation surplus are transferred to retained earnings.

GOODWILL

Goodwill arises on the acquisition of subsidiaries, associates and joint ventures.

• The group measures goodwill at the acquisition date as: the fair value of the consideration transferred

PLUS

• The amount of any non-controlling interest in the acquiree measured at the proportionate share of the

acquiree’s identifiable net assets

PLUS

• The fair value of the existing equity interest in the acquiree (if the business combination is achieved

in stages)

LESS

• The fair value of the net identifiable assets acquired, liabilities (including contingent liabilities) assumed.

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When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss. The

consideration transferred does not include amounts related to the settlement of pre-existing relationships.

Such amounts are generally recognised in profit or loss.

Goodwill is measured at cost less accumulated impairment losses and is tested annually for impairment.

In respect of equity-accounted investees (associates and joint ventures), the carrying amount of goodwill is

included in the carrying amount of the investment, and an impairment loss on such an investment is not

allocated to any asset, including goodwill, that forms part of the carrying amount of the equity-accounted

investee. Gains and losses on the disposal of an entity are stated after deducting the carrying amount of

goodwill relating to the entity sold.

INTANGIBLE ASSETS

Intangible assets are measured at cost less accumulated amortisation and accumulated impairment losses.

(a) Purchased and developed computer software

Purchased computer software and the direct costs associated with the customisation and installation

thereof, are capitalised and amortised over the useful life of the asset.

Purchased computer software licences are capitalised on the basis of the costs incurred to acquire and

bring into use the specific software. These costs are amortised over the useful life of the asset. Costs that

are directly associated with the production of identifiable and unique software products, which will be

controlled by the group and generate economic benefits exceeding costs beyond one year, are recognised

as intangible assets.

The directly associated costs include employee costs and an appropriate portion of relevant overheads

of the system development team. All other costs associated with developing or maintaining computer

software programmes are recognised in profit or loss as incurred.

Expenditure, which enhances and extends the benefits of computer software programmes beyond their

original specifications and lives, is recognised as a capital improvement and added to the original cost of

the software. Previously expensed costs are not subsequently capitalised.

Computer software development costs recognised as assets are amortised on a straight-line basis over

their estimated useful lives of between three and five years.

(b) Contractual customer relationships acquired as part of a business combination

Contractual customer relationships acquired as part of a business combination are recognised as

intangible assets. The initial recognition of the customer relationship is determined by estimating the net

present value of future cash flows from the contracts in force at the date of acquisition. These customer

relationships are amortised on a straight-line basis over the estimated life of the acquired contracts.

(c) Deferred acquisition costs (DAC)

Incremental costs directly attributable to securing rights to receive fees for multi-manager investment

services sold with investment contracts are capitalised as intangible assets if they can be separately

identified, measured reliably and it is probable that their value will be recovered. An incremental cost is

one that would not have been incurred if the group had not secured the investment contract.

The DAC represents the group’s contractual right to benefit from providing multi-manager investment

services and is amortised on a straight-line basis over the period in which the group expects to recognise

the related revenue, not exceeding five years. The costs of securing the right to provide these services do

not include transaction costs relating to the origination of the investment contract.

The accounting policy in respect of DAC relating to insurance contracts is described in the relevant

accounting policy on insurance contracts.

(d) Trademarks and licences

No value is attributed to internally developed trademarks, patents and similar rights. Costs incurred on

these items are recognised in profit and loss as incurred. Expenditure on the development and marketing

of the group’s brands is also recognised in profit and loss as incurred.

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FINANCIAL ASSETS

The group classifies its financial assets into the following categories:

• Financial assets at fair value through profit or loss.

• Loans and receivables.

• Held-to-maturity financial assets.

• Available-for-sale financial assets.

The classification depends on the purpose for which the financial assets were acquired.

All financial assets are initially recognised at fair value plus, in the case of financial assets not at fair value

through profit or loss, any directly attributable transaction costs. The best evidence of fair value on initial

recognition is the transaction price, unless the fair value is evidenced by comparison with other observable

current market transactions in the same instrument or based on discounted cash flow models and option

pricing valuation techniques of which variables include only data from observable markets. Where the

transaction price is not necessarily the fair value of the financial asset, the day one gain or loss is taken to

profit or loss unless it qualifies for recognition as some other type of asset.

The purchases and sales of financial assets that require delivery are recognised on trade date, being the date

on which the group commits to purchase or sell the asset. Financial assets are derecognised when the rights

to receive cash flows from the investments have expired or where they have been transferred and the group

has also transferred the risks and rewards of ownership.

Subsequent to initial recognition, the fair values of financial assets are based on quoted market prices,

excluding transaction costs. If the market for a financial asset is not active or an instrument is an unlisted

instrument, the fair value is estimated using valuation techniques. These include the use of recent arm’s

length transactions, reference to other instruments that are substantially the same, discounted cash flow

analysis and option pricing models.

When a discounted cash flow analysis is used to determine the value of financial assets, estimated future

cash flows are based on management’s best estimates and the discount rate is a market-related rate, at the

reporting date, for a financial asset with similar terms and conditions. Where option pricing models are used,

inputs are based on observable market indicators at the reporting date.

(a) Financial assets at fair value through profit or loss

This category has two sub-categories: financial assets held for trading and those designated at fair value

through profit or loss.

A financial asset is classified as held for trading if acquired principally for the purpose of selling in the

short term, or if it forms part of a portfolio of financial assets in which there is evidence of short-term

profit-taking. Derivatives are also classified as held for trading, unless they are designated as hedges

at inception. All classes of financial assets classified on the statement of financial position as ‘Financial

assets held under multi-manager investment contracts’ are designated at fair value through profit or loss.

A financial asset is designated as fair value through profit or loss if the group manages such investments

and makes purchase and sale decisions based on their fair value in accordance with the group’s documented

risk management or investment strategy. Under these criteria, the main classes of financial assets

designated by the group are preference shares, unit trusts and debt securities. All classes of financial

assets classified on the statement of financial position as ‘Assets of cell-captive insurance facilities’ are

designated at fair value through profit or loss. Financial assets at fair value through profit or loss are

measured at fair value and changes therein are recognised in profit or loss.

(b) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not

quoted in an active market and include purchased loans. This category does not include those loans and

receivables that the group intends to sell in the short term or that it has designated at fair value through

profit or loss or available for sale. Origination transaction costs and origination fees are capitalised to the

value of the loan.

Loans and receivables are carried at amortised cost using the effective interest method, less any

impairment losses.

Receivables arising from insurance contracts are also classified into this category and are reviewed for

impairment as part of the impairment review of loans and receivables.

Short-term trade receivables are carried at original invoice amount less an estimate made for impairment

based on a review of all outstanding amounts at the end of each reporting period. The difference between

the fair value of short-term receivables and the invoice amount is immaterial.

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Long-term trade receivables are initially recognised at fair value and subsequently measured at amortised

cost using the effective interest method, less any impairment losses.

Impairment is recognised in profit or loss when there is objective evidence that the group will not be

able to collect all amounts due according to the original terms of the receivables. Objective evidence that

receivables are impaired includes observable data that comes to the attention of the company regarding

the following events:

• Significant financial difficulty of the debtor.

• A breach of contract, such as default or delinquency in payments.

• It becoming probable that the debtor will enter bankruptcy or other financial re-organisation.

Other receivables include work-in-progress in respect of unbilled fee-based services, which is stated at

net realisable value. Net realisable value is generally based on the unbilled time incurred to date at the

expected charge rates and is the undiscounted value of the receivable.

(c) Held-to-maturity financial assets

Held-to-maturity financial assets are non-derivative financial assets with fixed or determinable payments

and fixed maturities that management has the positive intention and ability to hold to maturity, other

than those that meet the definition of loans and receivables. Any sale or reclassification of a more than

an insignificant amount of held-to-maturity investments not close to their maturity would result in the

reclassification of all held-to-maturity investments as available for sale, and prevent the group from

classifying investment securities as held-to-maturity for the current and the following two financial years.

The only class of financial asset classified as held-to-maturity is preference shares held for securitisation

operations. Held-to-maturity financial assets are carried at amortised cost using the effective interest

method, less any impairment losses.

(d) Available-for-sale financial assets

Available-for-sale financial assets are those intended to be held for an indefinite period of time and may be

sold in response to liquidity needs or changes in interest rate, exchange rates or equity prices. Financial

assets that are designated in this category or not classified in any of the other categories are classified

as available-for-sale financial assets. The main classes of assets classified as available for sale are unlisted

debt, equity and property securities.

Subsequent to initial recognition, available-for-sale financial assets are measured at fair value and changes

therein, other than impairment losses and foreign currency differences on available-for-sale monetary

items, are recognised directly in other comprehensive income and presented in the non-distributable

reserve in equity. When an investment is derecognised, the cumulative gain or loss in equity is reclassified

to profit or loss.

Interest income received on available-for-sale financial assets is recognised in profit or loss, using the

effective interest rate method. Dividend income received on available-for-sale financial assets is recognised

in profit or loss when the group’s right to receive payments is established.

IMPAIRMENT OF FINANCIAL ASSETS

A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine

whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence

indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a

negative effect on the estimated future cash flows of that asset that can be estimated reliably.

Objective evidence that financial assets (including equity securities) are impaired can include default or

delinquency by a debtor, restructuring of an amount due to the group on terms that the group would not

consider otherwise, or disappearance of an active market for a security. In addition, for an investment in

an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence

of impairment.

(a) Financial assets carried at amortised cost

The group assesses whether there is objective evidence that a financial asset is impaired at each reporting

date. A financial asset is impaired, and impairment losses are recognised in profit or loss only if there

is objective evidence of impairment as a result of one or more events that have occurred after the initial

recognition of the asset and that event has an impact on the estimated future cash flows of the financial

asset that can be reliably estimated.

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If there is objective evidence that an impairment loss has been incurred on loans and receivables or held-

to-maturity investments carried at amortised cost, the amount of the loss is measured as the difference

between the asset’s carrying amount and the present value of estimated future cash flows discounted

at the original effective interest rate of the financial asset. The carrying amount of the asset is reduced

and the amount of the loss is recognised in profit or loss. If a held-to-maturity investment or a loan has

a variable interest rate, the discount rate for measuring any impairment loss is the current effective

interest rate determined under contract. As a practical expedient, the group may measure impairment on

the basis of an instrument’s fair value using an observable market price.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related

objectively to an event occurring after the impairment was recognised, such as improved credit rating,

the previously recognised impairment loss is reversed and is recognised in profit or loss.

(b) Assets classified as available for sale

The group assesses at the end of each reporting period whether there is objective evidence that a financial

asset or a group of financial assets is impaired. For debt securities, the group uses the criteria referred

to in (a) above. In the case of equity investments classified as available for sale, a significant or prolonged

decline in the fair value of the security below its cost is also evidence that the assets are impaired. If

any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the

difference between the acquisition cost and the current fair value, less any impairment loss on that

financial asset previously recognised in profit or loss – is removed from equity and recognised in profit

or loss. Impairment losses recognised in the profit or loss on equity instruments are not reversed through

profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available for sale

increases and the increase can be objectively related to an event occurring after the impairment loss was

recognised in profit or loss, the impairment loss is reversed through profit or loss.

IMPAIRMENT OF NON-FINANCIAL ASSETS

(a) Goodwill

Goodwill is assessed annually for impairment. For purposes of impairment testing, goodwill is allocated

to cash-generating units, being the lowest component of the business which is expected to generate cash

flows that are largely independent of any other business component. Each of those cash-generating units

represents a grouping of assets no larger than an operating segment before aggregation as used for

segmental reporting purposes in the group financial statements. Impairment losses relating to goodwill

are not reversed.

(b) Impairment of other non-financial assets

Assets that have an indefinite useful life are not subject to amortisation and are tested annually for

impairment at each reporting date. Assets that are subject to amortisation are reviewed for impairment

whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognised for the amount by which the carrying amount of an asset exceeds its

recoverable amount. The recoverable amount is the higher of the fair value of the asset less costs to sell

and value in use. Value in use is the present value of projected cash flows covering the remaining useful

life of the asset. For the purposes of assessing impairment, assets are grouped at the lowest levels for

which there are separately identifiable cash flows.

Impairment losses recognised in prior periods are assessed at each reporting date for any indications that

the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in

the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent

that the asset’s carrying amount does not exceed the carrying amount that would have been determined,

net of depreciation or amortisation, if no impairment loss had been recognised.

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING

Derivatives are initially recognised at fair value at the date on which a derivative contract is entered into

and are subsequently re-measured to fair value at each reporting date. Any attributable transaction costs

are recognised in profit or loss as incurred. The fair value of publicly-traded derivatives are based on quoted

bid prices for assets held or liabilities to be issued and the current offer prices for assets to be acquired and

liabilities held. The fair value of non-traded derivatives is based on discounted cash flow analyses and option

pricing models as appropriate.

All derivative instruments of the group are carried as assets when the fair value is positive and as liabilities

when the fair value is negative, subject to offsetting principles.

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The method of recognising the resulting fair value gain or loss depends on whether the derivative is designated

as a hedging instrument and, if so, the nature of the item being hedged. The group designates derivatives as

hedges of the interest payable (cash flow hedge) on the senior debt.

At the inception of the transaction the group documents the relationship between hedging instruments

and hedged items, as well as its risk management objectives and strategy for undertaking various hedge

transactions. The group also documents its assessment, both at hedge inception and on an ongoing basis,

of whether the derivatives that are used in hedging transactions are expected to be, and have been, highly

effective in offsetting changes in cash flows of hedged items. The fair values of derivative instruments used

for hedging purposes are disclosed in the notes to the financial statements.

(a) Cash flow hedge

The effective portion of changes in the fair value of the derivatives that are designated and qualify as cash

flow hedges is recognised in other comprehensive income and presented in the cash flow hedge reserve

in equity. The gain or loss relating to any ineffective portion is recognised immediately in profit or loss.

Amounts accumulated in equity are recycled to profit or loss in the periods in which the hedged item

affects profit or loss.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge

accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised

when the hedged item is ultimately recognised in profit or loss.

(b) Derivatives that do not qualify for hedge accounting

Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of all such

derivative instruments are recognised immediately in profit or loss.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include the following:

• Cash on hand.

• Deposits held on call with banks.

• Other short-term highly liquid investments with original maturities of three months or less.

• Demand deposits.

• Bank overdrafts offset against cash balances in terms of cash management arrangements.

Cash and cash equivalents backing financial liabilities held under multi-manager investment contracts

and liabilities of cell-captive insurance facilities are included in the definition of cash and cash equivalents.

However, given the restrictions involved in accessing this cash, it is separately identified on the statement

of cash flows. Cash and cash equivalents are carried at amortised cost in the statement of financial position.

EQUITY

(a) Share capital

Ordinary shares and qualifying preference shares are classified as equity. Incremental costs directly

attributable to the issue of equity are recognised as a deduction from equity, net of any tax effects.

Incremental costs directly attributable to the issue of ordinary shares and share options as consideration

for the acquisition of a business are included in the cost of acquisition.

(b) Dividend distributions

Dividend distributions on ordinary shares are recognised as a reduction in equity in the period in which

they are approved by the company’s shareholders. Distributions declared after the reporting date are not

recognised but are disclosed in the financial statements.

CLASSIFICATION OF INSURANCE AND INVESTMENT CONTRACTS

The group issues contracts that transfer insurance risk or financial risk or both. Insurance contracts are

those contracts that transfer significant insurance risk. Such contracts may also transfer financial risk. As a

general guideline, the group defines a significant insurance risk as the possibility of having to pay benefits,

on the occurrence of an insured event, that are at least 10% more than the benefits payable if the insured

event did not occur. Investment contracts are those contracts that transfer financial risk with no significant

insurance risk. Financial risk is the risk of a possible future change in one or more of a specified interest rate,

159

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,

163

contractual or voluntary basis. The group has no further payment obligation once the contributions

have been paid. Obligations for contributions to defined contribution pension plans are recognised as an

employee benefit expense in profit or loss when they are due.

A defined benefit plan is a post-employment benefit plan that defines an amount of pension benefit that

an employee will receive on retirement, usually dependent on one or more factors such as age, years of

service and compensation.

The liability recognised in the statement of financial position in respect of defined benefit pension plans is

the present value of the defined benefit obligation at the reporting date less the fair value of plan assets.

The present value of the defined benefit obligation is determined by discounting the estimated future cash

outflows using interest rates of high-quality corporate bonds that are denominated in the currency in

which the benefits will be paid, and that have terms to maturity approximating to the terms of the related

pension obligation. In countries like South Africa where there is no deep market for corporate bonds,

the government bond rate is used. This rate is the yield at the reporting date on government bonds that

are denominated in the currency in which the benefits will be paid and that have terms to maturity that

approximate the terms of the group’s obligation.

The calculation is performed annually by qualified actuaries using the projected unit credit method.

When the calculation results in a benefit for the group, in other words plan assets exceed the defined

benefit obligation, the recognised asset is limited to the present value of economic benefits available in the

form of any future refunds from the plan or reductions in future contributions to the plan. The group

measures the economic benefits available to it in the form of refunds or reductions in future contributions

at the maximum amount that is consistent with the terms and conditions of the plan and any statutory

requirements in the jurisdiction of the plan in accordance with IFRIC 14.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions

are charged or credited to other comprehensive income in the period in which they arise.

Past-service costs are recognised immediately in profit or loss.

The group’s current service costs of the defined benefit plans are recognised in profit or loss in the

current year.

(b) Post-retirement medical obligations

In terms of certain employment contracts, the group provides post-retirement medical benefits to

qualifying employees and retired personnel by subsidising a portion of their medical aid contributions.

The entitlement to these benefits is based upon employment prior to a certain date and is conditional

on employees remaining in service up to retirement age. New employees are not entitled to this benefit.

The expected costs of these benefits are accrued over the period of employment, using an accounting

methodology similar to that for defined benefit pension plans.

The post-retirement medical obligation has been partly funded through an insurance arrangement with

a subsidiary company of the group.

(c) Leave pay provision

Short-term employee benefit obligations are measured on an undiscounted basis and are recognised in

profit or loss as the related service is provided. A liability is recognised for the amount that is expected

to be paid in the form of annual leave entitlements if the group has a present legal or constructive

obligation to pay this amount as a result of past services provided by the employee and the obligation can

be estimated reliably.

(d) Termination benefits

Termination benefits are payable when employment is terminated by the group before the normal

retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits.

The group recognises termination benefits at the earlier of the following dates: (a) when the group can no

longer withdraw the offer of those benefits and (b) when the entity recognises costs for a restructuring

that is within the scope of IAS 37 and involves the payment of termination benefits. In the case of an offer

made to encourage voluntary redundancy, the termination benefits are measured based on the number

of employees expected to accept the offer. Benefits falling due more than 12 months after the end of the

reporting period are discounted to their present value.

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PROVISIONS

Provisions are recognised when the group has a present legal or constructive obligation, as a result of past

events, for which it is more likely than not that an outflow of resources will be required to settle the obligation.

Provisions are determined by discounting the expected future cash flows at a pre-tax discount rate that reflects

the current market assessment of the time value of money and, where appropriate, the risks specific to the

liability. The unwinding of the discount is recognised as a finance cost.

A provision for onerous contracts is recognised when the expected benefits to be derived by the group from a

contract are lower than the unavoidable costs of meeting the obligations under the contract. The provision is

measured at the present value of the lower of the expected cost of terminating the contract and the expected net

cost of continuing with the contract. Before a provision is established, the group recognises any impairment

loss on the assets associated with that contract.

A provision for restructuring is recognised when the group has approved a detailed and formal restructuring

plan, and the restructuring either has commenced or has been announced publicly. Future operating costs

are not provided for. Where there are a number of similar obligations, the likelihood that an outflow will

be required in settlement is determined by considering the class of obligations as a whole. A provision is

recognised even if the likelihood of an outflow, with respect to any one item included in the same class of

obligations, may be small obligations as a whole.

Where the group expects a provision to be reimbursed, for example under an insurance contract, the

reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain.

Provisions are reviewed at the end of each financial year and are adjusted to reflect current best estimates.

LEASES

(a) Finance leases

Assets acquired under lease agreements that transfer substantially all the risks and rewards of ownership

to the group are accounted for as finance leases. The asset is capitalised at the lower of the fair value of

the asset or the present value of the minimum lease payments upon initial recognition, with an equivalent

amount being stated as a finance lease liability. The capitalised asset is depreciated over the shorter of

the useful life of the asset or the lease term. Lease payments are apportioned between finance costs and

capital repayments using the effective interest method.

Finance costs are allocated to each period during the lease term so as to produce a constant periodic rate

of interest on the remaining balance of the liability. Finance costs are recognised in profit or loss over the

lease period.

(b) Operating leases

Other leases are operating leases and the leased assets are not recognised on the group’s statement of

financial position. Payments made under operating leases, net of any incentives received from the lessor,

are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received

are recognised as an integral part of the total lease expense over the term of the lease.

When an operating lease is terminated before the lease term has expired, any payment required to be

made to the lessor by way of a penalty is recognised as an expense in the period in which termination

takes place.

CONTINGENCIES AND COMMITMENTS

Transactions are classified as contingencies when the group’s obligations depend on uncertain future events

not within the group’s control. Items are classified as commitments when the group commits itself to future

transactions with external parties.

OFFSETTING

Financial assets and liabilities are offset and the net amount reported on the statement of financial position,

only when there is a current legally enforceable right to offset the assets and liabilities and there is an

intention to settle on a net basis or to realise the asset and settle the liability simultaneously.

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INCOME FROM OPERATIONS

Income from operations, which excludes value-added tax, comprises:

• Commission (when the group acts in the capacity of an agent rather than as the principal in a transaction)

and fees in respect of brokerage, administration, management and consultancy services.

• Net underwriting profit from the risk-taking activities of insurance operations.

• Net interest income from financing operations.

INCOME RECOGNITION – GENERAL OPERATIONS

(a) Risk services

• Insurance broking commission and fee income – comprise commission income and negotiated fees

earned in respect of the placement of insurance and servicing of clients under insurance programmes.

Income is recorded on the effective commencement or renewal dates of the related insurance programme.

When further servicing is required to be rendered to the client, a portion of the income is deferred.

The amount deferred is that which will cover the expected future servicing costs, together with a

reasonable profit thereon, and is recognised as a liability. The deferred income is recognised in profit

or loss over the servicing period on a consistent basis reflecting the pattern of servicing activities.

• Consulting fees – comprise negotiated fees for advisory services. Income is recognised based on the

stage of completion as the related services are rendered. The stage of completion is determined with

reference to the services performed to date as a percentage of total services to be performed.

• Claims facilitation fees – comprise fees earned in respect of the preparation, submission and collection

of insurance claims. Income is recognised based on the stage of completion determined with reference

to the proportion that costs incurred to date bear to the estimated total costs. Only costs that reflect

services performed or to be performed are included in the estimated costs.

• Underwriting agency income – comprises commissions, fee income and profit shares earned from

insurance binders and underwriting agency agreements. Commission and fee income is recorded on

the effective commencement or renewal dates of the related insurance policy. When further servicing

is required to be rendered, a portion of the income is deferred. The amount deferred is that which

will cover the expected future servicing costs, together with a reasonable profit thereon, and is

recognised as a liability. The deferred income is recognised in profit or loss over the servicing period

on a consistent basis reflecting the pattern of servicing activities. Income which is dependent on

underwriting performance is recognised when it can be measured reliably.

• Operational interest income – comprises interest income earned from insurance broking operations

and is recognised on a time : proportionate basis using the effective interest method.

(b) Financial services

• Consulting fees – comprise fees earned in respect of actuarial and other advisory services. Income

is recognised based on the stage of completion as the related services are rendered. The stage of

completion is determined with reference to the services performed to date as a percentage of total

services to be performed.

• Administration fees – comprise fees earned for the administration of retirement funds. Income is

recognised as services are provided.

• Commission income – comprises commissions earned in respect of insurance and investment products.

Commission income is recognised on the effective commencement or renewal date of the insurance

or investment policy. A portion of the income is deferred when further servicing is required to be

rendered. The amount deferred is that which will cover the expected future servicing costs, together

with a reasonable profit thereon, and is recognised as a liability. Deferred income is recognised in

profit or loss evenly over the period of the policy. Where commission income is earned on an indemnity

basis, provision is made for the potential repayment of commissions.

• Healthcare commission income – comprises commissions earned in respect of healthcare

products. Commission income is recognised on the effective commencement or renewal date of the

healthcare product.

• Fund annuity purchase fees – comprise fees earned on fund annuity purchases. Income is recognised

based on the stage of completion determined by reference to the value of the assets transferred.

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(c) Multi-manager investment (Investment Solutions)

• Multi-manager investment fees – comprise fees earned for multi-manager investment and

administration. Initial administration fees are brought to account upon inception of the investment

contract and are recognised on a straight-line basis over the expected period of the contract. Ongoing

multi-manager investment and administration fees are calculated on a daily basis as a percentage of

assets under management. These fees are recognised as services are provided.

• Structured product fees – comprise fees earned on the structuring and administration of portfolios of

financial instruments designed to hedge specific financial risks. These fees are recognised in profit or

loss evenly over the expected period of the contract.

• Transition management fees – comprise fees earned for services provided in relation to the transfer of

investment assets.

Income is recognised based on the stage of completion determined with reference to the value of the

assets transferred.

(d) Direct marketing

• Commission income – comprises commissions earned on the direct marketing of insurance products.

Income is recognised on the effective commencement or renewal date of the insurance policy. Where

commission income is earned on an indemnity basis, provision is made for the potential repayment

of commissions.

• Underwriting agency income – comprises commission and fee income earned from the direct

marketing and administration of insurance products under insurance binder agreements. Income is

recognised on the effective commencement or renewal dates of the related insurance policy. Upfront

direct marketing costs are recognised in profit or loss immediately.

INCOME RECOGNITION – FINANCING OPERATIONS

Interest and other finance income received in the form of an interest margin are recognised in profit or loss

on a time : proportionate basis using the effective interest method. Any directly related interest expense is

recognised on the same basis.

INCOME RECOGNITION – INSURANCE OPERATIONS

• Income from insurance activities – refers to the accounting policies on insurance contracts.

• Reinsurance commission income – comprises commissions earned in respect of insurance referred to

reinsurers. Income is recognised on the effective commencement or renewal date of the insurance policy.

A portion of the income is deferred when further servicing is required to be rendered. The amount deferred

is that which will cover the expected future servicing costs, together with a reasonable profit thereon, and

is recognised as a liability. Deferred income is recognised in profit or loss evenly over the period of the

policy.

• Profit commission – comprises negotiated profit shares with reinsurers. Income is recognised when earned.

• Investment management fees on cell-captive insurance facilities – income is calculated as a percentage of

investment income. These fees are recognised as services are provided.

• Management fees on cell-captive insurance facilities – income is calculated as a percentage of premiums

received. Income is recognised on the effective commencement or renewal dates of the related insurance

programme. A portion of the management fees is deferred to cover the expected future servicing costs,

together with a reasonable profit thereon, and is recognised as a liability. The deferred income is recognised

over the servicing period on a consistent basis reflecting the pattern of servicing activities.

PROFIT FROM OPERATIONS BEFORE NON-TRADING AND CAPITAL ITEMS

The profit from operations before non-trading and capital items is made up of trading activities of the group.

The trading activities are those revenues and expenses generated by the business operations of the group

which are regularly reported to the board of directors when making resource allocation decisions and

assessing operational performance.

Items of an exceptional nature which are not considered to be fundamental to the resource allocation and

performance of business operations are thus disclosed separately as non-trading and capital items. The

separate disclosure of these items consequently achieves representative disclosure of activities normally

regarded as operating in nature.

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NON-TRADING AND CAPITAL ITEMS

Non-trading activities relate to items such as the group professional indemnity insurance cell, adjustments

arising due to business combinations, non-recurring items linked to corporate finance activities, items related

to historical client settlement, impairment losses and recoveries and capital gains or losses on sale of non-

current assets. Items of non-trading nature do not form part of management’s consideration of the operational

performance or allocation of resources of the group.

INVESTMENT INCOME

Investment income comprises interest income on funds invested, dividend income and fair value gains on

financial assets at fair value through profit or loss. Interest income is recognised on a time : proportionate

basis in profit or loss, using the effective interest method. Dividend income earned on preference share

investments held as money market investments is also recognised on a time : proportionate basis using

the effective interest method. All other dividend income is recognised when the right to receive payment is

established, which is the ex-dividend date for equity securities.

FINANCE COSTS

Finance costs comprise interest expense on borrowings and unwinding of discount on provisions and

contingent consideration and fair value losses on financial assets at fair value through profit or loss. All

borrowing costs are recognised in profit or loss using the effective interest method.

INCOME TAX

Income tax expense comprises current and deferred taxes, capital gains tax, as well as secondary tax on

companies applicable in South Africa. Due to the nature of indirect taxes, including non-recoverable value-

added tax, stamp duty, skills development levies, these are included in operating expenses in profit or loss.

Current tax and deferred tax is recognised in profit or loss, except to the extent that it relates to a business

combination, or items recognised directly in equity or in other comprehensive income.

(a) Current tax

The current income tax and capital gains tax charges are the expected tax payable or receivable on the

taxable income or loss for the year, using applicable tax rates enacted or substantively enacted at the

reporting date, and any adjustment to tax payable in respect of prior years. Current tax payable also

includes any tax liability arising from the declaration of dividends.

(b) Deferred tax

Deferred tax is recognised in respect of all temporary differences between the carrying amounts of assets

and liabilities for financial reporting purposes and the amounts used for taxation purposes as detailed in

the relevant accounting policy note. Effective 1 April 2012, STC has been replaced by dividend withholding

tax, the local rate for dividend tax will be 15%.

SEGMENT REPORTING

An operating segment is a component of the group that engages in business activities from which it may earn

revenues and incur expenses, including revenues and expenses that relate to transactions with any of the

group’s other components.

All operating segments’ operating results are reviewed regularly by the group’s key decision-maker (which

is the group executive committee, which is ultimately overseen by the board of directors) to make decisions

about resources to be allocated to the segments and assess its performance and for which discrete financial

information is available.

Segment results that are reported to the key decision-maker include operating income net of direct expenses

(net revenue) and profit from operations before non-trading and capital items (trading result) directly

attributable to a segment.

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NON-CURRENT ASSETS HELD FOR SALE

Non-current assets, or disposal groups comprising assets and liabilities, that are expected to be recovered

primarily through sale rather than through continuing use, are classified as held for sale. The assets, or

disposal group, are measured at the lower of their carrying amount and fair value less costs to sell. Any

impairment loss on a disposal group first is allocated to goodwill, and then to remaining assets and liabilities

on a pro rata basis, except that no loss is allocated to financial assets, deferred tax assets, or employee benefit

assets, which continue to be measured in accordance with the group’s accounting policies. Impairment losses

on initial classification as held for sale or distribution and subsequent gains and losses on re-measurement

are recognised in profit or loss.

Gains are not recognised in excess of any cumulative impairment loss.

Intangible assets and property and equipment once classified as held for sale are not amortised or depreciated.

DISCONTINUED OPERATIONS

A discontinued operation is a component of the group’s business that represents a separate major line of

business or geographical area of operations that has been disposed of or is held for sale. Classification as

a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as

held for sale, if earlier. When an operation is classified as a discontinued operation, the comparative income

statement and statement of other comprehensive income and statement of cash flows are represented as if the

operation had been discontinued from the start of the comparative year.

CRITICAL ASSUMPTIONS

The following critical accounting assumptions and judgments have been applied when preparing these

financial statements:

1. PROVISIONS

Provisions are, by definition, liabilities of uncertain timing or amount. In order to establish a provision,

management makes assessments of the expected amount of any future cash outflows and the estimated

timing thereof. Where the effect of discounting is material, provisions payable in more than one year are

discounted using pre-tax discount rates that reflect the current market assessment of the time value of

money and, where appropriate, the risks specific to the liability.

Refer to note 30, ‘Provisions’ for further detail.

2. TAXATION

The group is subject to income tax in numerous jurisdictions and has many transactions and calculations

for which the ultimate tax determination may be uncertain during the ordinary course of business. The

group recognises liabilities for anticipated tax charges. Where the outcome of a transaction is different

from the amounts that were initially recorded, such differences will impact the tax provisions in the

period in which such determination is made.

Refer to note 8, ‘Income tax’ for further detail.

3. VALUATION OF POLICYHOLDER ASSETS AND LIABILITIES IN RESPECT OF LONG-TERM INSURANCE CONTRACTS

The actuarial value of policyholder assets and liabilities arising from long-term insurance contracts is

determined using the Financial Soundness Valuation method as described in SAP 104 of the Actuarial

Society of South Africa.

The method requires a number of assumptions as inputs to the valuation model. The following process is

followed to determine the valuation assumptions:

• The best estimate for a particular assumption is determined.

• Prescribed margins are then applied, as required by the Long-term Insurance Act in South Africa and

Board Notice 72 issued in terms of the Act.

• Discretionary margins may be applied, as required by the valuation methodology or if the statutory

actuary considers such margins necessary to cover the risks inherent in the contracts.

Best estimate assumptions as to mortality and morbidity, expenses, investment income and tax are used

which may vary at each reporting date. A margin for adverse deviations is included in the assumptions.

Improvements in estimates have a positive impact on the value of the liabilities and related assets, while

deteriorations in estimates have a negative impact.

169

The process for determining the assumptions used are as follows:

• Mortality and morbidity

For group life insurance contracts, the rate of recovery from disability is derived from industry

experience studies adjusted, where appropriate, for the group’s own experience. For individual life

insurance contracts, demographic assumptions are set with reference to reinsurer rates and industry

experience.

• Expenses

Expense assumptions are based on an expense analysis, using a functional cost approach. This analysis

allocates expenses between policy and overhead expenses and within policy expenses, between new

business, maintenance and claims.

• Investment income

Estimates are made as to future investment income and are tested against market conditions as at the

valuation date taking into account the terms of the liabilities. Inflation assumptions are tested against

market conditions and, with regard to consistency, are tested against interest rate assumptions.

• Tax

Allowance is made for future taxation and taxation relief.

Refer to note 11, Financial assets held under multi-manager investment contracts’, note 12, ‘Financial

assets of cell-captive and other insurance facilities’, note 25, ‘Financial liabilities held under multi-

manager investment contracts’ and note 26, ‘Liabilities of cell-captive and other insurance facilities’ for

further detail.

4. ULTIMATE LIABILITY ARISING FROM CLAIMS UNDER SHORT-TERM CONTRACTS

The estimation of the ultimate liability arising from claims under short-term insurance contracts has

several sources of uncertainty. The risk environment can change suddenly and unexpectedly owing to

a wide range of events or influences. There is no absolute certainty in respect of identifying risks at an

early stage, measuring them sufficiently or correctly estimating their real hazard potential.

Refer to note 20, ‘Insurance receivables’ and note 34, ‘Insurance payables’ for further detail.

5. ERRORS AND OMISSIONS IN THE ORDINARY COURSE OF BUSINESS

Due to the nature of its activities the group is exposed to various actual and potential claims, lawsuits and

other proceedings relating to alleged errors and omissions or non-compliance with laws and regulations

in the conduct of its ordinary course of business. As with any business with similar operations to the

group, the risk exists that new claims relating to past events and significant adverse developments in

past claims could result in material changes to provisions made in respect of prior years.

Refer to note 30, ‘Provisions’ for further detail.

6. GOODWILL

The group created significant goodwill and intangible assets upon its reorganisation in 2007 in terms of

IFRS 3. These asset balances are evaluated for impairment on an annual basis. This evaluation is based on

the estimation of future cash flows and discount rates as further explained in note 15 .

7. FAIR VALUE

The group’s policy for determining the fair value of financial instruments is described in the Accounting

Policies. The group holds a number of financial assets and liabilities that are designated at fair value

through profit or loss. Full disclosure of the valuation hierarchy and sensitivities is contained in the risk

management section of this report.

Refer to note 45, ‘Financial risk’ for further detail.

8. HEDGE ACCOUNTING

With regard to the application of cash flow hedge accounting, management applies judgment in assessing,

at both inception of the hedge and on an ongoing basis, whether the hedging instruments are effective in

offsetting changes in fair values or cash flows of hedged items. Refer to note 24, ‘Equity holders’ funds’.

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GROUP INCOME STATEMENTSfor the years ended 31 March

Rm Notes 2014* 2013* 2012*

Continuing operationsFee and commission income 2 4 ,776 4 ,038 3 ,603

Direct expenses attributable to fee and commission income 2 (801) (651) (591)

Net income from insurance operations 3 417 350 310

Insurance premiums earned 1 ,806 1 ,584 1 ,412

Less: Amounts ceded to reinsurers (1 ,085) (1 ,034) (950)

Investment income from insurance operations 10 8 12

Less: Insurance claims and withdrawals (1 ,302) (1 ,162) (1 ,031)

Plus: Insurance claims and benefits covered by reinsurance

contracts 988 954 867

Operating income net of direct expenses 4, 392 3 ,737 3 ,322

Operating expenses 4 (3 ,352) (2 ,812) (2 ,460)

Profit from operations before non -trading and capital items 1 ,040 925 862

Non-trading and capital items 5 (108) (113) (108)

Operating profit 932 812 754

Investment income 6 233 129 161

Finance costs 7 (843) (848) (816)

Share of net profit of associates (net of income tax) 18 2 1 1

Profit before taxation 324 94 100

Income tax expense 8 (487) (192) (316)

Loss for the year from continuing operations (163) (98) (216)

Discontinued operationsProfit / (loss) on discontinued operations (net of income tax) 23 542 (10) 157

Profit / (loss) for the year 379 (108) (59)

Profit / (loss) attributable to:


Non-controlling interest 9 110 83 77

379 (108) (59)

* Refer to note 50 for a summary of adjustments made to previously reported

historical financial information.

Earnings per share from continuing operationsBasic loss per share (cents) (77) (51) (82)

Earnings per share from discontinued operationsBasic profit / (loss) per share (cents) 155 (4) 43

Earnings per share from continuing and discontinued operations

Basic profit / (loss) per share (cents) 10 78 (55) (39)

171

GROUP STATEMENTS OF COMPREHENSIVE INCOMEfor the years ended 31 March

Rm Note 2014* 2013* 2012*

Profit / (loss) for the year 379 (108) (59)

Foreign currency translation differences of foreign operations 329 90 89

Foreign currency translation reserve of disposed

operations recycled to profit or loss 23.2 82 30 –

Changes in fair value of cash flow hedges (1) (13) (39)

Portion of cash flow hedge recycled to profit or loss 20 45 71

Other (5) 3 –

Other comprehensive income that will be reclassified to profit or loss 425 155 121

Actuarial gain / (loss) on employee benefits 4 (4) (5)

Other comprehensive income that will not be reclassified to profit or loss 4 (4) (5)

Total comprehensive income for the year 808 43 57

Total comprehensive income / (loss) attributable to:



Total comprehensive income for the year 808 43 57

* Refer to note 50 for a summary of adjustments made to previously reported historical financial information.

172

GROUP STATEMENTS OF FINANCIAL POSITIONas at 31 March

Rm Notes 2014* 2013* 2012*

AssetsFinancial assets held under multi-manager investment

contracts 11 253 ,747 222 ,790 209 ,994

Financial assets of cell-captive and other insurance facilities 12 315 11 ,374 9 ,484

Property and equipment 13 335 239 165

Purchased and developed computer software 14 80 129 166

Goodwill 15 3 ,985 4 ,490 4 ,652

Intangible assets 16 886 1 ,211 1 ,437

Investment in associates 18 6 4 3

Deferred tax assets 29 117 164 110

Financial assets 19 409 2 ,064 1 209

Insurance receivables 20 814 1 ,073 896

Trade and other receivables 21 873 935 913

Cash and cash equivalents 22 3 ,907 3 ,626 3 ,062

Assets of disposal group classified as held for sale 23 91 29 ,938 288

Total assets 265 ,565 278 ,037 232 ,379

Equity and liabilitiesShare capital 5 ,819 3 ,261 3 ,261




Equity holders’ funds 24 4 ,627 2 ,070 2 ,092


Total equity 4 ,837 2 ,264 2 ,277


contracts 25 253 ,747 222 ,790 209 ,994

Liabilities of cell-captive and other insurance facilities 26 315 11 ,374 9 ,484

Borrowings 27 1 ,652 5 ,409 5 ,448

Employee benefits 28 168 181 170

Deferred tax liabilities 29 432 450 491

Provisions 30 284 284 265

Finance lease liability 31 90 93 –

Operating lease liability 32 119 40 29

Deferred income 33 25 72 69

Insurance payables 34 2 ,270 3 ,985 2 ,693

Trade and other payables 35 1 ,591 1 ,353 1 ,328

Liabilities of disposal group classified as held for sale 23 35 29 ,742 131

Total liabilities 260 ,728 275 ,773 230 ,102

Total equity and liabilities 265 ,565 278 ,037 232 ,379


173

GROUP STATEMENTS OF CASH FLOWSfor the years ended 31 March

Rm Notes 2014* 2013* 2012*

Cash flows from operating activitiesCash generated from operations 38 1 ,331 1 ,101 830

Interest received 228 137 169

Finance costs paid 39 (2 ,125) (593) (567)

Movement in working capital and insurance balances 40 501 300 728

Cash settlement of cash management claims (7) – (3)

Cash settlement of retirement benefit obligations (7) (7) (6)

Cash flows from policyholder investment contracts 41 (5 ,054) (2 ,482) (3 ,223)

Taxation paid 42 (387) (426) (242)

Cash flows from operating activities – discontinued operations 163 227 246

Net cash outflow from operating activities (5 ,357) (1 ,743) (2 ,068)

Cash flows from investing activitiesNet proceeds from sale of subsidiaries, associates and

businesses 23.2 1 ,236 279 (153)

Repayment of assumed debt by acquirer – – 511

Investment in financial assets (594) (617) (759)

Proceeds on disposal of financial assets 580 597 10

Movement in premium finance receivables – – (37)

Capital expenditure incurred on property, equipment and

computer software (208) (106) (119)

Capital expenditure incurred on goodwill – – (12)

Proceeds from sale of property, equipment and intangibles 6 3 1

Cash flows from investing activities – discontinued operations 22 (5) (2)

Net cash inflow/(outflow) from investing activities 1 042 151 (560)

Cash flows from financing activitiesIssue of shares (net of SPV treasury shares) 24 1 ,903 – –

Borrowings raised by SPVs in order to purchase shares 386 – –

Term loan raised 1 ,250 – –

Increase in shareholder loan 4 – –

Repayment of borrowings 27.2 (4 ,095) (252) (642)

Payments made to non-controlling interests (126) (74) (76)

Cash flows from financing activities – discontinued operations – – 29

Net cash outflow from financing activities (678) (326) (689)

Decrease in cash and cash equivalents (4 ,993) (1 ,918) (3 ,317)

Cash and cash equivalents at beginning of year 16 ,975 18 ,833 22 ,06 8


Cash and cash equivalents at end of year 12 ,129 16 ,975 18 ,833

Analysed as follows:

Cash and cash equivalents for disposal groups held for sale 24 97 37

Cash and cash equivalents for continuing operations 3 ,907 3 ,626 3 ,062

Cash held under multi-manager investment contracts 8 ,197 11 ,958 14 ,984

Cash held under cell-captive insurance facilities 1 1 ,294 750

12 ,129 16 ,975 18 ,833


174

GROUP STATEMENT OF CHANGES IN EQUITYfor the years ended 31 March

Rm

Share capital

and premium

Treasury shares

Non-distribut-

able reserves

Accum-ulated

loss

Total equity

holders’ funds

Non-control-

ling interest

Total equity

At 1 April 2011 3 ,261 – (252) (867) 2 ,142 172 2 ,314

Restatement for the

adoption of IFRS 10

Consolidated Financial

Statements – (29) – (6) (35) – (35)

At 1 April 2011 restated 3 ,261 (29) (252) (873) 2 ,107 172 2 ,279

(Loss) / profit for the year – – – (136) (136) 77 (59)

Other comprehensive

income/(loss) – – 108 (5) 103 13 116

Total comprehensive

income / (loss) – – 108 (141) (33) 90 57

Removal of contingency

reserve of short-term

insurance company – – (29) 29 – – –

Other movements

contingency reserves and in

non-controlling interest* – – – 18 18 (77) (59)

At 31 March 2012 3 ,261 (29) (173) (967) 2 ,092 185 2 ,277

(Loss) / profit for the year – – – (191) (191 ) 83 (108)

Other comprehensive

income – – 165 (4) 161 (10) 151

Total comprehensive

income / (loss) – – 165 (195) (30) 73 43

Movement in treasury

shares – 8 – – 8 – 8

Other movements

contingency reserves and in

non-controlling interest* – – – – – (64) (64)

At 31 March 2013 3 ,261 (21) (8) (1 ,162) 2 ,070 194 2 ,264

Profit for the year – – – 269 269 110 379 Other comprehensive

income – – 381 4 385 44 429

Total comprehensive income – – 381 273 654 154 808 Issue of share 2 ,558 – – – 2 ,558 – 2 ,558 SPV Treasury shares – (384) – – (384) – (384)Redemption of PIK Co Prefs – – (271) – (271) – (271)Other movements in

non-controlling interest* – – – – – (138) (138)

At 31 March 2014 5 ,819 (405) 102 (889) 4 ,627 210 4 ,837


175

GROUP SEGMENTAL INCOME AND PROFIT ANALYSISfor the years ended 31 March

Operating income net of direct expenses 2014 % 2013 % 2012

Africa Continuing Operations (Rm)SA Financial Services 1 ,754 9 1 ,603 8 1 ,485

Investment Solutions 717 13 635 15 553

AF Insurance 350 14 307 6 289

AfriNet 249 23 202 19 170

Total Africa Continuing operations (Rm) 3 ,070 12 2 ,747 10 2 ,497

International Continuing Operations (£m)Total International (£m) 81 11 73 5 70

Total International Continuing operations (Rm) 1 ,322 34 990 20 825

Total Continuing Operations (Rm) 4 ,392 18 3 ,737 12 3 ,322

Profit from operations before non -trading and capital items

2014 % 2013 % 2012

Africa Continuing Operations (Rm)SA Financial Services 387 6 365 11 330

Investment Solutions 360 16 311 12 279

AF Insurance 88 10 80 (2) 81

AfriNet 48 33 36 36 27

Total Africa Continuing operations (Rm) 883 11 792 10 717

International Continuing Operations (£m)Total International (£m) 12 20 10 11 9

Total International Continuing operations (Rm) 204 45 141 31 108

Total Continuing Operations – excluding property lease (Rm) 1 ,087 17 933 13 825

Accounting for property lease (47) (8) 37

Total continuing operations – including property lease (Rm) 1 ,040 12 925 7 862

Depreciation and amortisation 2014 % 2013 % 2012

Africa Continuing Operations (Rm)SA Financial Services 10 14 18


AF Insurance 3 3 2

AfriNet 3 3 3

Total Africa Continuing operations (Rm) 19 (17) 23 (15) 26

International Continuing Operations (£m)Financial Services 1 1 1

Total International Continuing operations (£m) 1 1 1

Total International Continuing operations (Rm) 13 30 10 – 10

Discontinued operations (refer note 23.2) 20 28 32

Unallocated:Corporate services 48 47 39

Total Group Operations (Rm) 100 (7) 108 1 107

176

GROUP SEGMENTAL INCOME AND PROFIT ANALYSIS (continued)for the years ended 31 March

Assets 2014 % 2013 % 2012

Africa Continuing Operations (Rm)SA Financial Services 63 ,063 49 ,540 37 ,154

Investment Solutions 253 ,872 222 ,873 190 ,920

AF Insurance 592 505 397

AfriNet 3 ,188 2 ,706 2 ,142

Total Africa Continuing operations (Rm) 320 ,715 16 275 ,624 19 230 ,613

Total international (£m) 73 90 112

International Continuing operations (Rm) 1 ,388 11 1 ,248 (9) 1 ,378

Discontinued operations (refer note 23.2) 385 43 ,990 30 ,847

Unallocated:Corporate services 692 502 2 ,628

Goodwill 3 985 4 ,490 3 ,460

Consolidation elimination* (61 ,600) (47 ,817) (36 ,547)

Total Group Operations (Rm) 265 ,565 (4) 278 ,037 20 232 ,379

* This amount relates mainly to assets invested by group companies with Investment Solutions.

** The prior year comparative figures in the table above have been re-presented following the disposal of Guardrisk, LCP Liberia and IS UK

and the discontinuance of various other businesses during the year under review. The segmental report has been re-presented to take

account of the effects of discontinued operations including the re-allocation of shared services expenses that were previously allocated to

currently discontinued operations but which remains in the continuing cost base of the group. The expenses amount to R31 million in

the current year and R25 million in the prior year.

The group measures segments based on Operating income net of direct expenses and Profit from operations

before non-trading and capital items.

The group has five reportable segments, as detailed above, which are the group’s business units. The business

units offer different products and services, and are managed separately because they require different

technology and marketing strategies. For each of the business units, the group’s chief operations decision-

maker reviews internal management reports on a quarterly basis.

The following summary describes the operations in each of the group’s reportable segments:

• SA Financial Services – is the leading retirement funds consulting and administration provider and

corporate health consulting business in South Africa. The divisions include Institutional, which provides

retirement fund administration, consulting and actuarial services; Retail, which provides financial and

wealth advice and solutions to individuals; Healthcare, which provides medical scheme and health-related

advice and actuarial services.

• Investment Solutions – as a multi-manager investment manager, the company selects appropriate asset

managers and portfolios and monitors and reports on manager performance. The operations are currently

in South Africa and Namibia.

• AF Insurance (AFI) – provides motor and household insurance cover.

• AfriNet (Africa excluding South Africa) – offers financial services products in Africa (outside South

Africa). It focuses on and meets the demands of each local market, as well as adapt business products to

local legislation.

• International Financial Services – pan-European employee benefits consultants and actuaries, providing

solutions across all aspects of employee benefits to employers and their employees, pensions, investments,

healthcare and risk solutions and business analytics of insurance products.

177

NOTES TO THE GROUP FINANCIAL STATEMENTS

Rm 2014 2013 2012

1 FOREIGN CURRENCY EXCHANGE RATESThe income statements and statements of financial position of

material foreign subsidiaries have been translated to rands in

line with IAS 21. The effect of changes in foreign exchange rates,

using the following exchange rates:

Rand : sterling R:£ R:£ R:£

Weighted average rate 16.4 13.6 11.9

Closing rate 17.5 13.9 12.3

Swiss franc : sterling CHF:£ CHF:£ CHF:£



Other less material foreign subsidiaries have been translated to

rands in line with IAS 21. The effect of changes in foreign

exchange rates, using the weighted average rates for income

statement items and the closing rates for items in the statement.

Certain transactions of the group occur in foreign currencies.

The most material of these currencies is the euro. These

transactions have been translated using the following

exchange rates:

Rand : euro R:€ R:€ R:€



2 FEE AND COMMISSION INCOMEBrokerage fees and commission income 25 26 18

Fee income from consulting and administration services 3 ,233 2 ,716 2 ,432

Fee income from investment management activities 1 ,499 1 ,268 1 ,136

Interest income from lending operations 1 8 6

Other income 18 20 11

4 ,776 4 ,038 3 ,603

The direct expenses related to fees and commission income

relate to sub-agent expenses, commissions paid and asset

management fees (801) (651) (591)

Fee income from investment management activities is based on financial assets held at fair value through

profit or loss.

178

3 NET INCOME FROM INSURANCE OPERATIONS

Long-term insurance Short-term insurance Total Rm 2014 2013 2012 2014 2013 2012 2014 2013 2012

Gross earned premiums 417 395 789 1 ,389 1 ,189 623 1 ,806 1 ,584 1 ,412

Gross written premiums 417 395 407 1 ,402 1 ,192 1 ,037 1 ,819 1 ,587 1 ,444

Less: Movement in unearned

premium provision – – 382 (13) (3) (414) (13) (3) (32)

Reinsurers’ share thereof (288) (275) (673) (797) (759) (277) (1 ,085) (1 ,034) (950)

Net earned premiums 129 120 116 592 430 346 721 550 462

Net investment income from

insurance operations – – – 10 8 12 10 8 12

Net expenses of insurance

contracts (4) (6) (8) (21) (17) (9) (25) (23) (17)

Net premium and investment

income 125 114 108 581 421 349 706 535 457

Gross claims and transfers to

policyholder funds (238) (274) (306) (1 ,039) (865) (708) (1 ,277) (1 ,139) (1 ,014)

Reinsurers’ share thereof 204 225 258 784 729 609 988 954 867

Net claims and transfers to policyholders’ funds (34) (49) (48) (255) (136) (99) (289) (185) (147)

Net income from insurance

operations 91 65 60 326 285 250 417 350 310

179

Rm 2014 2013 2012

4 OPERATING EXPENSESOperating expenses classified by nature are as follows:

Amortisation (7) (6) (8)

Purchased and developed computer software (refer note 14) (6) (5) (7)

Intangible assets (refer note 16) (1) (1) (1)

Computer and IT costs (127) (88) (80)

Depreciation (refer note 13) (73) (74) (68)

Leasehold property and improvements (8) (9) (11)

Computer equipment (57) (56) (51)

Furniture fittings, office equipment and other assets (8) (9) (6)

External auditors’ remuneration (31) (26) (24)

Audit service – fees for audit (23) (22) (21)

Non-audit service (8) (4) (3)

Insurance costs (94) (86) (64)

Operating lease charges (223) (183) (156)

Premises – actual charges (173) (174) ( 192)

Premises – accounting for contractual escalations (48) (8) 37

Equipment (2) (1) (1)

Staff costs* (2 ,316) (1 ,942) (1 ,697)

Salaries, wages and other benefits (2 ,279) (1 ,913) (1 ,668)

Termination benefits (7) (5) (9)

Retirement benefit contributions – defined contribution plans (30) (24) (20)

Other operating expenses (481) (407) (363)

Total operating expenses (3 ,352) (2 ,812) (2 ,460)

* Staff costs include executive directors’ and non-executive directors’

remuneration. Refer to note 43 for a detailed analysis.

Total operating expenses exclude non-trading and capital items

which are disclosed in note 5.

Amortisation of intangible assets arising from business combinationPurchased and developed computer software (refer note 14) (19) (19) (19)

Intangible assets (refer note 16) (125) (125) (125)

(144) (144) (144)

180

Rm 2014 2013 2012

5 NON-TRADING AND CAPITAL ITEMSNon-trading:

Professional indemnity insurance cell captive result 64 24 37

Amortisation of intangible assets arising from business

combination (144) (144) (144)

Corporate costs relating to debt restructure (60) – –

Other non-trading items 32 7 –

Capital items:

Goodwill impairment losses – – (1)

(108) (113) (108)

6 INVESTMENT INCOMEGeneral operations:

Interest income 62 46 38

Investment and dividend income 171 83 123

Total investment income 233 129 161

Investment income is derived from the following categories of

financial assets:

Loans receivable 62 46 38

Financial assets designated at fair value 171 83 123

233 129 161

7 FINANCE COSTSFinance costs derived from financial liabilities classified and

carried at amortised costs:

Interest on term debt issued (740) (763) (742)

Amortisation of debt raising fees capitalised to borrowings (14) (13) (13)

Other interest (29) (14) (5)

(783) (790) (760)

Finance cost derived from financial liabilities designated as fair

value through profit or loss:

Fair value adjustment on put and call option (60) (58) (56)

(843) (848) (816)

181

Rm 2014 2013 2012

8 INCOME TAX EXPENSESouth African income taxCurrent tax (298) (183) (174)

Current year (235) (183) (170)

Prior years (63) – (4)

Deferred tax 7 107 45

Current year 58 107 41

Prior years (51) – 4

Foreign income taxCurrent tax (35) (23) (39)

Current year (35) (25) (40)

Prior years – 2 1

Deferred tax 4 12 (4)

Current year 2 7 (3)

Prior years – – (1)

Change in rate 2 5 –

Foreign withholding tax (3) (5) (12)

Tax attributable to policyholders (162) (100) (123)

Deferred tax – current year (76) (67) (4)

Current tax – current year (86) (33) (119)

South African secondary tax on companies – – (9)

Secondary tax – current year – – (18)

Secondary tax – prior year overprovision – – 9

(487) (192) (316)

No material capital gains tax was incurred by the group in the current or previous years, except in

respect of discontinued operations which is included in the results of discontinued operations.

Tax settlementDuring the year ended 31 March 2014, the group received information requests from the South African

Revenue Service (SARS) focused on the acquisition in 2007 of Alexander Forbes Limited by the Private

Equity Consortium and a reorganisation of the group’s businesses. The information requests related

mainly to the interest expenditure incurred in respect of debt raised for the reorganisation.

The group believes that its reorganisation with debt funding was a common and legitimate type of

transaction and was implemented in accordance with legal and tax advice.

However, subsequent to the year-end, and subsequent to the issuing of the annual financial statements

for the group on 9 June 2014, at the initiative of the group and in order to bring finality to this matter,

Alexander Forbes has reached an agreement with SARS towards a full and final settlement of the matter

and, specifically, to settle the tax issue relating to the deduction of interest claimed over the years since

the transaction up to and including the financial year ended 31 March 2014. Refer to notes 37.3 and 44.

The conclusion of the settlement has resulted in an additional assessment for cash taxes payable by the

group in an amount of R60 million and the waiver of assessed losses carried forward, which include

assessed losses, in respect of which an amount of R66 million of deferred tax assets that were previously

raised and held on the balance sheets of various subsidiaries of the group. The preparation of the report

of historical financial information in accordance with IFRS requires the group to adjust the amounts

recognised in its consolidated financial statements for events that provide evidence of the tax contingency

that existed at 31 March 2014. The above settlements have therefore been recorded in this report of

historical financial information for the year ended 31 March 2014.

182

Rm 2014 2013 2012

8 INCOME TAX EXPENSE (continued)The standard South African income tax rate for companies is

reconciled to the group’s actual tax rate as follows:

South African income tax rate for companies 28.0% 28.0% 28.0%

Adjusted for the effects of:

Foreign withholding tax 1.0% 5.0% 4.0%

South African secondary tax on companies 0.0% 0.0% 5.9%

Policyholder tax 50.1% 106.4% 40.6%

Unutilised tax losses (net of prior year assessment loss utilised)* 25.8% 14.3% 16.9%

Exempt income net of disallowed expenditure (15.5%) (47.1%) 12.5%

Foreign tax rates (2.3%) 2.6% 4.4%

Prior year under provision (net of prior year over provision) 35.5% (2.0%) 2.1%

Impairment charges and other capital gains and losses with no

material tax effects 0.0% 0.0% (0.2%)

Non-deductible finance cost 28.2% 102.8% 15.3%

Change in rate (0.6%) (5.7%) 0.0%

Effective tax rate per income statement 150.3% 204.3% 129.5%

* Unused tax losses for the group amounted to R895 million (2013: R792)

(2012: 630) million) available for set-off against future taxable income

9 PROFIT ATTRIBUTABLE TO NON-CONTROLLING INTERESTProfit attributable to non-controlling interest 110 83 77

The profits attributable to non-controlling interest results from non-controlling interest in Lane Clark

& Peacock (in the United Kingdom, Belgium and Switzerland) and in Media Insurance Services (the UK

direct marketing entity) and non-controlling interests in certain operations within AfriNet. The profit

attributable to non-controlling interest in Lane Clark & Peacock (Switzerland) and Media Insurance

Services represent the non-controlling share of profit until the date of disposal. Details of non-wholly

owned subsidiaries are provided in Annexure A to these financial statements. Refer to note 48 for more

detail on non-controlling interest.

10. EARNINGS PER SHARE

10.1 Basic earnings/(loss) per share

Basic earnings/(loss) per share is calculated by dividing the profit/(loss) for the period attributable

to ordinary equity holders of the parent by the weighted average number of ordinary shares in

issue during the year.

10.2 Headline earnings/(loss) per ordinary share

Headline earnings/(loss) per ordinary share is calculated by excluding all impairment charges,

and capital gains and losses, from the profit/(loss) attributable to equity holders and dividing the

resultant headline loss by the weighted average number of ordinary shares in issue during the year.

Headline earnings are defined in Circular 2/2013 issued by The South African Institute of Chartered

Accountants.

On 31 March 2014, the company issued additional shares as part of the debt restructure detailed in

note 27. Consequently, the weighted average number of shares remains at 345 million (including

treasury shares) for earnings per share purposes.

183

10 EARNINGS PER SHARE (continued)

2014 2013 2012

10.3 Number of sharesWeighted average number of shares (millions) 377 377 377

Treasury shares (millions) (32) (32) (32)

Weighted average number of shares in issue (millions) 345 345 345

Actual number of shares in issue (millions) 1 ,251 377 377

Treasury shares (millions) (96) (32) (32)

1 ,155 345 345

10.4 Calculation of headline loss (Rm)Profit / (loss) attributable to equity holders 269 (191) (136)

Adjusted for:

(Profit) / loss on disposal of subsidiaries (564) 112 6

Impairment of subsidiary and other – – 3

Goodwill impairment 114 55 1

Capital items on discontinued operations – – 4

Headline loss (181) (24) (122)

Earnings per share from total operationsBasic earnings / (loss) per share (cents) 78 (55) (39)

Headline loss per share (cents) (52) (7) (35)

10.5 Calculation of earnings from continuing operations (Rm)Loss attributable to equity holders (163) (98) (216)

Less: Profit attributable to minority interest (102) (79) (68)

Loss from continuing operations attributable to equity

holders (265) (177) (284)

Adjusted for:

Goodwill impairment – – 1

Headline loss from continuing operations (265) (177) (283)

Basic loss per share from continuing operations (cents) (77) (51) (82)

Headline loss per share from continuing operations (cents) (77) (51) (82)

10.6 Calculation of earnings from discontinued operations (Rm)(Loss) / profit attributable to equity holders 542 (10) 157

Less: Profit to minority shareholders (8) (4) (9)

Profit from continuing operations attributable to equity

holders 534 (14) 148

Adjust for:

Loss on disposal of subsidiary (564) 112 9

Goodwill impairment 114 55 –

Capital items of discontinued operations – – 4

Headline earnings from discontinued operations 84 153 161

Basic earnings / (loss) per share from discontinued

operations 155 (4) 43

Headline earnings per share from discontinued operations 24 44 47

184

11 FINANCIAL ASSETS HELD UNDER MULTI-MANAGER INVESTMENT CONTRACTS The policyholder assets held by the group’s multi-manager investment subsidiaries in South Africa, Namibia and in the United Kingdom, until it was transferred to held for sale are analysed below. These policyholder assets are directly matched by linked obligations to policyholders.

Financial assets held in collective investment schemes managed by the group’s multi-manager investment subsidiaries are also included in the consolidated statement of financial position of the group where such collective investment schemes are deemed to be controlled by the group. These financial assets are directly matched to linked obligations to unitholders.

11.1 Movement in multi-manager and unit trust investment contracts assets

Rm 2014 2013 2012

A reconciliation between financial assets held under

multi-manager and unit trust investment contracts:

Opening balance 222 ,790 209 ,994 183 ,483

Movement during the year*

Premium inflow 39 ,229 37 ,160 39 ,144

Withdrawals (37 ,226) (32 ,458) (29 ,559)

Investment returns after tax 31 ,654 37 ,726 19 ,617

Effect of movements in exchange rates – 2 ,808 1 ,171

Reclassification of disposal groups held for sale – (29 ,645) –

Other (2 ,700) (2 ,795) (3 ,862)

Closing balance 253 ,747 222 ,790 209 ,994

* This amount is offset by a corresponding movement in Financial liabilities held under multi-manager investment

contracts’ (refer note 25).

11.2 Analysis of multi-manager and unit trust investment contract assetsAn analysis of the aggregate financial assets of multi-manager and unit trust investment

contracts is set out below:

Rm 2014 2013 2012

Financial assets designated as fair value through profit

or loss Equity securities – listed 121 ,055 101 ,063 88 ,215

Equity securities – unlisted 119 199 185

Preference shares – listed 601 710 680

Collective investment schemes** 45 ,214 36 ,058 52 ,172

Debt securities – listed 24 ,143 24 ,486 19 ,447

Debt securities – government stock 12 ,125 11 ,634 9 ,839

Debentures – listed 2 ,773 299 3 ,427

Debentures – unlisted – 65 45

Policy of insurance** 21 ,869 20 ,318 2 ,103

Derivative financial instruments 8 1 ,163 71

Money market investments 17 ,643 14 ,837 18 ,826

Cash and cash equivalents

Cash 8 ,197 11 ,958 14 ,984

Total financial assets held under multi-manager investment contracts 253 ,747 222 ,790 209 ,994

A reconciliation of the assets held under multi-manager investment contracts with the linked liabilities under such contracts is as follows:

Total financial assets held under multi-manager investment contracts 253 ,747 222 ,790 209 ,994

Adjusted for:

Tax on policyholder assets included in deferred tax liability of the group (140) (64) (31)

Adjusted total financial assets held for policyholders under multi-manager investment contracts matched with the linked liability under such contracts* 253 ,607 222 ,726 209 ,963

* Financial assets disclosure on maturity and currency is not provided as these multi-manager and unit trust investment

contract assets are directly matched to linked obligations.

** The assets underlying these investments similarly consist of largely listed equity securities, debt securities, and money

market investments.

185

12 FINANCIAL ASSETS OF CELL-CAPTIVE AND OTHER INSURANCE FACILITIESAll financial assets held by the insurance operations of Alexander Forbes Insurance Namibia as well

as Guardrisk Insurance and Guardrisk Life in South Africa, Namibia and Mauritius and Euroguard

Insurance in Gibraltar, until the date of transfer to held for sale are included in Financial assets of cell-

captive and other insurance facilities. An analysis of the financial assets attributable to policyholders

and cell shareholders’ interests in the cell-captive insurance companies is provided below. These financial

assets are directly matched to linked obligations to the policyholders and cell shareholders of the cell-

captive insurance companies. The promoter cell or shareholders’ interests in the other financial assets

of the cell-captive insurance companies are included in the relevant line items of the group statement of

financial position.

Rm 2014 2013 2012

Financial assets designated as ‘fair value through profit or loss’

Equity securities – unlisted 153 511 458

Preference shares – unlisted – 177 319

Collective investment schemes – 437 399

Debt securities – listed – 760 23

Debt securities – unlisted – – 777

Receivables 4 1 ,067 808

Money market 113 6 ,216 5 ,220


Cash 1 1 ,294 750

Reinsurance assets

Reinsurers’ share of unearned premium provision 43 426 346

Reinsurers’ share of outstanding claims provision – 410 322

Reinsurers’ share of IBNR provision 1 76 62

Total financial assets attributable to policyholders and cell

shareholders’ interests in cell captive insurance companies* 315 11 ,374 9 ,484

* Financial assets disclosure on maturity and currency is not provided as these cell captive insurance facility assets are directly

matched to linked obligations.

13 PROPERTY AND EQUIPMENT

Rm

Leasehold improve-

ments Computer

equipment

Furniture and

fittings, office

equipment and other

assets Total

2014Carrying valueCost 113 232 152 497 Accumulated depreciation and accumulated

impairment losses (20) (77) (65) (162)

Carrying value at 31 March 2014 93 155 87 335

CostBalance at 1 April 2013 63 262 131 456

Additions to enhance existing operations 77 79 24 180

Disposals (53) (73) (8) (134)

Transfer to disposal group held for sale (4) (63) (17) (84)

Foreign subsidiaries exchange differences 30 27 22 79

Balance at 31 March 2014 113 232 152 497

186

Rm

Leasehold improve-

ments Computer

equipment

Furniture and

fittings, office

equipment and other

assets Total

2014 Accumulated depreciation and accumulated impairment lossesBalance at 1 April 2013 (43) (120) (54) (217)Depreciation charge for the year (9) (60) (8) (77)

Continuing operations (8) (57) (8) (73)Operations discontinued and disposed of during

the year (1) (3) – (4)

Disposals 52 71 6 129 Transfer to disposal group held 4 55 13 72 Foreign subsidiaries exchange differences (24) (23) (22) (69)

Balance at 31 March 2014 (20) (77) (65) (162)

2013Carrying valueCost 63 262 131 456

Accumulated depreciation and accumulated





Disposals (14) (41) (43) (98)

Disposal as a result of business combinations (15) (12) (25) (52)

Transfer to disposal group held for sale (2) – – (3)

Foreign subsidiaries exchange differences 10 9 10 29

Balance at 31 March 2013 63 262 131 456

Accumulated depreciation and accumulated impairment lossesBalance at 1 April 2012 (48) (101) (94) (243)

Depreciation charge for the year (11) (61) (14) (86)

Continuing operations (9) (56) (9) (74)

Operations discontinued and disposed of during

the year (2) (5) (5) (12)

Disposals 12 41 42 95

Disposal as a result of business combinations 11 8 18 37

Foreign subsidiaries exchange differences (7) (7) (6) (20)

Balance at 31 March 2013 (43) (120) (54) (217)

13 PROPERTY AND EQUIPMENT (continued)

187

Rm

Leasehold improve-

ments Computer

equipment

Furniture and

fittings, office

equipment and other

assets Total

2012Carrying valueCost 71 201 136 408

Accumulated depreciation and accumulated





Disposals (2) (26) (4) (32)

Disposal as a result of business combinations (16) (57) (66) (139)

Foreign subsidiaries exchange differences – (4) – (4)

Balance at 31 March 2012 71 201 136 408

Accumulated depreciation and accumulated impairment lossesBalance at 1 April 2011 (44) (126) (141) (311)

Depreciation charge for the year (14) (54) (11) (79)

Continuing operations (11) (51) (6) (68)

Operations discontinued and disposed of during

the year (3) (3) (5) (11)

Disposals 2 26 4 32

Disposal as a result of business combinations* 8 53 54 115

Foreign subsidiaries exchange differences – – – –

Balance at 31 March 2012 (48) (101) (94) (243)

Furniture and fittings, office equipment and other assets include freehold land and buildings owned by

the group, which have a carrying value of R14 million (2013: R15 million; 2012: R11 million).

A register of freehold land and buildings is available for inspection by authorised representatives at the

registered office of the company.

Rm 2014 2013 2012

Included in property and equipment are assets

capitalised as part of a finance lease. The net book

value of these assets are as follows:

Computer equipment 33 36 –

Cost 38 38 –

Accumulated depreciation (5) (2) –

Furniture and fittings 37 42 –

Cost 45 45 –

Accumulated depreciation (8) (3) –

Refer to note 31 ‘Finance lease liability’ for more information on the lease arrangement.

13 PROPERTY AND EQUIPMENT (continued)

188

Rm 2014 2013 2012

14 PURCHASED AND DEVELOPED COMPUTER SOFTWARECarrying valueCost 238 323 328

Accumulated amortisation and accumulated impairment losses (158) (194) (162)

Balance at 31 March 80 129 166

CostOpening balance 323 328 281

Movement during the year:

Additions to enhance existing operations 28 17 50

Disposals (17) – (3)

Disposals as a result of business combinations – (32) –

Transfer to assets relating to disposal groups held for sale (119) (2) –

Foreign subsidiaries exchange differences 23 12 –

Closing balance 238 323 328

Accumulated amortisation and accumulated impairment lossesOpening balance (194) (162) (130)


Amortisation charge for the year* (44) (17) (16)

Amortisation charge arising from continued operations (6) (5) (7)

Amortisation charge arising from discontinued operations (38) (12) (9)

Amortisation charge arising from business combination (note 4) (19) (19) (19)

Disposals 16 – 3

Disposals as a result of business combinations – 11 –

Transfer of assets relating to disposal groups held for sale 98 –

Foreign subsidiaries exchange differences (15) (7) –

Closing balance (158) (194) (162)

* The amortisation charge for 2014 includes amortisation of R9 million relating to operations classified as discontinued in the current

year and R3 million relating to operations discontinued in the prior year resulting in the amortisation charge being reclassified to

profit or loss from discontinued operations.

189

Rm 2014 2013 2012

15 GOODWILL15.1 Carrying value 3 ,985 4 ,490 4 ,652

15.2 Reconciliation of movement in carrying valueOpening balance 4 ,490 4 ,652 5 ,258


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



Terminal growth rates – 2014 5.5 5.9



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


Amortisation charged for the year* (3) (3) (4)

Continuing operations (1) (1) (1)

Operations discontinued during the year (2) (2) (3)

Amortisation charge arising from IFRS 3 Business

Combinations (note 4)* (125) (147) (130)

Continuing operations (125) (125) (125)

Operations discontinued during the year – (22) (5)

Transfer to assets relating to disposal groups held for sale (221) (22) (25)

Impairment on disposal – (52) (131)

Foreign subsidiaries exchange differences 24 (2) (1)

Closing balance 886 1 ,211 1 ,437

17 JOINT VENTURESThe group classified its interest in Alexander Forbes UK Direct Limited, an unlisted joint arrangement, as

discontinued at 31 March 2013. This results in the group’s share of assets and liabilities being reclassified

to Assets and liabilities of disposal groups held for sale and the results of its operations being reported as

part of discontinued operations in the income statement.

During the current year, the group disposed of its financial interest in the joint venture. Refer to note 23

Assets and liabilities of disposal groups classified as held for sale for further detail.

192

Rm 2014 2013 2012

18 INVESTMENT IN ASSOCIATES18.1 Equity accounted carrying value

Cost 3 3 3

Share of cumulative post-acquisition reserves 3 1 –

6 4 3

18.2 Reconciliation of movement in equity accounted carrying valueOpening balance 4 3 8


Reclassification to discontinued operations – – (5)

Dividends received from associates – – (1)

Share of profits of associates 2 1 1


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)


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


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 –


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


Non-distributable reserves 102 (8) (173)

Cash flow hedge reserve (note 24.5) – (19) (51)

Other reserves (note 24.6) 102 11 (122)


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 premium

m Rm m Rm Rm m Rm Rm

24 EQUITY HOLDERS’ FUNDS (continued)24.2 Analysis of

share capitalAuthorised

Ordinary shares

each 2 500 – 700 7 – 700 7 –

Non-convertible

redeemable ‘A’

preference

shares 600 – 600 6 – 600 6 –

Non-convertible

redeemable ‘B’

preference

shares 45 – 45 * – 45 * –

Issued

Ordinary shares 1 ,251 5 ,819 377 4 561 377 4 561

Non-convertible

redeemable ‘A’

preference

shares – – 319 3 2 ,693 319 3 2 ,693

Non-convertible

redeemable ‘B’

preference

shares 21 * 21 * – 21 * –

1 ,272 5 ,819 717 7 3 ,254 717 7 3 ,254

* The issued non-convertible redeemable ‘B’ preference share of 1 cent each amounted to R211 610 at year-end. These shares

are redeemable at the company’s option for an amount of R179 million.

** As part of the debt restructure, the group redeemed the ‘A’ preference shares at their face value.

2014 2013 2012

Number of shares

Share capital

at no parvalue

Number of shares


Share premium

Number of shares


Share premium

m Rm m Rm Rm m Rm Rm

Opening balance 377 4 377 4 561 377 4 561

Conversion to

no par value

shares – 561 – – – – – –

Redemption of

Pikco

Preference

shares 45 271 – – – – – –

Issue of shares

relating to

settlement of

high yield term

loan 380 2 ,287 – – – – – –

Redemption of

‘A’ preference

shares 449 2 ,696 – – – – – –

Closing balance 1 ,251 5 ,819 377 4 561 377 4 561

198

Rm 2014 2013 2012

24 EQUITY HOLDERS’ FUNDS (continued)24.4 Treasury shares

Opening balance (21) (29) (37)


Allocated to beneficiaries (1) 8 8

Increase in Treasury shares as a result of the consolidation

of the SPV funding entities (383) – –


On 31 March 2014 the company provided guarantees to a

local bank in order to obtain funding for the Management

Share Trust and the BEE consortium to follow their rights

in terms of debt restructuring. As a result these funding

vehicles are consolidated into the group financial results.

The investment in AFEH directly related to the funding

provided is classified as treasury shares in terms of IFRS.

24.5 Cash flow hedge reserveOpening balance (19) (51) (83)


Raised/(released) during the year from

Interest rate swap (1) (13) (39)

Less: Amounts recycled to income statement to match

income statement effect of hedged item 20 45 71

Closing balance – (19) (51)

Interest rate swapPrior to its redemption, the senior preference shares in

Alexander Forbes Acquisition Proprietary Limited (“AF

Acquisition”) bear interest at a variable interest rate linked

to the prime overdraft lending rate in South Africa (“prime

rate”), thus exposing the group to interest rate risk, an

interest rate hedge was entered into with the senior lenders

(Rand Merchant Bank (a division of FirstRand Bank

Limited), Nedbank Limited and Investec Bank Limited) to

protect AF Acquisition against adverse interest rate risk on

the expected dividend payments.

The hedge instrument expired in the current year and all

amounts relating to the hedge have been settled. Further,

as explained in note 27 Borrowings, the senior preference

shares have been fully redeemed at 31 March 2014 resulting

in the AF Acquisition not requiring to extend the hedge term.

The details of the hedged item are disclosed in note 27.5.

24.6 Other reserves

Available-for-sale financial assets reserve 5 5 5

Foreign currency translation reserve 372 6 (124)

Redemption reserve (271) – –

Other reserves (4) – (3)

102 11 (122)

Redemption reserveThe redemption reserve arose in the current year due to the redemption of the Pikco Preference

Shares. The Pikco Preference Shares were classified as equity instruments of the group, therefore the

difference between the redemption proceeds and the original carrying value of the Pikco Preference

Shares has been recorded within equity (Redemption reserve). The redemption was settled via the

issue of ordinary shares. Refer to note 24.2.

199

Rm 2014 2013 2012

25 FINANCIAL LIABILITIES HELD UNDER MULTI-MANAGER INVESTMENT CONTRACTS25.1 Movement of liabilities under multi-manager and unit

trust investment contractsOpening balance 222 ,790 209 ,994 183 ,452

Movement during the year:*

Premium inflows 39 ,229 37 ,283 29 ,270

Withdrawals (37 ,226) (32 ,486) (24 ,326)

Investment return net of taxation 23 ,469 29 ,742 16 ,255

Effect of movements in exchange rates – 2 ,837 3 ,109

Reclassification of disposal groups classified as held for

sale – (29 ,645) –

Other 5 ,485 5 ,065 2 ,234

Closing balance 253 ,747 222 ,790 209 ,994

* This amount is offset by a corresponding movement in ‘Financial assets

held under multi-manager investment contracts’ (refer note 11).

25.2 Discounted maturity analysis of liabilities under multi-manager and unit trust investment contractsDue within one year 118 – –

Due between one and five years – 94 629

Due after five years – – –

Open ended 253 ,629 222 ,696 209 ,365

253 ,747 222 ,790 209 ,994

These policyholder liabilities arise from multi-manager and

unit trust investment contracts issued by the group’s multi-

manager investment subsidiaries in South Africa, Namibia

and the United Kingdom. The policyholder liabilities are

directly matched to the linked policyholder assets.

These are financial liabilities designated as fair value

through profit or loss.

Financial liabilities linked to investment contracts 253 ,629 222 ,696 209 ,365

Financial liabilities linked to investment contracts – current 118 – –

Financial liabilities linked to investment contracts

– non-current – 94 629

253 ,747 222 ,790 209 ,994

200

26 LIABILITIES OF CELL-CAPTIVE AND OTHER INSURANCE FACILITIES

Under IFRS, all liabilities of Alexander Forbes Insurance Namibia as well as Guardrisk Insurance and

Guardrisk Life in South Africa, and Mauritius and Euroguard Insurance in Gibraltar, until the date

of transfer to held for sale are included in Liabilities of cell-captive and other insurance facilities. An

analysis of the policyholders’ and cell owners’ interests in the liabilities of these cell-captive insurance

companies is provided below:

Rm 2014 2013 2012

Short-term insurance technical liabilities 140 5 ,463 4 ,655

Gross unearned premium provision 140 3 ,187 2 ,981

Gross outstanding claims provision – 1 ,577 1 ,196

Gross IBNR provision – 699 478

Long-term insurance technical liabilities

– Policyholder liability 151 1 ,979 1 ,682

Insurance liabilities of cell captive insurance facilities 291 7 ,442 6 ,337

Other liabilities attributable to policyholders and cell-owners 24 3 ,932 3 ,147

Cell-owners’ interest* 16 2 ,924 2 ,432

Payables* 8 1 ,130 886

Taxation receivable – (122) (171)

315 11 ,374 9 ,484

* These are designated as financial liabilities at fair value through profit or loss.

27 BORROWINGS

27.1 Analysis of borrowings

On 31 March 2014 the Alexander Forbes group undertook a capital restructure. The capital

restructuring was aimed at refinancing certain term debt facilities and redeeming and replacing

substantially all remaining debt instruments and preference share instruments in the capital

structure of the group with ordinary equity. A single senior debt layer remains which may, over

time, be reduced by reapplying internal cash flows to meet regulatory capital requirements as and

when they become effective.

The rationale for the capital restructuring of the group was to:

• optimise and simplify the capital structure of the group;

• ensure compliance with regulatory changes to be brought about by the Interim Measures which

are expected to be implemented during this calendar year;

• align Alexander Forbes Equity Holdings Proprietary Limited’s (“EquityCo”) shareholder interests

in the group capital structure; and

• facilitate the realisation by EquityCo shareholders in due course.

Prior to the capital restructure the senior Preference Shares were redeemed in full. All related

security obligations were released by the preference shareholders.

The capital restructuring steps which impacted on the borrowings of the group include the

following:

• The issue of 380 million new ordinary shares to shareholders of AF Equity Holdings, the

proceeds of which were used to settle the high yield term loan and the put and call option

• A bridge loan finance facility in addition to cash generated from operations and proceeds from

the disposal of subsidiaries were used to settle the PIK debentures.

• A new term loan facility obtained from a local bank was used to refinance the bridge loan facility

above.

201

Rm 2014 2013 2012

27 BORROWINGS (continued)

The final result of the debt restructure is shown below:

27.1 Analysis of borrowings (continued)Term loan (note 27.4) 1 ,250 – –

Senior preference shares (note 27.5) – 1 ,460 1 ,715

The High Yield term loan (note 27.6) – 1 ,735 1 ,862

Put and call option – at fair value (note 27.7) – 304 247

The Pay-in-Kind (PIK) debentures (note 27.8) – 1 ,898 1 ,613

SPV Preference shares 386 – –

Total interest bearing borrowings 1 ,636 5 ,397 5 ,437

Equity holders’ loan 16 12 11

1 ,652 5 ,409 5 ,448

27.2 Reconciliation of movement in borrowings

Senior pref

shares

High Yield term loan

Put and call

option

PIK Deben-

ture

New Term loan

SPV Pref.

Shares Other2014 Total

2013 Total

2012 Total

Opening balance 1 ,460 1 ,735 304 1 ,898 – – 12 5 ,409 5 ,448 5 ,828

Movements for

the year:

Interest accrued 90 292 – 337 – – – 719 717 736

Interest paid (129) (482) – (1 ,485) – – – (2 ,096) (575) (566)

Redemptions paid (1 ,429) – – – – – – (1 ,429) (252) (268)

Borrowings repaid – (1 ,552) (364) (750) – – (2 ,666) – (350)

Borrowings raised – – – – 1 ,250 386 4 1 640 1 –

Fair value movement – – 60 – – – – 60 57 55

Movement in

capitalised costs 8 7 – – – – – 15 13 13

Closing balance – – – – 1 ,250 386 16 1 ,652 5 ,409 5 ,448

Rm 2014 2013 2012

27.3 Discounted maturity analysis of borrowingsPayable on demand 16 12 11

Due within one year – 836 253

Due between one and five years 1 ,636 4 ,561 3 ,571

Due after five years – – 1 ,613

1 ,652 5 ,409 5 ,448

27.4 Term loan facility

On 31 March 2014, a subsidiary company, Alexander Forbes Acquisition Proprietary Limited

(“AF Acquisition”), obtained a term loan facility (“term loan”) amounting to R1 ,250 million from

one of the major banks. The term loan bears interest at three months’ JIBAR plus 2.1% per annum

compounded quarterly. The interest is payable quarterly while the capital is repayable in three

years together with any unpaid interest on 31 March 2017.

If AF Acquisition fails to pay any principal amount or interest amount payable by it on its due date,

interest shall accrue on the loan and any accrued and unpaid interest from the due date up to the

date of actual payment at a rate which is equal to the Interest Rate (JIBAR plus 2.1%) which would

otherwise be applicable plus 2.0%, for so long as such payment remains outstanding and has not

been remedied after any applicable grace period (if any).

The term loan may be repaid at any time, in whole or in part, which would include the capital plus

any accrued and unpaid interest to the repayment date.

The term loan is subject to certain mandatory repayment events. For instance, the loan would be

repaid if AF Acquisition or any other member of the group disposes of any of its assets or business

(whether pursuant to a single transaction or a series of transactions) which, when aggregated with

all other assets disposed of by members of the group since the signature date, directly or indirectly

contribute more than 30% of the consolidated EBITDA or assets of the group for the 12-month

period up to and as at the date of disposal.

202


27.4 Term loan facility (continued)

In addition, all amounts outstanding on the term loan, together with accrued and unpaid interest,

shall become immediately due and payable in the event of a sale of all or substantially all of the

assets or business of the group or if a change of control occurs. AF Acquisition must repay the term

loan if the lender becomes aware that it is unlawful in any applicable jurisdiction for such lender to

perform its obligations under a term finance document.

27.5 Senior debt preference shares

A subsidiary company, Alexander Forbes Acquisition Proprietary Limited (“AF Acquisition”), had

issued preference shares in equal proportion to three South African banks. The preference shares

paid semi-annual dividends at a dividend rate of 93.5% of the South African prime rate.

During the year, cash generated from operations and proceeds on the disposal of subsidiaries were

used to redeem the senior preference shares in full as follows:

• R136 million redemption of shares on 31 May 2013.

• R425 million redemption of shares on 30 November 2013.

• R869 million redeemed on 4 March 2014.

• R8 million capitalised debt origination costs were written off.

Prior to the settlement of the preference shares, AF Acquisition was subject to certain undertakings,

guarantees and commitments as part of the security structure. Following the redemption of the

senior preference shares, any related undertakings, guarantees and commitments on the preference

shares ceased to exist.

27.6 High Yield term loan

A subsidiary company, Alexander Forbes Funding Proprietary Limited (“AF Funding”) had issued

the High Yield term loan (“term loan”) amounting to R1 487 million to a consortium of investors

consisting mainly of shareholders. This term loan bore interest at a fixed rate of 16.8%.

The term loan had a maturity date of 18 September 2015. During the year, the term loan was repaid

in full as part of the debt restructure as follows:

• R110 million payment for accrued interest on 18 June 2013.

• R406 million accrued interest on 31 March 2014.

• R1 487 million capital repaid on 31 March 2014.

• R30 million capitalised debt origination costs were repaid on 31 March 2014.

Prior to the settlement of the High Yield term loan, AF Funding was subject to certain undertakings,

guarantees and commitments as part of the security structure. Following the repayment of the

loan, any related undertakings, guarantees and commitments on the loan ceased to exist.

27.7 Put and call agreement

Following the settlement of the High Yield term loan, additional amounts payable on the term

loan in terms of a put and call option agreement were settled in full. Under the put and call option

agreement, AF Funding had issued preference shares to a security agent on behalf of the term loan

lenders. As part of the debt restructure the AF Funding Preference Shares which were subject to the

put and call option were purchased from the HY Lenders by AF Equity Holdings, these preference

shares were called and settled with the proceeds raised by an additional issue of ordinary shares to

AF Equity Holdings shareholders.

Prior to the settlement of the put and call liability, AF Funding was subject to certain undertakings,

guarantees and commitments as part of the security structure. Following the settlement of the

put and call liability, any related undertakings, guarantees and commitments on the put and call

liability ceased to exist.

27.8 Pay-in-Kind (“PIK”) debentures

A subsidiary company, Alexander Forbes PIK Funding Proprietary Limited (“AF PIK”), had issued

100 ,000 ,000 unsecured debentures for a principal amount of R7.50 each. The debentures bore

interest at 17% per annum compounded semi-annually on 31 May and 30 November each year.

Unpaid interest is capitalised annually. The interest accrued for the year together with the capital

amount was redeemable on the 10th anniversary from the date of issue, namely on 26 July 2017.

203


27.9 Pay-in-Kind (“PIK”) debentures (continued)

As part of the debt restructure during the year, AF PIK settled the PIK debentures in full.

• R337 million of accrued interest on 31 March 2014; and

• R1 ,898 million of capital redeemed on 31 March 2014.

Prior to the settlement of the PIK debentures, AF PIK was subject to certain undertakings,

guarantees and commitments as part of the security structure. Following the redemption of the

PIK debentures, any related undertakings, guarantees and commitments on the PIK debentures

ceased to exist

27.10 Financial covenants

The new term loan provides that the Net Debt to EBITDA ratio in respect of the immediately

preceding rolling 12-month period shall not at any time exceed 2:1 (Debt Cover Ratio).

Prior to the debt restructure on 31 March 2014, the group was subject to various financial covenants

including maintenance and distribution covenants. As part of the settlement of all debt balances

these covenants were set aside and there is no remaining obligation to the previous debt providers.

27.11 SPV Preference shares

AF BEE Funding SPV Proprietary Limited and AF MST Funding SPV Proprietary Limited

In order to facilitate participation in the capital restructure, two special purpose vehicles (“SPVs”)

were established to follow the rights on behalf of the Management Share Trust and the BEE

consortium. The SPVs issued preference shares to a major bank and used the funds received to

purchase ordinary shares in AFEH. Certain guarantees were provided by a subsidiary of AFEH which

results in the SPVs being consolidated and the shares purchased being treated as treasury shares.

The Alexander Forbes BEE Funding SPV issued preference shares to a major bank for an aggregate

subscription price of R158 million. Further, the Alexander Forbes MST Funding issued preference

shares to a major bank for an aggregate subscription price of R228 million.

The preference shares pay quarterly dividends at a dividend rate of 75% of the South African prime

rate with the first payment made on 31 May 2014.

The preference shares are redeemable on 31 March 2017. However the SPVs are entitled to make

voluntary early redemption either out of: (i) internally generated cash flows or (ii) direct or indirect

proceeds of refinance. The preference shares would become redeemable should either of the SPV

companies realise its assets.

The preference share facility is subject to certain early redemption events and certain mandatory

redemption events customary for such financing, the occurrence of which would require the

redemption of all of the preference shares. These include but are not limited the following:

• Failure to make payment by the SPVs or AF Acquisition.

• Breach of certain undertakings by the SPVs or AF Acquisition.

• Breach of the debt cover ratio which at any time should not exceed 2:1.

• The SPVs, AF Acquisition, AFEH or material subsidiary of AFEH group become insolvent.

• Assets of the SPVs, AF Acquisition, AFEH or material subsidiary of AFEH group are attached

and such attachment is not lifted within 30 days.

• Disposal of assets by the SPVs, AF Acquisition, AFEH or material subsidiary of AFEH group

that is not a permitted disposal and is not for the purposes of settling the Preference shares.

The preference shares are also subject to certain undertakings that, without the prior consent of

the major bank and subject to certain customary and other agreed exceptions, limit the ability of

the SPVs to, among other things:

• Enter into amalgamations, mergers, consolidation or corporate transactions.

• Incur any financial indebtedness, except in the ordinary course of business and for special

permitted purposes.

• Give any guarantee or security interest, except for permitted guarantees and security interests.

• Issue additional equity instruments, except for the permitted share issues or grant any loans

other than permitted loans.

• Purchase or redeem its equity instruments or otherwise reduce or alter its share capital.

• Make any distributions except for permitted distributions.

The preference shares are guaranteed by AF Acquisition Proprietary Limited.

204

Rm 2014 2013 2012

28 EMPLOYEE BENEFITS28.1 Total employee benefits

Present value of defined benefit pension fund obligation –

South Africa (note 28.2) – – –

Defined benefit pension fund obligation – LCP Libera

(Switzerland) (note 28.3) – – –

Post-retirement medical benefit obligation – South Africa

(note 28.4) 114 129 119

Provision for leave pay (note 28.5) 54 52 51

168 181 170

Substantially all employees are covered by defined contribution retirement fund arrangements in

the major territories in which the group operates. The group also has a defined benefit pension fund

as disclosed below (which is closed to new entrants).

Provisions for pension obligations are established for benefits payable in the form of retirement,

disability and surviving dependant pensions. The defined contribution and defined benefit pension

funds in South Africa are both governed by the Pension Funds Act 24, 1956.

28.2 Defined benefit pension fund obligation – South Africa

The closed defined benefit pension fund provides a pension of 2% of final pensionable salary for

each year of pensionable service plus 0.5% of final pensionable salary for each year of pensionable

service in excess of 25 years. The fund was closed to new members on 31 December 1992.

The pension fund is funded with the assets of the fund being held independently of the group’s

assets in a separate trustee-administered fund.

The fund is valued by a statutory actuary on a tri-annual basis, with a full actuarial assessment

being completed on 31 March 2014. The actuary is of the opinion that the fund is in a sound

financial position. For accounting reporting, the projected unit credit method is used to value the

liability.

The membership of the fund as at the last actuarial valuation at 31 March 2014 comprised 12 active

members and 72 pensioners.

A portion of fund assets are invested with our subsidiary, Investment Solutions, and the total value

is R179 million (2013: R168 million). Another portion of the fund assets is invested with a financial

institution with a credit rating of AA per FITCH Ratings Limited. These assets are secured by South

African government bonds, as such Alexander Forbes pension fund will be entitled to the proceeds

of the bonds should the financial institution default.

Rm 2014 2013 2012

Present value of benefit obligation (147) (157) (158)

Fair value of the plan assets 193 184 193

46 27 35

Impact of asset ceiling (46) (27) (35)

Total – – –

205

28 EMPLOYEE BENEFITS (continued)

28.2 Defined benefit pension fund obligation – South Africa (continued)

The movement in the defined benefit obligation for the years under review are as follows:

Rm

Present value of

obligation

Fair value of plan assets Total

Impact of asset

ceiling Total

At 1 April 2011 (restated) (117) 175 58 (58) –

Current service costs (2) (2) – (2)

Interest expense (11) 16 5 – 5

Remeasurements (35) 4 (31) – (31)

Change in economic

assumptions (33)

Other (2)

Contributions – 2 2 – 2

Payment from plans

Benefits paid 4 (4) – – –

Amounts settled 4 – 4 – 4

Adjustment to the asset ceiling – – – 22 22

At 31 March 2012 (restated) (157) 193 36 (36) –

At 1 April 2012 (restated) (157) 193 36 (36) –

Current service costs (1) (1) – (1)

Interest expense (11) 13 2 – 2

Remeasurements (21) 13 (8) – (8)

Change in economic

assumptions (20)

Other (1)

Contributions – 1 1 – 1

Payment from plans

Benefits paid 12 (12) – –

Amounts settled 21 (24) (3) – (3)

Adjustment to the asset ceiling 9 9

At 31 March 2013 (restated) (157) 184 27 (27) –

Current service costs (2) (2) – (2)Interest expense (11) 13 2 – 2 Remeasurements 15 3 18 – 18

Change in economic

assumptions 17

Other (2)

Contributions – 1 1 – 1 Payment from plans

Benefits paid 8 (8) – – – Amounts settled – – – – –

Adjustment to the asset ceiling (19) (19)

At 31 March 2014 (147) 193 46 (46) –

Rm 2014 2013 2012

The principal actuarial assumptions applied are

as follows:

Discount rate 8.70% 8.50% 8.50%

Inflation rate 6.40% 6.00% 6.00%

Salary increase rate 7.40% 7.00% 7.00%

Pension increase allowance 6.40% 6.00% 6.00%

206


28.2 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


28.3 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 – – –


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


28.4 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) – –


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


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)


The group’s policy is that leave days are forfeited at the end of each annual leave cycle, unless a

carry forward of leave days is specifically authorised or provided for in an employment agreement.

The timing of the use of the leave pay provision depends on employees’ leave plans and resignations

from employment during the year.

209

Rm 2014 2013 2012

29 DEFERRED TAXATION29.1 Net deferred tax liability balance

Deferred tax assets (note 29.3) 117 164 110

Deferred tax liabilities (note 29.4) (432) (450) (491)

(315) (286) (381)

29.2 Reconciliation of movement in the net deferred tax liability balance Opening balance (286) (381) (429)


Credit per income statement (67) 89 35

Charge to income statement relating to operations

discontinued and disposed of in the current year 25 (9) –

Degrouping tax charge resulting from the sale of business – 9 15

Transfer to asset groups held for sale 13 – –

Change in rate 2 5 –

Foreign subsidiaries exchange differences (2) 1 (2)


29.3 Analysis of deferred tax assetsRetirement benefit obligations 15 13 26


Calculated tax losses 38 60 61

Provisions 39 94 43

Operating lease liabilities 20 7 –

Other items 2 (14) (47)

Total deferred tax assets 117 164 110

29.4 Analysis of deferred tax liabilitiesWork-in-progress (29) (30) (34)

Deferred tax on policyholder assets (140) (64) (31)

Accelerated tax allowances, provisions and other items (5) (1) (5)

Deferred tax recognised in terms of IFRS 3 Business

Combinations* (258) (355) (421)

Total deferred tax liabilities (432) (450) (491)

* This amount represents the deferred tax balance raised on intangible assets recognised at the time of the private

equity transaction.

210

30 PROVISIONS

30.1 Analysis and reconciliation of movement in provisions

Proposed client

settlements

Provisions for errors

and omission

claims Other Total

Balance at 31 March 2013 106 154 24 284 Movement during the year:

Increase in provision 4 (26) 5 (17)Decrease in provision and payments made (11) (6) (6) (23)Foreign subsidiaries exchange differences – 37 3 40

Balance at 31 March 2014 99 159 26 284

Balance at 31 March 2012 95 125 45 265


Reclassification – – – –

Increase in provision 30 30 19 79

Interest accrued – – – –

Decrease in provision and payments made (19) (18) (41) (78)

Foreign subsidiaries exchange differences – 17 1 18

Balance at 31 March 2013 106 154 24 284

Balance at 31 March 2011 54 188 150 392


Reclassification 50 – (50) –

Increase in provision 8 – – 8

Interest accrued 5 – – 5

Decrease in provision and payments made (22) (68) (55) (145)

Foreign subsidiaries exchange differences – 5 – 5

Balance at 31 March 2012 95 125 45 265

The provision for proposed client settlements is current in nature while all other provisions are

considered to be non-current.

Uncertainties affecting the timing and amount of the settlement of provisions are discussed in the

relevant note below.

30.2 Provision for client settlements and other legal claims

In the past, the group voluntarily appointed independent legal advisors to conduct a full review of

past and current business practices across all of the South African operations. The results of the

review were fully disclosed and published on the group’s website. Following this review in 2006, the

provision for proposed client settlements for historical business practices, including the practice

referred to as ‘bulking’, was made. Interest accrues on this provision at the prime lending rate less

4% up to the date of settlement payments.

To date, the group has made substantial progress in relation to the client settlement process, with

the vast majority of all retirement funds who received offers having accepted the settlement offer.

The settlement offers are made in full and final settlement of the matter, however, a contingent

liability remains in respect of any clients who have not accepted the settlement offer. Refer to

note 37.2 Contingencies.

30.3 Provision for errors and omissions claims

The group’s errors and omissions risk is insured in the London market (the market policy), with

a limit of R1.9 billion for each and every claim or loss in the annual aggregate in excess of the

aggregate deductible of R90 million.

Upon exhaustion of the aggregate deductible of R90 million, a residual deductible of R100 ,000 each

and every claim or loss shall apply, but R30 ,000 each and every claimant deductible in respect of

investment and investment-related business activities regulated by the Financial Services Authority

in the UK.

211

30 PROVISIONS (continued)

0.3 Provision for errors and omissions claims (continued)

The aggregate deductible of R90 million (subject to a deductible of R1.5 million (Africa operations)

or £100 ,000 (UK)) each and every claim or loss in the annual aggregate is insured with a third

party cell-captive insurer, Mannequin Insurance PCC Limited (“the Mannequin policy”). The limit of

the Mannequin policy is equal to the limit of the aggregate deductible of the market policy.

The market policy covers all subsidiary and associate companies, except for Lane Clark & Peacock.

The Mannequin policy excludes associates and non-wholly-owned operations, with some exceptions.

Such operations are required to insure their own risk up to a limit of R15 million, after which they

are included in the market policy up to an additional limit of R110 million, providing them total

cover of R125 million. Lane Clark & Peacock effect their own cover.

The group has arranged a separate errors and omissions run-off cover for the Financial Services

operations in the UK sold to JLT (to comply with contractual obligations in the sale purchase

agreement) with a limit of £55 million any one claim or loss in the aggregate, with the excess layers

on the group programme providing further cover up to R1.2 billion. This is in respect of claims

notified post-completion of the sale of the operations for which the group retains responsibility.

The group has an equity investment in a cell in Mannequin Insurance PCC Limited, which entitles

the group to the underwriting profits earned by this insurance cell. The group is required to

maintain the insurance cell and ensure it is adequately capitalised. Additional capital is required to

be paid in the event that underwriting losses are incurred by the insurance cell.

The assets, liabilities, income statement and cash flow effects attributable to the group’s investment

in the Mannequin Insurance cell are included in the consolidated financial statements of the group.

The effect is to eliminate the premium payments to the cell-captive insurer on consolidation and

to recognise the assets, liabilities, cash flows and net operating results of the insurance cell in the

consolidated financial statements of the group. The insurance premiums charged to the various

group operations continue to be allocated to the relevant businesses in determining the trading

results of operations reflected in the segmental profit analysis.

27.4 Other provisions

Other provisions include the following:

• Provision for clawback of commissions received by the group. This provision is based on historical

client lapse experience. However, it may not be representative of future client lapse experience

which will affect the quantum of commission required to be repaid to insurers.

• Provision for contractual obligations in relation to premises leases entered into in the United

Kingdom, which require the relevant buildings to be refurbished at the end of the lease term.

The nature of the actual expenditure and quantum thereof will only be determined at the end of

the lease term.

• Provision for onerous premises leases. This provision is based on management’s best estimate

but conditions may change regarding the likelihood, timing and commercial terms of sub-lease

arrangements in respect of unoccupied office space.

212

31 FINANCE LEASE LIABILITY

Future minimum

lease payments Interest

Present value of

minimum lease

payments at

31 March 2014

Present value of

minimum lease

payments at

31 March 2013

Present value of

minimum lease

payments at

31 March 2012

Not later than one year 7 – 7 6 –

Later than one year but not later than

five years 34 (3) 31 29 –

Later than five years 67 (15) 52 58 –

108 (18) 90 93 –

In 2010, the group entered into a lease agreement for a head office building which took effect on

1 October 2012. The lease is for a period of 12 years. This head office building comes fully furnished with

items of furniture and fixtures including IT equipment. The items of furniture, fixtures and equipment

will be used for a majority of their economic lives and consequently have been classified as finance leases.

The minimum lease payments were therefore split between: (i) land and building (operating lease

component) and (ii) furniture and fixtures including IT equipment (finance lease component) based on

their relative fair values.

Rm 2014 2013 2012

32 OPERATING LEASE LIABILITY

Premises lease deferral: Accelerated recognition of lease costs

resulting from straight-lining of lease expenses (with no

recognition of time value of money) in terms of IAS 17 119 40 29

The significant leases to which this deferral relates are 115 West Street, Sandton (commenced October 2013),

Alexander Forbes Place, 61 Katherine Street, Sandton (ended September 2012), and Alexander Forbes

Place, 90 Rivonia Road, Sandton (ended September 2012). The escalation clause is 7.5% per annum for

115 West Street, Sandton.

33 DEFERRED INCOME

Cell-captive operations: Underwriting agency income – income

deferred to cover future servicing costs, together with a

reasonable margin thereon – 49 41

Financial Services: Commission income on insurance and

investment products – income deferred to cover future servicing

costs, together with a reasonable margin thereon 25 23 25

Multi-manager Investment and Financial Services: Structured product fees spread evenly over the expected period

of the contract – – 3

25 72 69

213

Rm 2014 2013 2012

34 INSURANCE PAYABLES34.1 Total insurance payables

Insurance payables from broking activities 23 60 84

Reinsurance creditors 283 261 218

Claims float held for insurance operations 24 20 18

Payables from short-term insurance contracts 316 604 556

Gross unearned premium provision 45 112 122

Gross outstanding claims provision 232 436 377

Gross IBNR provision 39 56 57

Payables from long-term insurance contracts

Policyholder liability under long-term insurance contracts

(group life) 360 1 ,985 1 ,085

Payables from umbrella retirement fund activities* 1 ,264 1 ,055 732

2 ,270 3 ,985 2 ,693

* A substantial portion of the payables from umbrella fund activities

results from a timing difference between the receipt of funds from new

clients at year-end and the investment of these funds with the group’s

multi-manager investment subsidiary subsequent to year-end.

34.2 Policyholder liability under long-term insurance contractsThe policyholder liability arises from group life business

written by a long-term insurance subsidiary of the group.

The net liability position comprises:

Gross policyholder liability (refer note 34.1 above) 360 1 ,985 1 ,085

Less: Reinsurance assets relating to the policyholder

liability (refer note 20) (306) (333) (258)

Net liability to policyholders 54 1 ,652 827

A reconciliation of the movement in the net policyholder

liability is as follows:

Opening balance 1 ,652 827 235


Net increase in claims experience 63 825 592

Transfer to assets and liabilities of disposal groups

held for sale (1 ,661) – –

Closing balance 54 1 ,652 827

34.3 Net payables from short-term insurance contractsThe net payables from short-term insurance contracts arise

from short-term insurance business written by the short-

term insurance subsidiaries of the group. The net payables

position comprises:

Payables from short-term insurance contracts

(refer note 34.1 above) 316 604 556

Less: Receivables from short-term insurance contracts

(refer note 20) (243) (449) (436)

Net payables from short-term insurance contracts 73 155 120

A reconciliation of the movement in the net payables

is as follows:

Opening balance 155 120 109


Net claims incurred (82) 35 11


214

Rm 2014 2013 2012

35 TRADE AND OTHER PAYABLESFinancial liabilities:

Trade payables 429 449 291

Accrued expenses 217 166 178

Other payables 307 268 306

953 883 775

Non-financial liabilities:

Employee-based accruals 471 379 350

Taxation payable 167 91 203

1 ,591 1 ,353 1 ,328

36 COMMITMENTS36.1 Operating lease commitments

Premises

Furniture and

fittings, office

equipment and other

assets2014

Total2013

Total2012

Total

The future minimum lease payments

under non-cancellable operating

leases are as follows:

Due within one year 155 9 164 189 218

Due between one to five years 814 1 815 748 656

Due after five years 1 ,501 – 1 ,501 1 ,587 1 ,405

2 ,470 10 2 ,480 2 ,524 2 ,279

Rm 2014 2013 2012

36.2 Capital commitmentsCommitments in respect of capital

expenditure approved by directors:

Contracted for – – –

Not contracted for 4 4 5

4 4 5

The funds to meet these commitments will be provided from internal cash resources generated by

operations.

36.3 Revolving credit facilityAlexander Forbes International Ltd (“AFIL”) and AF Acquisition, the direct holding company of

Alexander Forbes Limited, entered into a revolving credit facility agreement with FirstRand Group

for a maximum aggregate amount of R200 million.

This rand-denominated facility to AF Acquisition bears interest at the South African prime rate

of interest. The revolving credit facility is available for drawing until July 2014 and drawings

are permitted as and when required during the availability period, upon satisfaction of certain

conditions.

Under the revolving credit facility, a commitment fee is payable to the lender in respect of each

calendar quarter until the final payment date. The commitment fee is calculated as 0.9% of the

average amount available for draw-down during the quarter, calculated daily and payable in arrears

on 31 May and 30 November each calendar year.

The outstanding balance on the revolving credit facility is obliged to be repaid upon a ‘mandatory

redemption event’ or ‘early redemption event’, both as defined in the preference share agreement.

The repayment must occur within 30 days of demand of such repayment.

This facility ranks pari passu with senior debt preference shares issued by AF Acquisition as set out

in the Inter-creditor agreement (defined below).

215

36 COMMITMENTS (continued)36.4 Inter-creditor agreement

Subsequent to the debt restructure detailed in note 27 Borrowings, the inter-creditor agreement

ceased to exist.

36.5 Guarantors under the high-yield term loan agreementSubsequent to the debt restructure detailed in note 27 Borrowings, all guarantees under the

high-yield loan agreement ceased to exist.

37 CONTINGENCIES37.1 Overview

In the conduct of its ordinary course of business, the group is exposed to various actual and

potential claims, lawsuits and other proceedings relating to alleged errors and omissions, or non-

compliance with laws and regulations. The directors are satisfied, based on present information and

the assessed probability of claims eventuating, that the group has adequate insurance programmes

and provisions in place to meet such claims. However, like all businesses of this type, the risk exists

that significant adverse developments in past claims, or a significant increase in the frequency

or severity of future claims for errors and omissions, could have a material effect on the group’s

reported results.

The structure of the group’s professional indemnity insurance programme is explained in note 30.3

to these financial statements.

37.2 Client settlements arising from historical business practices‘’Bulking’’ is the term used to describe the practice of aggregating, on a notional basis, the total

value of administered bank current accounts to negotiate better interest rates with the banks on

behalf of clients. In response to identifying that there was inadequate disclosure to clients of fees

historically received in respect of such bulking arrangements implemented by a subsidiary, it made

settlement offers to such affected clients. In addition, as part of the commitment to meet the highest

standards of governance and integrity, Alexander Forbes appointed independent legal advis ors and

auditors to conduct a full review of the past and current business practices across all of the South

African operations of the group during 2006. The results of this review were fully disclosed to the

Regulator and published on the group’s website. As a result of the bulking matter and the

comprehensive business practice review, the group made provision for amounts in respect of

proposed client settlements relating to bulking and issues identified during the wider business

practice review. Interest accrues on these settlement amounts up to the date of payment. As of the

date of these financial statements, most clients and past clients have accepted these settlement

offers and the necessary payments have been made. The group continues to make progress with

settlement payments to remaining clients which now mainly consist of closed and liquidated funds.

Although provisions made are considered to be adequate, a contingent liability remains in

this regard.

37.3 SARS information request in respect of the interest deduction relating to the 2007 company reorganisationThe group’s annual financial statements authorised for issue on 9 June 2014 disclosed a tax

contingency relating to information requests from SARS focused on the 2007 acquisition of the

businesses by a consortium of private equity investors. Subsequent to the issuing of the annual

financial statements for the group, at the initiative of the group and in order to bring finality to this

matter, Alexander Forbes has reached an agreement with SARS towards a full and final settlement

of the matter and, specifically, to settle the tax issue relating to the deduction of interest claimed

over the years since the transaction up to and including the financial year ended 31 March 2014.

The conclusion of the settlement resulted in an additional assessment for cash taxes payable by

the group in an amount of R60 million and the waiver of assessed losses carried forward which

include assessed losses in respect of which an amount of R66 million of deferred tax assets w ere

previously raised and held on the balance sheets of various subsidiaries of the group. Also refer to

notes 8 and 44.

The agreement will be implemented as soon as practicably possible.

216

Rm 2014 2013 2012

38 CASH GENERATED FROM OPERATIONSProfit before taxation from continuing operations 324 94 100

Items disclosed separately:

Net interest expense 610 719 655

Non-cash items:

Depreciation of property and equipment 73 74 68

Amortisation of intangible assets 191 163 160

Movement in operating lease liability 79 11 -

Movement in deferred income and expenses 60 3 (14)

Capital gains – – 1

Income statement charge for retirement benefit obligations – 4 11

Interest income on financial assets – 3 –

Non-cash movement in borrowings – – (11)

Movement in provisions (33) 1 (138)

Foreign exchange movements on inter-company loans included

in FCTR 31 32 –

Movement in other non-cash items (4) (3) (2)

1 ,331 1 ,101 830

39 INTEREST PAIDFinance costs per income statement (843) (848) (816)

Non cash finance costs 814 255 249

Capitalised interest on borrowings paid (refer to note 27) (2 ,096) – –

Finance costs paid (2 ,125) (593) (567)

40 MOVEMENT IN WORKING CAPITAL AND INSURANCE BALANCESMovement in working capital balances

Trade and other receivables (33) (143) (34)

Trade and other payables 197 142 128

Movement in insurance balances

Insurance receivables (17) (178) (228)

Insurance payables 354 1292 862

Non-cash movement in insurance payables relating to fair value

adjustment on financial assets – (813) –

501 300 728

41 CASH FLOWS FROM POLICYHOLDER INVESTMENT CONTRACTSPremium inflows 39 ,229 37 ,283 29 ,270

Investments made net of disinvestments (5 ,764) (7 ,823) (8 ,430)

Transfer to assets held for sale* (1 ,301) – –

Movement in cell-captive insurance facilities 8 544 263

Investment withdrawals (37 ,226) (32 ,486) (24 ,326)

(5 ,054) (2 ,482) (3 ,223)

* Subsequent to the transfer to assets held for sale, the Guardrisk group of companies was disposed as detailed in note 42 Disposal

of subsidiaries.

217

Rm 2014 2013 2012

42 TAXATION PAIDTaxation payable at beginning of year (91) (203) (66)

Prepaid tax at beginning of year 5 20 9

Charge in income statement (422) (244) (344)

Charge to income statement for operations discontinued and

disposed of in the year included in discontinued operations (71) (78) (21)

Adjusted for:

Tax attributable to policyholders (2) – 1

Deferred tax charge per income statements – – (39)

Reclassification of disposal groups held for sale 29 5 –

Sale of business – discontinued operations – (13) 19


Tax payable in UK partnership (1) – 14

Prepaid taxation at end of year (3) (5) (20)

Taxation payable at end of year 167 91 203

(387) (426) (242)

43. RELATED PARTY DISCLOSURE

List of related party relationships

43.1 Major shareholders

The private equity consortium investors together have a 53.6% interest in the company. However,

no single member of the consortium or any other shareholder has an effective equity interest of

more than 19% in the company.

43.2 Subsidiaries, joint ventures and associates

Details of subsidiaries, joint ventures and associates, which are considered material to the group

and in respect of which the group has a continuing interest, are provided in Annexure 8 to the

Pre- listing Statement.

43.3 Post-employment benefit plans

Details of retirement benefit plans are provided in note 28 Employee benefits.

43.4 Directors

Details of the directors of the company are provided in Annexure 6 of the Pre-listing Statement.

43.5 Prescribed officers

The group has defined the Group Chief Executive, the Group Chief Financial Officer and the

Managing Directors of the major operating segments as prescribed officers of the group as defined

by the new Companies Act 2008.

43.6 Key management personnel

Key management personnel are defined as the prescribed officers and the Board of Directors of the

Company.

43.7 Transactions with shareholders

Details of the change in shareholding as a result of the debt restructure undertaken on 31 March 2014

are detailed in Annexure A to these financial statements.

A portion of the fees paid to non-executive directors during the year of R1.6 million (2013:

R1.5 million) is paid to the shareholder company that the non-executive directors represent.

43.8 Transactions with subsidiaries and joint ventures

There have been no material transactions with joint ventures during the year.

218

43 RELATED PARTY DISCLOSURE (continued)

43.9 Transactions with associates

Details of dividends received from associates are provided in note 18 ‘Investment in associates’.

43.10 Transactions with post-employment benefit plans

Contributions to retirement benefit plans amounted to R2 million (2013: R1 million) to the defined

benefit fund and R7 million (2013: R7 million) to the post-retirement medical obligation plan, as

detailed in note 28 Employee benefits. There are no amounts outstanding at year-end. Assets of the

retirement benefit plans are invested through Investment Solutions Limited, these assets amount to

R179 million (2013: R168 million).

The retirement benefit plans of the group are compulsory funds and as such key management are

participants in the fund. At 31 March 2014, the investments held through the retirement benefit

plans by key management are R28 million (2013: R22.2 million).

43.11 Transactions with directors

The remuneration of executive directors is determined and approved by the Remuneration

Committee. The remuneration of non-executive directors, in the form of fees, is proposed by the

Remuneration Committee and approved by shareholders at each annual general meeting.

The Remuneration Committee consists of a majority of non-executive directors. As a committee of

the board, the committee determines, agrees and develops the general policy on executive directors’

and senior management’s remuneration. The objective is to ensure that such remuneration is fair,

responsible and appropriate and that the conditions of employment and remuneration scales, are

market-related and at levels sufficient to attract, retain and motivate individuals of quality, taking

account of the fact that the group is an international business. The Remuneration Committee is also

mandated to determine the criteria necessary to measure the performance of the executive directors

in discharging their responsibilities. There are no management, consulting, technical or other fees,

nor any commission, paid to directors other than what is disclosed below.

Executive directors’ and chairman’s remuneration paid to current officeholders during the year

are detailed below. In addition bonuses amounting to R28.4 million (2013: R23.8 million) for the

current period under review were accrued and have not yet been paid.

219


43.11 Transactions with directors (continued)

Executive directors and prescribed officers (R’000) Salary Bonus

Benefit and allowances

Retirement and medical

contri-butions Total

2014MS Moloko (Chairman) 2 ,240 2 ,250 47 317 4 ,854E Chr Kieswetter (Group Chief

Executive) 4 ,626 5 ,200 99 484 10 ,409DM Viljoen (Group Chief Financial

Officer) 3 ,126 3 ,600 69 504 7 ,299S Schoeman* (Managing Director) 1 ,893 1 ,801 42 326 4 ,062D Msibi* (Managing Director) 2 ,253 2 ,999 54 362 5 ,668P Edwards* (Managing Director) 2 ,348 2 ,000 45 419 4 ,812G Dhombo* (Managing Director) 1 ,902 1 ,722 38 200 3 ,862

Total for the year 18 ,388 19 ,572 394 2 ,612 40 ,966

* Prescribed officers

2013MS Moloko (Chairman) 2 ,068 2 ,001 48 299 4 ,416

E Chr Kieswetter (Group Chief

Executive) 3 ,704 4 ,700 657 457 9 ,518

DM Viljoen (Group Chief Financial

Officer) 2 ,858 3 ,500 71 471 6 ,900

S Schoeman* (Managing Director) 1 ,660 1 ,650 112 306 3 ,728

D Msibi* (Managing Director) 2 ,080 2 ,356 44 342 4 ,821

P Edwards* (Managing Director) 1 ,749 2 ,000 115 333 4 ,198

G Dhombo* (Managing Director) 1 ,656 1 ,650 142 188 3 ,636

Total for the year 15 ,775 17 ,857 1 ,189 2 ,396 37 ,217


** A portion of the bonus amount reflected above does not represent cash payments as it includes a share

allocation in the Management Share Trust.

GBP Salary BonusLoss of

office

Retirement and

medical contri-

butions Total

2014G Stobart* (Managing Director) 227 ,492 260 ,000 – 51 ,660 539 ,152T Gusmao* (Managing Director) – – – – –

Total for the year (GBP) 227 ,492 260 ,000 – 51 ,660 539 ,152

Total for the year (R’000) 3 ,669 4 ,193 – 833 8 ,695

2013G Stobart* (Managing Director) 234 ,192 250 ,000 – 50 ,834 535 ,026

T Gusmao* (Managing Director) 97 ,201 220 ,000 113 ,169 33 ,920 464 ,290

Total for the year (GBP) 331 ,393 470 ,000 113 ,169 84 ,754 999 ,316

Total for the year (R’000) 4 ,507 6 ,392 1 ,539 1 ,153 13 ,591

220



Shareholding in the group

The directors’ and prescribed officers’ indirect shareholding of Alexander Forbes Equity Holdings

Proprietary Limited is through the Alexander Forbes Management Trust and the Alexander Forbes

Management Co-Investment Trust (the trust), which was formed for senior executives of the

Alexander Forbes Group. Prior to the completion of the group debt restructuring, these trusts held

in aggregate shares amounting to 8.7% of the ordinary share capital of the company. As part of the

group debt restructuring on 31 March 2014, a special purpose vehicle, AF MST Funding SPV

Proprietary Limited, was formed for the benefit of management and holds ordinary shares in the

company. Following the completion of the debt restructuring, these trusts, together with the newly

formed special purpose vehicle, now hold in aggregate shares amounting to 5.7% of the ordinary

share capital of the company. Participants in the trust do not directly own shares in the company.

However, the trusts hold shares in the company for the benefit of the participants. Each participant

made a contribution of capital to the trust. The original value at which the points were allocated

from the trust was R1.00 each. The most recent value at which points were allocated as at 31 March

2014 was R2.46 each.

Executive directors and prescribed officers’ participation in the Alexander Forbes Group Management Share Trust Scheme

Points Points Points Points Points

31 March2012

Acquired in 2013

31 March2013

Acquired in 2014

31 March2014

MS Moloko (Chairman) 1 ,801 ,034 – 1 ,801 ,034 – 1 ,801 ,034

E Chr Kieswetter (Group Chief

Executive) 4 ,310 ,494 – 4 ,310 ,494 2 ,406 ,651 6 ,717 ,145

DM Viljoen (Group Chief Financial

Officer) 2 ,260 ,870 – 2 ,260 ,870 938 ,000 3 ,198 ,870

G Dhombo* (Managing Director) 960 ,870 – 960 ,870 400 ,000 1 ,360 ,870

P Edwards* (Managing Director) 817 ,391 – 817 ,391 500 ,000 1 ,317 ,391

S Schoeman* (Managing Director) 960 ,870 – 960 ,870 – 960 ,870

T Gusmao* (Managing Director) 1 ,434 ,783 (634 ,783) 800 ,000 – 800 ,000

G Stobart* (Managing Director) 1 ,934 ,783 – 1 ,934 ,783 840 ,000 2 ,774 ,783

D Msibi* (Managing Director) 1 ,500 ,000 – 1 ,500 ,000 – 1 ,500 ,000

15 ,981 ,095 (634 ,783) 15 ,346 ,312 5 ,084 ,651 20 ,430 ,963


Investments in the High Yield Term Loan

In 2009 certain key management were afforded the opportunity to invest in the high yield term

loan and related instruments in line with their shareholding through the Management Trust. Key

management has invested R2.05 million directly into the loan and the relevant assets associated,

on the same terms and conditions as the rights offer applicable to all shareholders at the time. In

addition, those members who did not follow their rights are beneficiaries of the HY Investment Trust.

The HY Investment Trust was incorporated for management for the purposes of this transaction

and the right to invest in the high yield term loan and related assets were sold to RMB. The payment

for these rights by RMB will be determined at the settlement date of the high yield term loan and

related instruments and will depend on the return on investment achieved by RMB.

The high yield term loan was settled as part of the debt restructure on 31 March 2014 and as a

result those members of management who had invested directly in the high yield term loan, were

settled in full. RMB also received settlement of the high yield term loan and as a result of the

return on investment achieved, made a payment to the HY Investment Trust. In addition the HY

Investment Trust sold their PIK Preference Shares to the MST Funding SPV. The proceeds by the

HY Investment Trust received from RMB and the PIK Preference share sale were distributed to the

beneficiaries of the HY Investment Trust.

221



Long-term Incentive Plan (LTIP)

A Long-term Incentive Plan (LTIP) was established during the previous financial year aimed at

improving retention of key staff and management and first awards were made in January 2012.

The benefit is linked to compound growth rate hurdles achieved in the value of shareholders’ equity

at the time of exit by the current private equity investors from 1 April 2011. The date of exit is

uncertain and the scheme has no value below a compound growth rate of 12%. This incentive, if any

value is achieved, is payable in two tranches being 50% at the time of exit and 50% 18 months later

if the participant remains in employment. The value reflected for each below is the probability based

estimated present value of the LTIP at year-end. The LTIP had no value at 31 March 2014 (2013: nil)

Subsequent to year-end, a new LTIP scheme was approved that will replace the scheme described

above. The new scheme has similar terms to the current scheme but has recalibrated performance

measures following the various disposals resulting from the strategic refocus as well as the capital

restructure of the group. The scheme will also contain a 50% pure retention component aimed at

ensuring retention of key individuals during and after the anticipated exit by the private equity

shareholders with the balance being based on future performance criteria.

A separate Long-Term Incentive Scheme was established for Investment Solutions amongst key staff

and management. D Msibi participates in this scheme which is based on a participation of profit

growth above a compound growth rate of 10% per annum. The incentive payment so determined,

if any, is paid in three equal tranches over the ensuing three years if the participant remains

in employment.

R’000 2014 2013 2012

MS Moloko (Chairman) – – 60

E Chr Kieswetter (Group Chief Executive) – – 182

DM Viljoen (Group Chief Financial Officer) – – 101

S Schoeman* (Managing Director) – – 52

D Msibi* (Managing Director) 395 201 205

P Edwards* (Managing Director) – – 55

G Dhombo* (Managing Director) – – 52

T Gusmao* (Managing Director) – – 54

G Stobart* (Managing Director) – – 83

395 201 844


Non-executive directors’ fees and remunerationNon-executive directors are paid by other companies in the Alexander Forbes Group and independent

non-executive directors are paid fees by the company and other companies within the Alexander

Forbes Group.

Independent non-executive directors R’000 Salary Bonus

Retirement and

medical contrib-

utions Other* Total

2014B Petersen – – – 852 852D Konar – – – 1 ,552 1 ,552M Collier – – – 1 ,067 1 ,067H Meyer – – – 516 516

Total for the year – – – 3 ,987 3 ,987

2013B Petersen – – – 794 794

D Konar – – – 824 824

M Collier – – – 1 ,151 1 ,151

H Meyer – – – 482 482


* 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



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


A Roux (Ethos Capital v GP (SA)

Limited) – – – 324 324

JA van Wyk (Actis AF Holdings

Limited) – – – 324 324


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


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


* 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


45.3 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


45.3 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


45.5 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


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


– Held to maturity – 14 –

– Loans and receivables 92 165 173

Trade and other receivables

– Loans and receivables 517 627 640


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


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


46.1 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 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



46.1.1 Objectives, policies and process to manage credit risk (continued)

(iv) General operations (continued)


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


There is no direct significant credit risk to the group on these assets as they are directly

matched to policyholders’ liabilities, therefore any credit risk in respect of policyholder

assets is carried by the policyholder and not the group.

An analysis of financial assets held under multi-manager investment contracts

indicates that R28 376 million of the assets are with institutions rated between AAA and

A – (16.7%) of the assets, R20 724 million of the assets are with institutions rated

between BBB and B – (12.3%), and the remainder which include listed equity and

preference share securities are unrated.

(ii) General operations

Financial assets

These assets are carried at fair value with the carrying amount at each reporting date

representing the group’s maximum exposure to credit risk in relation to these assets.

No financial assets designated as fair value through profit or loss have been pledged as

collateral. These financial assets are held with reputable institutions and the credit risk

has been evaluated to be minimal.

Financial assets mainly comprise preference shares, premium finance receivables,

discounted debtors, loan notes and equity housing loans.

Rm 2014 2013 2012

Financial assets classified as held to maturity

– Bonds – 14 –

Financial assets classified as held for sale

– Equity securities – listed – – 18

– Unit trusts 1 3 –

Financial assets designated at fair value through

profit or loss

– Preference shares 34 44 44

– Derivative securities – 64 –

– Collective investment schemes 243 183 197

– Bonds 39 1 ,591 777

Financial assets classified as loans and receivables

– Premium finance receivables – 79 93

– Equity housing loans 42 44 49

– Other loans 50 42 31

409 2 ,064 1 ,209

233



46.1.2 Exposure to credit risk (continued)

There is no concentration of credit risk on premium finance receivables and discounted

debtors as the receivables have been advanced to a large number of clients with no significant

concentration to a single client. The carrying amounts of these receivables approximate the

fair values at each reporting date and represent the group’s maximum exposure to credit

risk in relation to these assets.

Other loans are amounts owing by staff and shareholders; the credit risk is assessed against

the relationship with these parties.

Insurance-related receivables

Reinsurers are utilised in the group’s underwriting activities conducted in the insurance-

licensed subsidiary companies. Under the terms of the reinsurance agreements, reinsurers

agree to reimburse the ceded amount in the event that a claim is paid. However, the group

remains liable to its policyholders regardless of whether the reinsurer meets the obligations

it has assumed. Consequently, the group is exposed to credit risk. The carrying amounts of

insurance-related receivables reflected on the statement of financial position approximate

the fair values at reporting date and represent the group’s maximum exposure to credit

risk in relation to these assets. At reporting date, the group did not consider there to be a

significant concentration of credit risk to reinsurers or other receivables from insurance

contracts which had not been adequately provided for.


The carrying amounts of these receivables reflected on the statement of financial position

approximate their fair value at reporting date and represent the group’s maximum exposure

to credit risk in relation to these assets. At reporting date, the group did not consider

there to be a significant concentration of credit risk to trade and other receivables which

had not been adequately provided for. Trade and other receivables comprise amounts due

spread across a large number of clients. The group’s top 20 clients overall represent only

approximately 5% of income from operations and no single client contributes more than

0.4% of the group’s income from operations.

Maximum exposure and age analysis of financial assets including those that are past due

but not impaired:

Current Past due Past due Past due

Rm0 – 30 days

30 – 60 days

60 – 90 days

90+ days Total

31 March 2014Trade receivables 253 54 12 40 359Other receivables 88 8 – 62 158

341 62 12 102 517

31 March 2013Trade receivables 259 75 13 15 362

Other receivables 148 28 2 87 265

407 103 15 102 627

31 March 2012Trade receivables 315 192 34 99 640

Accrued and not billed

balances 241 – – – 241

556 192 34 99 881

None of the trade receivables reflected above are impaired. The majority of the trade

receivables fall within 90 days.

234



46.1.2 Exposure to credit risk (continued)


Cash and cash equivalents balances and transactions are limited to high credit quality

institutions. At reporting date the group did not consider there to be a significant

concentration of credit risk to cash and cash equivalents balances other than cash balances

which are placed with one of the four large South African banking institutions as approved

by the operational board of directors.

The financial institutions used in the current and prior financial year had ratings, as

determined by external credit rating agencies Fitch and Standard & Poor’s, of between AA

and BBB.

During the current year, there have been no changes to the fair values of the financial assets

of general operations presented above due to changes in the credit risk associated with these

assets. There have been no significant changes in credit risk exposures since the prior year.

46.2 Liquidity risk

46.2.1 Objectives, policies and process to manage liquidity risk


The multi-manager investment operations are conducted through long-term insurance

subsidiary companies who issue insurance contracts to policyholders. These long-term

insurance companies are registered financial institutions and are required to hold

minimum solvency capital to, inter alia, reduce policyholder exposure to the group’s

liquidity risk. The regulator of insurance companies, the FSB in South Africa and the

FSA in the United Kingdom, are regulatory authorities that regularly review compliance

with these minimum capital requirements. Management monitors compliance with

these minimum capital requirements.

In addition, liquidity risk arising from unexpected lapses and withdrawals is limited

through policy terms and conditions that restrict claims to the value and timing at

which the assets are realised. The maturity analysis of these policyholders’ liabilities is

detailed in the note to these financial statements called ‘Financial liabilities held under

multi-manager investment contracts’ and these liabilities are mostly open-ended as per

note 25.2.


Liquidity risk management implies maintaining sufficient cash and ensuring the

availability of funding through an adequate amount of cash resources and credit

facilities. The group has a revolving credit facility of R200 million, which can be used

for general corporate working capital purposes. Monitoring of budgeted and projected

cash flows supports the fact that the group will generate sufficient cash flows from

operations to limit the impact of liquidity risk. The group has prescribed authority

mandates and borrowing limits. Compliance with debt covenants is monitored by the

group and divisional boards.

The group sets limits on the minimum proportion of maturing funds available to meet

claims arising from long-term insurance contracts and unexpected levels of demands.

Similarly the majority of the assets held to match short-term insurance contracts are

in money market instruments which are highly liquid. Net cash flows are monitored

closely to ensure claim payments under long-term and short-term insurance contracts

can be made when requested. Long-term and short-term insurance subsidiaries are

registered financial institutions and are required to hold minimum capital and reduce

policyholder exposure to the group’s liquidity risk. The regulatory authority in South

Africa regularly reviews compliance with these minimum capital requirements.

Management monitors compliance with these minimum capital requirements. Assets

linked to investments are realisable at short notice.

There have been no significant changes in the way in which liquidity risk is managed


235


46.2 Liquidity risk (continued)

46.2.2 Exposure to liquidity risk


Liquidity risk arises from unexpected lapses and withdrawals by policyholders. The

group is able in such cases to transfer ownership of the underlying assets within the

policy to the policyholder to extinguish its liability.


As detailed in note 27, the group undertook a debt restructure on 31 March 2014,

resulting in the group having a single layer of unsecured term debt. The group may

in time reduce the debt by the application of internal cash flow or refinance the debt on

maturity in 2017 in the market. The group believes the refinancing risk is mitigated by

the lower level of gearing subsequent to the restructure.

There have been no significant changes in liquidity risk exposures since the prior year.

Liquidity analysis for assets and liabilities at a group level

Contractual cash flows (undiscounted)

Rm0 – 1 year

1 – 3years

3 – 5years

>5 years

Undated/ Linked Total

2014 AssetsFinancial assets held under

multi-manager investment

contracts 118 – – – 253 ,629 253 ,747Financial assets of cell-

captive insurance facilities – – – – 315 315Financial assets 291 1 – 23 94 409Insurance receivables

Trade and other receivables 514 – – – 3 517Cash and cash equivalents 1 ,707 – – – 2 ,200 3 ,907

Total financial assets 2 ,630 1 – 23 256 ,241 258 ,895

Liabilities

Financial liabilities held

under multi-manager

investment contract* 118 – – – 253 ,629 253 ,747Liabilities of cell-captive

insurance facilities* – – – – 315 315Borrowings 123 1 ,886 – – 16 2 ,025 Insurance payable

Trade and other payables 939 – – – 16 955

Total financial liabilities 1 ,180 1 ,886 – – 253 ,976 257 ,042

2013AssetsFinancial assets held under


contracts 94 – – – 220 ,696 222 ,790Financial assets of cell-

captive insurance facilities – – – – 11 ,374 11 ,374Financial assets 310 – 1 ,591 66 97 2 ,064Trade and other receivables 623 – – – 4 627Cash and cash equivalents 2 ,205 – – – 1 ,421 3 ,626

Total financial assets 3 ,232 – 1 ,591 66 235 ,592 240 ,481

236

46 FINANCIAL RISK (continued)46.2 Liquidity risk (continued)

46.2.2 Exposure to liquidity risk (continued)Liquidity analysis for assets and liabilities at a group level

Contractual cash flows (undiscounted)

Rm 0–1 year 1–3 years 3–5 years >5 yearsUndated/

Linked Total

2013 LiabilitiesFinancial liabilities held

under multi-manager

investment contract* 2 ,294 – – – 220 ,496 222 ,790

Liabilities of cell-captive

insurance facilities* 2 ,621 – – – 8 ,753 11 ,374

Borrowings 1 ,217 6 ,242 3 ,844 – 12 11 ,315

Trade and other payables 875 – – – 8 883

Total financial liabilities 7 ,007 6 ,242 3 ,844 – 229 ,269 246 ,362

2012AssetsFinancial assets held under


contracts 1 ,784 – – – 208 ,210 209 ,994

Financial assets of cell-

captive insurance facilities 201 33 – – 9 ,250 9 ,484

Financial assets 1 ,160 – – – 49 1 ,209

Trade and other receivables 640 – – – – 640

Cash and cash equivalents 3 ,062 – – – – 3 ,062

Total financial assets 6 ,847 33 – – 217 ,509 224 ,389

LiabilitiesFinancial liabilities held

under multi-manager

investment contract* – 629 – – 209 ,365 209 ,994

Liabilities of cell-captive

insurance facilities* – – – – 9 ,484 9 ,484

Borrowings 1 ,265 1 ,903 3 ,082 3 ,844 12 10 ,106

Trade and other payables 775 – – – – 775

Total financial liabilities 2 ,040 2 ,532 3 ,082 3 ,844 218 ,861 230 ,359

* Although these financial liabilities are payable on demand they can be settled in cash or by delivery of the

underlying assets.

The directors of the company are confident that the future liquidity requirements of the

company will be met through the future cash flows generated.

46.3 Market risk

46.3.1 Objectives, policies and processes to manage market risk


The group has established an investment committee which, in conjunction with the

board of directors of the multi-manager investment subsidiary companies, is responsible

for setting investment strategies for the various investment portfolios and monitoring

compliance therewith.

Investment Solutions employs a multi-manager investment approach, focusing on

reducing risk through optimal and multiple layer diversifications. The structure

of investment portfolios is based on the contracts entered into and the risk profile

selected by the client. Within these parameters, investments are managed with the

aim of delivering superior returns, while limiting risk to acceptable levels, within the

framework of statutory requirements. Although Investment Solutions does not make

use of derivatives directly, the underlying managers may do so within strict mandate

controls to achieve a particular portfolio’s investment objective in the most effective

manner or to smooth or protect portfolio returns.

237


46.3 Market risk (continued)

46.3.1 Objectives, policies and processes to manage market risk (continued)


Interest rate risk

The group does not hedge against the interest rate exposure of fee income derived

by the group and the board has accepted that changes in interest rates can result in

volatility in the group’s earnings. An increase or decrease in interest rates impacts on

the value of debt securities and cash balances included in assets from multi-manager

investment contracts.

The group’s debt restructure on 31 March 2014 resulted in it having a single layer of

debt with interest linked to the 3-month JIBAR.

Currency risk

The group does not hedge against this currency exposure to earnings and the board

has accepted that changes in exchange rates can result in volatility in the group’s

earnings when reported in rand.

Other price risk

The group monitors the risk associated with the fee income attributable to the equity

assets under management in the multi-manager investment operations. The exposure

to equity markets is monitored and specific advice is taken on the economic outlook

with regard to this fee income. The group does consider various derivative instruments

to protect this income stream.

There have been no significant changes in the way in which market risk is managed


46.3.2 Exposure to market risk


Policyholders’ liabilities are linked to investments in equity securities, preference

shares, debt securities, collective investment schemes, mutual funds, cash and other

assets. These are valued at ruling market values and are therefore susceptible to daily

market fluctuations.

There is no direct significant market risk, either by interest rate, currency or other

price risk, to the group on financial assets held in respect of multi-manager investment

contracts as the effect of any changes in these market risks is directly attributable

to policyholder assets and policyholder assets are directly matched by policyholder

liabilities. There are assets held within the policyholder assets which are exposed to

currency risk arising from various currency exposures primarily with respect to

sterling, euro and the US dollar, but these are matched by policyholder liabilities.

Fee income earned by the group on assets from multi-manager investment operations is

based on assets which are exposed to fluctuations in interest rates, foreign currencies

and equity prices. The group does not hedge against the interest rate and currency

exposures and the board has accepted that changes in interest and exchange rates can

result in volatility in the group’s earnings.


Interest rate risk

The group’s income and operating cash flows are substantially independent of changes

in market interest rates, except for interest costs on provisions for client settlements

which are sensitive to short-term interest rates. This impact is offset by the effect of

short-term interest rate movements on interest earned on cash balances.

As detailed above, fee income derived by the group on assets from multi-manager

investment contracts will be impacted by any changes in value of such assets arising

from fluctuations in interest rates.

238


46.3 Market risk (continued)

46.3.2 Exposure to market risk (continued)

(ii) General operations (continued)

In addition, a portion of fee income earned in the retail business in the Financial Services

operations in South Africa is affected by changes in interest rates as this income is

linked to assets managed by this business.

The group’s debt restructure on 31 March 2014 resulted in it having a single layer of

debt with interest linked to the 3 month JIBAR.

Currency risk

The group operates internationally and is exposed to foreign exchange risk arising

from various currency exposures. As reflected in segmental profit analysis contained

in these financial statements, the group derives a portion of its operating profit before

non-trading and capital items in foreign currencies. Approximately 19% (2013: 16%) of

the group’s trading results from operations is derived from its international operations,

primarily in the United Kingdom, and 5% (2012: 3%) from operations in Africa outside

of South Africa.

Fee income derived by the group on assets from multi-manager investment operations

will also be impacted by any changes in value of such assets arising from fluctuations

in foreign currency exchange rates.

In addition, a portion of fee income earned in the retail business in the Financial

Services operations in South Africa is impacted by changes in foreign currencies as

this income is linked to assets managed by this business.

Concentration risk

The group is not exposed to any significant concentration risk.

Other price risk

As detailed above, fee income derived by the group on assets from multi-manager

investment operations will be impacted by any changes in the value of such assets

arising from fluctuations in equity markets.

In addition, a portion of fee income earned in the retail business in the Financial

Services operations in South Africa is impacted by changes in equity markets as this

income is linked to assets managed by this business.

46.4 Fair value hierarchy

A number of the group’s accounting policies and disclosures for financial assets and liabilities

require the determination of fair value. Fair value measurement is influenced by current market

conditions and is subject to the financial risks noted above.

A summary of the financial assets and liabilities measured at fair value for the group, split per

financial instrument, is presented in the introduction to this note and shown in summary below:

Rm Fair value Book value* 2014 2013 2012

AssetsFinancial assets held under


contracts 253 ,747 – 253 ,747 222 ,790 209 ,994

Financial assets of cell-captive

insurance facilities 315 – 315 11 ,374 9 ,484

General operationsFinancial assets 317 92 409 2 ,064 1 ,209

Trade and other receivables – 517 517 627 640

Cash and cash equivalents – 3 ,907 3 ,907 3 ,626 3 ,062

Total financial assets 254 ,379 4 ,516 258 ,895 240 ,481 224 ,389

239


46.4 Fair value hierarchy (continued)

Rm Fair value Book value* 2014 2013 2012

LiabilitiesFinancial liabilities held under


contracts 253 ,747 – 253 ,747 222 ,790 209 ,994

Liabilities of cell-captive insurance

facilities 315 – 315 11 ,374 9 ,484

General operationsBorrowings – 1 ,652 1 ,652 5 ,409 5 ,448

Trade and other payables – 953 953 883 775

Total financial liabilities 254 ,062 2 ,605 256 ,667 240 ,456 225 ,701

* For financial assets and financial liabilities not measured at fair value the book values have been disclosed which

approximates the fair value.

46.4.1 Valuation methods and assumptions for valuation techniques

At 31 March 2014, financial assets classified as Level 1 comprise approximately 74% (201 3:

73%; 2012: 88%) of financial assets measured at fair value on a recurring basis. Fair value

measurements classified as Level 1 include exchange-traded prices of fixed maturities,

equity securities and derivative contracts.

At 31 March 2014, financial assets classified as Level 2 comprise approximately 25% (2013:

26%; 2012: 11%) of financial assets measured at fair value on a recurring basis. They

primarily include government and agency securities and certain corporate debt securities,

such as private fixed maturities. As market quotes generally are not readily available or

accessible for these securities, their fair value measures are determined utilising relevant

information generated by market transactions involving comparable securities. They are

often based on model pricing techniques that effectively discount prospective cash flows

to present value using appropriate sector-adjusted credit spreads commensurate with

the security’s duration, also taking into consideration issuer-specific credit quality and

liquidity. These valuation methodologies have been studied and evaluated by the group and

the resulting prices determined to be representative of exit values.

Observable inputs generally used to measure the fair value of securities classified as Level 2

include benchmark yields, reported secondary trades, broker-dealer quotes, issuer spreads,

benchmark securities, bids, offers and reference data. Additional observable inputs are used

when available, and as may be appropriate.

As disclosed in note 11.2, the net fair value of derivative positions is approximately

R8 million at 31 March 2014 (2013: R1 ,163 million). All of these derivative contracts are

traded in the over-the-counter (OTC) derivative market and are classified in Levels 1 and 2.

The fair values of derivative assets and liabilities traded in the OTC market are determined

using quantitative models that require use of the contractual terms of the derivative

instruments and multiple market inputs, including interest rates, prices and indices to

generate continuous yield or pricing curves and volatility factors, which are then applied

to value the positions. The predominance of market inputs is actively quoted and can be

validated through external sources or reliably interpolated if less observable.

The credit risk of the counterparty and of the group is considered in determining the fair

values of all OTC derivative asset and liability positions, respectively, after taking into

account the effects of master netting agreements and collateral arrangements. In each

reporting period, the group values its derivative positions using the standard swap curve

and evaluates whether to adjust the embedded credit spread to reflect change in counterparty

or its own credit standing.

At 31 March 2014, investments classified as Level 3 comprise approximately 1% (2013:

2%) of financial assets measured at fair value on a recurring basis. They primarily include

listed and unlisted equity securities and collective investment schemes whose traded prices

are not considered liquid enough to justify Level 2 observation. Determinations to classify

fair value measures within Level 3 of the valuation hierarchy are generally based on the

significance of the unobservable factors to the overall fair value measurement. The group

applies various due-diligence procedures, as considered appropriate, to validate these non-

binding broker quotes for reasonableness, based on its understanding of the markets,

including use of internally-developed assumptions about inputs a market participant would

use to price the security.

240



46.4.1 Valuation methods and assumptions for valuation techniques (continued)

The group issues a significant number of investment contracts that are designated at fair

value through profit or loss. These investment contracts are not quoted in active markets,

and their fair values are determined by using valuation techniques. Such techniques (for

example, valuation models) are validated and periodically reviewed by qualified personnel

independent of the area that created them. All models are validated before they are used

and calibrated to ensure that outputs reflect actual experience and comparable market

prices. A variety of factors are considered in the group’s valuation techniques, including

time value, credit risk (both own and counterparty), embedded derivatives (such as unit-

linking features), volatility factors (including contract holder behaviour), servicing costs

and activity in similar instruments. Since significant inputs are based on unobservable

inputs, these investment contract liabilities are classified as Level 2 instruments in the fair

value hierarchy.

At 31 March 2014, investments classified at Level 3 primarily included suspended listed

equities, community property company assets and infrastructure and development assets,

which comprise approximately 99% of Level 3 assets.

The following table presents significant inputs to show the sensitivity of Level 3

measurements and assumptions used to determine the fair value of the financial assets.

Instrument Valuation technique Significant inputs

Suspended listed equities Exchange trade price Last exchange traded price

Community property

company assets

Discounted cash flow model Capitalisation rates and discounts

rates

Infrastructure and

development assets

Equity

Distribution discount model, cost,

mark to market, price earnings

multiple and liquidation value

Debt

Discounted cash flow model

Equity

Interest rates and exchange traded

prices

Debt

Interest rates – fixed and floating

The group’s overall profit or loss is not sensitive to the inputs of the models applied to derive fair

value.

46.4.2 Financial assets and liabilities at fair value

Financial assets and liabilities measured at fair value at 31 March 2014

Fair value levelsTotal

fair valueRm Level 1 Level 2 Level 3

2014Financial assets held under multi-manager investment contractsEquity securities – listed 119 ,078 1 ,977 – 121 ,055Equity securities – unlisted – – 119 119Preference shares – listed 601 – – 601Collective investment schemes 45 ,172 42 – 45 ,214Debt securities – listed – 24 ,143 – 24 ,143Debt securities – government stock 12 ,125 – – 12 ,125Debentures – listed 2 ,773 – – 2 ,773Policy of insurance – 20 ,299 1 ,570 ,21 ,869Derivative financial instruments – 8 – 8Cash and cash equivalents 8 ,197 – – 8 ,197Money market instruments – listed 60 17 ,583 – 17 ,643

188 ,006 64 ,058 1 ,689 253 ,747

241



46.4.2 Financial assets and liabilities at fair value (continued)

Fair value levels Total fair value

Rm Level 1 Level 2 Level 3

2014 Financial assets of cell-captive insurance facilitiesEquity securities – unlisted – – 153 153Receivables – 48 – 48Money market investments 113 – – 113Cash and cash equivalents 1 – – 1

114 48 153 315

General operationsFinancial assets:

Preference shares – listed 34 – – 34Bonds – 39 – 39Collective investment schemes – 244 – 244

34 283 – 317

Total financial assets measured at

fair value 188 ,154 64 ,383 1 ,842 254 ,379



2013 Financial assets held under multi-manager investment contractsEquity securities – listed 101 ,063 – – 101 ,063

Equity securities – unlisted – – 199 199

Preference shares – listed 710 – – 710

Collective investment schemes 36 ,058 – 36 ,058

Debt securities – listed 28 24 ,458 – 24 ,486

Debt securities – government stock 11 ,634 – – 11 ,634

Debentures – listed 299 – – 299

Debentures – unlisted – 65 – 65

Derivative financial instruments 19 1 ,144 – 1 ,163

Unit linked investment contracts 1 ,439 17 ,229 1 ,650 20 ,318

Cash and cash equivalents 11 ,958 – – 11 ,958

Money market instruments – listed 258 14 ,579 – 14 ,837

163 ,466 57 ,475 1 ,849 222 ,790

Financial assets of cell-captive insurance facilitiesEquity securities – unlisted – – 511 511

Receivables 30 150 1 ,799 1 ,979

Preference shares – unlisted – – 177 177

Collective investment schemes – – 437 437

Debt securities – listed 760 – – 760

Money market investments 5 ,506 710 – 6 ,216


7 ,590 860 2 ,924 11 ,374

242



46.4.2 Financial assets and liabilities at fair value (continued)



2013General operationsFinancial assets:

Derivative securities 64 – – 64


Bonds – 1 ,591 – 1 ,591

Collective investment schemes 11 175 – 186

119 1 ,766 – 1 ,885

Total financial assets measured at

fair value 171 ,175 60 ,101 4 ,773 236 ,049



2012Financial assets held under multi-manager investment contractsEquity securities – listed 88 ,215 – – 88 ,215

Equity securities – unlisted – – 185 185


Collective investment schemes 45 ,877 5 ,231 1 ,064 52 ,172

Debt securities – listed 19 ,447 – – 19 ,447

Debt securities – government stock 9 ,839 – – 9 ,839

Debentures – listed 3 ,427 – – 3 ,427

Debentures – unlisted – 45 – 45

Derivative financial instruments 14 57 – 71

Unit linked investment contracts 1 ,109 994 – 2 ,103


Money market instruments – listed 1 ,528 17 ,298 – 18 ,826

185 ,120 23 ,625 1 ,249 209 ,994

Financial assets of cell-captive insurance facilitiesEquity securities – unlisted 387 71 – 458

Receivables 19 1 ,519 – 1 ,538

Preference shares – unlisted 72 247 – 319

Collective investment schemes 399 – – 399

Debt securities – listed 23 – – 23

Debt securities – unlisted – 777 – 777

Money market investments – 5 ,220 – 5 ,220

Cash and cash equivalents – 750 – 750

900 8 ,584 – 9 ,484

General operationsFinancial assets:

Equity securities – listed 18 – – 18


Bonds 777 – – 777

Collective investment schemes 197 – – 197

1 ,036 – – 1 ,036

Total financial assets measured at fair

value 187 ,056 32 ,209 1 ,249 220 ,514

243

46 FINANCIAL RISK (continued)46.4 Fair value hierarchy (continued)

46.4.2 Financial assets and liabilities at fair value



2014 Financial liabilities measured at fair valueFinancial liabilities held under multi-

manager investment contracts – 253 ,747 – 253 ,747Liabilities of cell-captive insurance

facilities – 315 – 315Borrowings at fair value

Total financial liabilities measured at

fair value – 254 ,062 – 254 ,062

2013Financial liabilities measured at fair valueFinancial liabilities held under multi-

manager investment contracts – 222 ,790 – 222 ,790


facilities – – 11 ,374 11 ,374

Borrowings at fair value – 304 – 304


fair value – 223 ,094 11 ,374 234 ,468

2012Financial liabilities measured at fair valueFinancial liabilities held under multi-

manager investment contracts – 209 ,994 – 209 ,994


facilities – – 9 ,484 9 ,484

Borrowings at fair value – 247 – 247


fair value – 210 ,241 9 ,484 219 ,725

46.4.3 Changes in Level 3 instrumentsFinancial assets

Rm

Financial assets under multi-

manager assets

Financial assets of

cell insurance facilities

General operations Total

Opening balance at 1 April 2013 1 ,849 2 ,924 – 4 ,773 Total gains and losses recognised in

profit or loss (69) 87 – 18 Fair value gains and losses 104 – – 104 Transfer from loans and receivables – (2 ,835) – (2 ,835) Purchases 207 – – 207 Sales (402) (23) – (425)

Closing balance at 31 March 2014 1 ,689 153 – 1 ,842

244


46.4.3 Changes in Level 3 instruments (continued)Financial assets

Rm


manager assets

Financial assets of



Opening balance at 1 April 2012 1 ,249 – – 1 ,249

Total gains and losses recognised in

profit or loss –

Fair value gains and losses 178 – – 178

Transfer from loans and receivables 415 – – 415

Purchases 35 2 ,924 – 2 ,959

Sales (28) – – (28)

Closing balance at 31 March 2013 1 ,849 2 ,924 – 4 ,773

Financial assetsOpening balance at 1 April 2011 1 ,139 – 18 1 ,157


profit or loss

Fair value gains and losses (102) – – (102)

Transfer from loans and receivables 46 – – 46

Purchases 236 – – 236

Sales (70) – (18) (88)

Closing balance at 31 March 2012 1 ,249 – – 1 ,249

Financial liabilities2014Opening balance at 1 April 2013 – 11 ,374 – 11 ,374Transfer to level 2 – – – –Disposal of subsidiary – (11 ,374) – (11 ,374)

Closing balance at 31 March 2014 – – – –

2013Opening balance at 1 April 2012 – 9 ,484 – 9 ,484


profit or loss:

Fair value gains and losses – 374 – 374

Other movement in policy holder

liabilities – 3 ,284 – 3 ,284

Investments – (1 ,768) – (1 ,768)

Disposals – – – –

Closing balance at 31 March 2013 – 11 ,374 – 11 ,374

245


46.4.3 Changes in Level 3 instruments (continued)


manager assets

Financial assets of



2012Opening balance at 1 April 2011 – 7 ,738 – 7 ,738


profit or loss:

Fair value gains and losses – 727 – 727

Other movement in policy holder

liabilities – 1 ,019 – 1 ,019

Investments – – – –

Disposals – – – –

Closing balance at 31 March 2012 – 9 ,484 – 9 ,484

The group’s profit or loss will not significantly be affected by favourable or unfavourable

changes in the Level 3 assets shown above. The financial assets and liabilities of multi-

manager investment contracts are linked and all movements in these assets will be met with

a converse movement in the liabilities associated. Similarly the cell owner insurance assets

and liabilities are also linked.

47 OPERATIONAL, LEGAL AND CAPITAL RISK

47.1 Operational risk

Operational risk is the risk of loss due to factors such as inadequate systems, management failure,

inadequate internal controls, fraud or human error. The group mitigates these risks through a risk

management framework, systems of internal controls, internal audit and compliance functions and

other measures such as back-up procedures, contingency planning and insurance.

47.2 Legal and regulatory risk

The group is exposed to various actual and potential claims, lawsuits and other proceedings relating

to alleged errors and omissions, or non-compliance with laws and regulations, in the conduct of

its ordinary course of business. The directors are satisfied, based on present information and the

assessed probability of claims eventually, that the group has adequate insurance programmes and

provisions in place to meet such claims. However, like all businesses of our type, the risk exists

that significant adverse developments in past claims, or a significant increase in the frequency

of severity of future claims for errors and omissions, could have a material effect on the group’s

reported results. Details of the structure of the group’s errors and omissions insurance programme

are provided in the relevant note to these financial statements.

47.3 Capital

The group’s objectives when managing capital are:

• To comply with capital requirements required for insurers as determined by legislation.

• To safeguard the group’s ability to continue as a going concern so that it can provide returns for

its shareholders and benefits for other stakeholders.

Regulated insurance and investment subsidiary companies

The capital adequacy requirement (CAR) is calculated to determine whether the excess of assets

over liabilities is sufficient to provide for the possibility of severely adverse future experience. The

calculation is as required by the Long-Term Insurance Act, 1998, in South Africa and calculated

in terms of the guidance notes issued by the Actuarial Society of South Africa (ASSA). The CAR

is determined with reference to the guidance issued by ASSA but is subject to a minimum of R10

million or 13 weeks, operating expenses in terms of directive 140.A.i(LT) of the Financial Services

Board or 0.3% of gross policyholder liabilities. The subsidiary companies are required to hold

sufficient equity and reserves to meet its CAR and can only distribute accumulated profits in excess

of CAR.

246

47 OPERATIONAL, LEGAL AND CAPITAL RISK (continued)

47.3 Capital (continued)

Regulated insurance and investment subsidiary companies (continued)

For Investment Solutions, all liabilities are directly related to asset values and no mortality or

similar risks are assumed, the only risk to be considered is operational risk. The CAR held at

reporting date was R456 million (2013: R321 million; 2012: R249 million), representing an excess

of assets over liabilities of 2.2 times (2013: 2.9 times: 2012: 2.95 times).

The CAR held by Alexander Forbes Life at reporting date was R172 million (2013: R139 million;

2012: R120 million), representing an excess of assets over liabilities of 1.6 7 times (2013: 1.78 times;

2012: 1.63 times).

For statutory purposes, the share capital of cell-captive insurance subsidiary companies consists of

ordinary shares and ‘A’ and ‘L’ shares.

The cell-captive insurance subsidiary companies submit quarterly and annual returns to the South

African Financial Services Board in terms of the Short-term Insurance Act, 53 of 1998 of South

Africa (the act). The companies are required at all times to maintain a statutory surplus asset ratio

as defined in the Act. The returns submitted to the Regulator showed that the companies have met

the minimum capital requirements throughout the year.

The implementation by the Financial Services Board of consolidated supervision, although

postponed from the original implementation date, is expected to become effective in January 2014.

The current capital structure of the group is being reviewed to ensure that it best meets the long-

term regulatory and operational requirements of the group. This review is likely to result in certain

components or features of the current group capital structure and certain debt instruments being

amended in order to meet the requirements of consolidated supervision.

General operations

When maintaining capital, the group’s objectives are to maintain a sufficient level of capital without

compromising the ability to operate effectively. This is achieved by using available cash balances to

fund working capital requirements and returning capital to shareholders and lenders as and when

excess cash is generated. When required, the group makes use of inter-group loans from its direct

or indirect holding company as a source of funds.

48 CONSOLIDATED AND UNCONSOLIDATED ENTITIES

48.1 Consolidated entities

Material subsidiaries, joint ventures and associates in which the group has a financial interest.

Entity Nature of businessYear-end

date

Economic interest

2014%

2013%

1. HOLDINGS COMPANIES ABOVE THE OPERATIONAL ALEXANDER FORBES LIMITED GROUP

Alexander Forbes Holdco Proprietary Limited Holding company 31 March 100 100

Alexander Forbes PIK Funding

Proprietary Limited

Holding company 31 March 100 100

Alexander Forbes Funding

Proprietary Limited


Alexander Forbes Acquisition

Proprietary Limited


2. OPERATIONAL COMPANIES WITHIN THE ALEXANDER FORBES LIMITED GROUP

Alexander Forbes Administration Services

Proprietary Limited

Risk services 31 March 100 100

Alexander Forbes Compensation Technologies

Proprietary Limited

Facilitation of injury

on duty and road

accident claims

31 March 100 100

Alexander Forbes Direct Proprietary Limited Risk services 31 March 100 100

Alexander Forbes Financial Planning

Consultants Proprietary Limited

Financial planning 31 March 100 100

247


date

Economic interest

2014%

2013%

Alexander Forbes Financial Services

Proprietary Limited

Financial services and

risk services

31 March 100 100

Alexander Forbes Group & Technology

Services Proprietary Limited

Technology services 31 March 100 100

Alexander Forbes Health Proprietary Limited Healthcare 31 March 100 100

Alexander Forbes Individual Client

Administration Services Proprietary Limited

Financial services

administration

31 March 100 100

Alexander Forbes Insurance Company Limited Short-term personal

lines insurer

31 March 100 100

Alexander Forbes Life Limited Long-term insurer 31 March 100 100

Alexander Forbes Retail Holdings

Proprietary Limited

Financial services 31 March 100 100

Caveo Fund Solutions Proprietary Limited Hedge fund

management company

31 March 50.01 50.01

Faranani Risks Solutions Proprietary Limited Risk services 31 March 100 100

Guardrisk Allied Products and Services

Proprietary Limited

Risk services 31 March – 100

Guardrisk Insurance Company Limited Short-term cell-captive

insurer

31 March – 100

Guardrisk Life Limited Long-term cell-captive

insurer

31 March – 100

Homeplan Financial Solutions

Proprietary Limited

Pension-backed

lending

31 March 100 100

Investment Solutions Limited Multi-manager

investment

31 March 100 100

Investment Solutions Administrative Services

Proprietary Limited

Administrative

services provider

31 March 100 100

Investment Solutions Unit Trust Limited Unit trust

management

31 March 100 100

Premium Payment Plan Proprietary Limited Premium financing 31 March 100 100

Seniors Finance Proprietary Limited Equity housing

finance

31 March 83 83

Superflex Limited Multi-manager

investment

31 March 100 100

Alexander Forbes AfriNet Investments

Proprietary Limited

Holding company for

African operations

31 March 100 100

REST OF AFRICA


(Botswana) Limited

Financial services

(Botswana)

31 March 67 67

Alexander Forbes Assets Consultants

Proprietary Limited

Financial services

(Botswana)

31 March 74 74


Uganda Limited

Financial services

(Uganda)

31 March 55 55


(East Africa) Proprietary Limited

Financial services

(Kenya)

31 December 60 60

Guardrisk International Limited PCC Cell-captive insurance

(Mauritius)

31 March – 100

248


date

Economic interest

2014%

2013%

Alexander Forbes Mozambique Lda* Risk services

(Mozambique)

31 December – 65

Guardrisk Namibia Insurance Company

Limited

Cell-captive insurance

(Namibia)

31 March 75 75

Guardrisk Life Namibia Limited Cell-captive life

assurance (Namibia)

31 March 75 75

Femi Johnson Company* Risk services (Nigeria) 31 March – 60

Alexander Forbes Financial Services Namibia

Proprietary Limited

Financial services and

risk services (Namibia)

31 March 70 70

Investment Solutions Namibia Limited Multi-manager

investment (Namibia)

31 March 70 70

Alexander Forbes Consulting Actuaries

Nigeria Limited

Financial services

(Nigeria)

31 March 78 78

Swaziland Employee Benefit Consultants

Proprietary Limited*

Financial services

(Swaziland)

31 March 50 50

Alexander Forbes Zimbabwe Holdings

Proprietary Limited

Risk services

(Zimbabwe)

31 March 60 60

ASSOCIATES

Alexander Forbes Insurance Brokers

Kenya Limited

Risk services (Kenya) 31 March 40 40

Tibiyo Insurance Brokers

Proprietary Limited*

Risk services

(Swaziland)

31 March 41.25 41.25

* These entities are held for sale.

UNITED KINGDOM/EUROPE

Alexander Forbes International Limited Ultimate holding

company for

international Group

31 March 100 100

Alexander Forbes Channel Islands Limited Financial services 31 March 100 100

Alexander Forbes Group Jersey Limited Holding company in

Jersey

31 March 100 100

Alexander Forbes Services Limited Group service

company

31 March 100 100


Holdings Limited

Holding company in

the United Kingdom

31 March 100 100

Alexander Forbes Trustee Services Limited Corporate trustee

services

31 March 100 100

Euroguard Insurance Company PCC Limited Short-term cell-captive

insurer (Gibraltar)

31 March – 100

Investment Solutions (Jersey) Limited* Multi-manager

investment

31 March 100 100

Lane Clark & Peacock LLP Financial services 31 March 100 60

Lane Clark & Peacock Netherlands BV Financial services 31 March 100 48

Lane Clark & Peacock Ireland Limited Financial services 31 March 100 48

Lane Clark & Peacock Belgium CVBA* Financial services

(Belgium)

31 March 100 54

LCP Libera AG Financial services

(Switzerland)

30 June – 56

Media Insurance Services Limited Direct marketing

entity in run-off

31 March – 80

249

48 CONSOLIDATED AND UNCONSOLIDATED ENTITIES (continued)

48.1 Consolidated entities (continued)

Material subsidiaries, joint ventures and associates in which the group has a financial interest.


date

Economic interest

2014%

2013%

Alexander Forbes UK Direct Limited direct

marketing insurance

intermediary

31 March – 40

Investment Solutions Group Limited Holding company 31 March – 100

Investment Solutions Limited Multi-manager

investment

31 March – 100

Investment Solutions Fund Managers Limited Fund manager 31 March – 100

Investment Solutions Investment

Administration Services

Limited service

company

31 March – 100

JOINT VENTURES:Alexander Forbes UK Direct Limited Direct marketing 31 March – 40

LCP Asalis AG Financial services

(Switzerland)

31 March – 95

* These entities are held for sale

48.2 Consolidated structured entities

The group consolidates the following special purpose vehicles:

– Management Share Trust.

– MST Funding SPV (Pty) Ltd.

– BEE Funding SPV (Pty) Ltd.

These entities are consolidated due to the group having exposure to variability of returns in these

entities and the power to direct the relevant activities that affect this exposure.

Management Share Trust (“MST”)

The group formed the MST in 2007 with the intention of providing certain members of management

an opportunity to invest in the group. The group provides financial assistance in the form of a loan

account to the trust. The loan is interest bearing and does not have a fixed term of repayment.

MST SPV (Pty) Ltd and BEE SPV (Pty) Ltd

As part of the debt restructure undertaken by the group on 31 March 2014, the MST and Alexander

Forbes Management Co-Investment Trust (“the Co-Investment Trust”) obtained the right to invest

in additional ordinary shares of AFEH in order not to dilute its existing investment. MST SPV was

formed, the shareholders of which are the MST and the Co-Investment Trust.

Also as part of the debt restructure, Golden Falls obtained the right to invest in additional ordinary

shares of AFEH. This right was given to the shareholders of Golden Falls, being the Alexander

Forbes Community Trust and the Alexander Forbes Staff Share Trust. As a result, BEE SPV was

formed, the shareholders of which are the Alexander Forbes Community Trust and the Alexander

Forbes Staff Share Trust.

The purpose of the SPVs was to create ring-fenced companies to raise funding in the form of

preference shares for the investment in the ordinary shares of AFEH.

Alexander Forbes Acquisitions (Pty) Ltd (“AF Acquisitions”) provided a guarantee to RMB in respect

of the preference shares issued by the MST SPV and the BEE SPV. Further information on the

funding arrangement is provided in note 27 Borrowings.

The structures result in the ordinary shareholders participating in any increase of the fair value

of the AFEH shares on an exit event above the carrying value of the loan (capital plus accrued

interest). However, if the fair value of the AFEH shares on an exit event is below the carrying

value of the loan, the deficit does not result in a loss for the ordinary shareholders because AF

Acquisitions settles the deficit via the guarantee. This transaction therefore falls within the scope

of IFRS 2 and as such requires that the company recognises the expense between the fair value of

the effective call option and any consideration paid by the participants.

250

48 CONSOLIDATED AND UNCONSOLIDATED ENTITIES (continued)

48.2 Consolidated structured entities

Consideration was given to the fair value of the option based on the following:

• The transaction at year-end was performed at fair value.

• The expected term of the loan is less than 90 days.

• The indicative value of the equity security is significantly higher than the loan balance.

• The cost of the funding was not onerous or did not imply significant risk.

A valuation performed for the instrument indicated that the expense was not material and therefore

no expense has been recognised at year-end.

48.3 Unconsolidated structured entities

While the group consolidates certain structured entities, other structured entities are not

consolidated due to the group not having an exposure to variability in returns and the power to

govern the activities that affect this exposure. The unconsolidated structured entities in which the

group has an interest are:

– Alexander Forbes Staff Share Trust.

– Certain Collective Investment Schemes of which the group is the Fund Manager and has

an investment.

Alexander Forbes Staff Share Trust (“the Staff Share Trust”)

The Staff Share Trust was formed to provide a vehicle for employee investment in the ordinary

shares of AFEH. While the trust is not consolidated, the group has invested in preference shares

of R34 million issued by the trust, which is included in Financial Assets on the Statement of

Financial Position. All rights granted by the Staff Share Trust are fully vested in the hands of the

beneficiaries. The group does not intend to provide any financial assistance to the trust nor are

there any contractual obligations to provide financial assistance to the Trust.

Unconsolidated Collective Investment Schemes

The group manages six collective investment schemes as fund manager which are not consolidated.

It also invests certain policyholder assets with these trusts. The value of these investments at

31 March 2014 is R526 million (8.4% of the total assets in the schemes), included in Financial assets

of multi-manager investment contracts on the Statement of Financial Position. The group provides

no financial assistance to the schemes nor is there any contractual obligation to provide assistance

to the scheme.

251

49 SUBSIDIARIES WITH MATERIAL NON-CONTROLLING INTEREST

The group consolidates certain entities with material subsidiaries. The summarised financial information

of these entities are disclosed below.

The information represents 100% of the entity’s results and has not been adjusted for the non controlling

interest share. Inter-company transactions and balances have not been eliminated.

Alexander Forbes Insurance Company

Namibia Limited


Botswana LCP LLPRm 2014 2013 2014 2013 2014 2013

Balance sheet informationTotal assets 348 282 29 26 781 445

Total liabilities (335) (271) (6) (5) (437) (234)

Total net assets 13 11 23 21 344 211

Summarised income statementRevenue 68 62 79 65 1 ,299 974

Profit before tax 11 7 34 29 253 156

Tax expense (5) (3) (8) (6) – –

Profit after tax 6 4 26 23 253 156

Other comprehensive

income – – – – – –

Total comprehensive income 6 4 26 23 253 156

Total comprehensive

income allocated to

non-controlling interest – – 10 7 101 63

Dividends paid to

non-controlling interest (1) – (25) (21) 59 60

Summarised cash flowsCash from operating

activities 9 7 19 17 735 478

Cash from investing

activities – – – 1 (98) 12

Cash from financing

activities – – (18) (15) (537) (456)

Net increase in cash and

cash equivalents 9 7 1 3 100 10

Exchange rate differences – – – – 1 (1)


at beginning of the year 129 122 13 10 96 87


at year-end 138 129 14 13 197 96

Significant restrictions

LCP LLP is governed by a partnership agreement which places limitations on the distributions of profits

to partners to two specific dates in the year.

252

50 ADJUSTMENTS TO PREVIOUSLY REPORTED HISTORICAL FINANCIAL INFORMATION

In connection with the preparation of this report on historical financial information, the group has

made certain adjustments to its previously reported historical financial information. These relate to

the adoption of new accounting standards, the presentation of discontinued operations and subsequent

events occurring between the date of authorisation of the group’s annual financial statements and the

date of this report on historical financial information:

50.1 New accounting standards

The following tables summarise the material impact on the group’s financial position and

comprehensive income resulting from the adoption of IFRS 10 Consolidated Financial Statements,

and IAS 19 revised Employee Benefits and the subsequent events adjustment as disclosed in note 44

The restatement arising on discontinuance of operations has not been set out below.

The adoption of IFRS 10 resulted in the consolidation of the management share trust due to the

revised definition of control.

The adoption of the revised IAS 19 resulted in actuarial gains/losses being recognised immediately

in other comprehensive income, rather than being deferred and recognised using the corridor

approach over the lives of eligible employees.

Impact on 31 March 2013 Group Statement of Financial Position

Rm

As previously

reported

Defined benefit

obligation

Consolidation of

Management Share Trust Restated

AssetsPolicyholder and cell captive assets 234 ,164 – – 234 ,164

Other assets 9 ,374 – – 9 ,374

Trade and other receivables 961 – (26) 935

Cash and cash equivalents 3 ,624 – 2 3 ,626

Assets and disposal group classified as held

for sale 29 ,938 – – 29 ,938

Total assets 278 ,061 – (24) 278 ,037

Equity and liabilities

Share capital 3 ,261 – – 3 ,261

Treasury shares – – (21) (21)

Accumulated loss (1 ,132) (24) (6) (1 ,162)

Other reserves (8) – – (8)

Equity holders' funds 2 ,121 (24) (27) 2 ,070

Non-controlling interest 194 – – 194

Total equity 2 ,315 (24) (27) 2 ,264Policyholder and cell captive liabilities 234 ,164 – – 234 ,164

Other liabilities 10 ,333 – – 10 ,333

Employee benefits 157 24 – 181

Trade and other payables 1 ,350 – 3 1 ,353

Liabilities of disposal group classified as held

for sale 29 ,742 – – 29 ,742

Total liabilities 275 ,746 24 3 275 ,773

Total equity and liabilities 278 ,061 – (24) 278 ,037

253

50 ADJUSTMENTS TO PREVIOUSLY REPORTED HISTORICAL FINANCIAL INFORMATION (continued) 50.1 New accounting standards (continued)

Impact on 31 March 2013 Group Income Statement

Rm

As previously

reported*

Defined benefit

obligation Restated

Continuing operationsOperating profit 812 – 812

Investment income 137 (8) 129

Finance costs (848) – (848)

Share of net profit of associates (net of income tax) 1 – 1

Profit before tax 102 (8) 94

Income tax expense (192) – (192)


Discontinued operationsLoss on discontinued operations (10) – (10)

Loss for the year (100) (8) (108)

Loss attributable to:

Equity holders (183) (8) (191)

Non-controlling interest 83 – 83

(100) (8) (108)

* Restated for the effects of discontinued operations.

Note: The consolidation of the management share trust did not require the restatement of the

group income statement.

Impact on 31 March 2013 Statement of Comprehensive Income

Rm

As previously

reported*

Defined benefit

obligation Restated

Loss for the period (100) (8) (108)

Foreign currency translation differences of foreign

operations 90 – 90

Foreign currency translation reserve of disposed

operations – 30 30

Changes in fair value of cash flow hedges (13) – (13)

Portion of fair value hedge transferred to profit or loss 45 – 45

Other 3 – 3

Other comprehensive income for the period (net of income tax) that will be reclassified to profit or loss 155 – 155

Actuarial losses on valuation of employee benefits – (4) (4)

Other comprehensive income for the period (net of income tax) that will not be reclassified to profit or loss – (4) (4)

Total comprehensive income for the period 55 (12) 43

254

50 ADJUSTMENTS TO PREVIOUSLY REPORTED HISTORICAL FINANCIAL INFORMATION (continued)

50.1 New accounting standards (continued)


Rm

As previously

reported

Defined benefit

obligation

Consolidation of

Management Share Trust Restated

AssetsPolicyholder and cell captive assets 219 ,478 – – 219 ,478

Other assets 8 ,638 – – 8 ,638

Trade and other receivables 944 – (31) 913

Cash and cash equivalents 3 ,053 – 9 3 ,062

Assets and disposal groups classified as

held for sale 288 – – 288

Total assets 232 ,401 – (22) 232 ,379


Share capital 3 261 – – 3 ,261

Treasury shares – – (29) (29)

Accumulated loss (949) (12) (6) (967)

Other reserves (173) – – (173)

Equity holders' funds 2 ,139 (12) (35) 2 ,092

Non-controlling interest 185 – – 185

Total equity 2 ,324 (12) (35) 2 ,277

Policyholder and cell captive liabilities 219 ,478 – – 219 ,478

Other liabilities 8 ,995 – – 8 ,995

Employee benefits 158 12 – 170

Trade and other payables 1 ,315 – 13 1 ,328

Liabilities of disposal group classified as

held for sale 131 – – 131

Total liabilities 230 ,077 12 13 230 ,102

Total equity and liabilities 232 ,401 – (22) 232 ,379

255


50.1 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)


Discontinued operationsProfit on discontinued operations 157 – 157

Loss for the year (52) (7) (59)

(Loss)/profit attributable to:

Equity holders (129) (7) (136)


(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.


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 – – –


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


50.2 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.


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


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


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


Continuing operationsOperating profit 932 – 932Investment income 233 – 233Finance costs (843) – (843)Share of net profit of associates (net of income tax) 2 – 2

Profit before tax 324 – 324Income tax expense (361) (126) (487)


Discontinued operationsProfit on discontinued operations 542 – 542

Profit/(loss) for the year 505 (126) 379

Profit/(loss) attributable to:

Equity holders 395 (126) 269Non-controlling interest 110 – 110

505 (126) 379


Rm

As previously

reported


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


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


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.


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

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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

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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–

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mu

late

d l

oss

(88

9)

(9)

( 10

4)

( 36

)(1

,0 3

8)

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er r

eserves

10

2(1

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)

Eq

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old

ers’ fu

nd

s4

,62

73

96

15

1( 4

5)

( 36

)5

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3

Non

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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

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s h

eld

un

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ult

i-m

an

ag

er i

nvestm

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t

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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

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265

Annexure 5

INDEPENDENT REPORTING ACCOUNTANT’S REPORT ON THE PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

The Board of Directors


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.


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.


• Service contract: On or about 30 September 2004, Mr Viljoen

transferred from Investment Solutions Limited to the staff of the

Group. In terms of this transfer, he would serve as Finance Director:

Africa. No restraint payments are payable in terms of this contract.

Matthews Sello Moloko • Current directorships: Alexander Forbes Group Holdings Limited ;

Thesele Group Proprietary Limited; General Reinsurance Africa

Limited; Business Venture Investments No. 991 Proprietary Limited;

Acucap Properties Limited; Sycom Property Fund Managers Limited;

Kellogg Brown and Root South Africa Proprietary Limited and

Sibanye Gold Limited.

• Other directorships held in the last 5 years: Gold Fields Limited and

AF Risk and Insurance Services Proprietary Limited.

• Service contract: On or about 1 July 2014, Mr Moloko entered into

a service contract with the Company in respect of his service as a

non-executive director of the board of directors, the Chairman of the

Company and the Chairman of each of the Nominations Committee, the

Remuneration Committee and the Social, Ethics and Transformation

Committee. No restraint payments are payable in terms of this

contract.

André Roux • Current directorships: Alexander Forbes Group Holdings Limited;

Ethos Private Equity Limited; Ethos Holdings Limited; Sphere Private

Equity (Proprietary) Limited and Emerging Markets Private Equity

Association.


• Service contract: None.

268

Barend Petersen • Current directorships: Alexander Forbes Group Holdings Limited;

Anglo American South Africa Limited; De Beers Consolidated Mines

Limited; DBCM Holdings Proprietary Limited; De Beers Société

Anonyme; Fixtrade 771 Limited; JGK Trust; Kovacs Investments

776 Proprietary Limited; Ntinga Ntaka Investments Proprietary

Limited; Petersen Investment Trust Proprietary Limited; Ponahalo

Capital Proprietary Limited; Ponahalo Holdings Proprietary Limited;

Ponahalo Investments Proprietary Limited; SBR Management Services;

Sizwe Business Recoveries Proprietary Limited; Tamarron Trading

181 Proprietary Limited; Thornbird Trade and Invest 2 Proprietary

Limited; Two-Tone Investments 16 Proprietary Limited; Ultimate

Financial Management Services; Shanduka Capital Proprietary

Limited; Xanado Trade and Invest 222 (RF) Proprietary Limited;

Aeromaritime International Management Services Proprietary

Limited; Curro Holdings Limited; Cape Lime Proprietary Limited;

Gilikhepu Energy Proprietary Limited; Really Useful Investments No

72 Proprietary Limited; Marcovest 147 Proprietary Limited; Scamont

Investment Holdings Proprietary Limited and Gowin 110 Proprietary

Limited.

• Other directorships held in the last 5 years: Dromedaris Visserye

Limited.

• Service contract: On or about 30 August 2013, Mr Petersen renewed

his service contract with the Company in respect of his service as an

independent non-executive director of the board of directors of the

Company, a member of the audit committee and member of certain

subsidiary boards and audit committees. No restraint payments are

payable in terms of this contract.

Mark Derrick Collier • Current directorships: Alexander Forbes Group Holdings Limited and

Mark Collier Limited.

• Other directorships held in the last 5 years: Winechap Global Holdings

Limited (UK); Custom Healthcare Limited (UK) and Concordis (Hong

Kong) Limited.

• Service contract: On or about 31 March 2014, Mr Collier renewed

his service contract with the Company in respect of his service as

an independent non-executive director of the board of directors of

the Company, a member of the Audit Committee, chairman of the

retail sub-committee and member of certain subsidiary boards and

audit committees. No restraint payments are payable in terms of this

contract.

Deenadayalen Konar • Current directorships: Alexander Forbes Group Holdings Limited;

Exxaro Resources Limited; Illovo Sugar Limited; Macsteel Services

Centres SA 2005 Proprietary Limited; Mustek Limited; Old Mutual

Investment Group (South Africa) Proprietary Limited; Outsources

Risk and Compliance Assessment Proprietary Limited; Sappi Limited;

Steinhoff International Holdings Limited; Lonmin Public Limited

Company and Credit Suisse Securities Johannesburg Proprietary

Limited.

• Other directorships held in the last 5 years: Sentech Limited; Old

Mutual Emerging Markets Limited; Old Mutual Life Holdings (South

Africa) Proprietary Limited; Old Mutual Life Assurance Company

(South Africa) Limited; Transaction Capital Limited; CID Energy

Corporation (Canada); JD Group Limited; Automobile Association and

the South African Reserve Bank.

• Service contract: On or about 7 March 2013 (effective

6 September 2012), Mr Konar renewed his service contract with the

Company in respect of his service as an independent non-executive

director of the board of directors of the Company, chairman of the

Audit Committee, member of certain subsidiary boards and chairman

of certain subsidiary audit committees. No restraint payments are


269

Hilgard Pieter Meyer • Current directorships: Alexander Forbes Group Holdings Limited;

General Reinsurance Africa Limited; Nodus Equity Proprietary

Limited; Natsure Limited Public; Trudon Proprietary Limited; Pienso

Proprietary Limited; Luddite Wines Proprietary Limited; Dooierus

Beleggings (Edms) Bpk and Bubbletree Proprietary Limited.


• Service contract: On or about 6 August 2013, Mr Pieter Meyer renewed

his service contract with the Company in respect of his service as

an independent non-executive director of the board of directors of

the Company, as a member of the Remuneration Committee and as

a member of the Nominations Committee. No restraint payments are


Lori Hall-Kimm • Current directorships: Alexander Forbes Group Holdings Limited and

Icon 1 S.A.

• Other directorships held in the last 5 years: Airports UK No. 2 Limited

and Bristol Airports (UK) No. 3 Limited.


Natalie Catherine Kolbe • Current directorships: Tracker Technology Holdings Proprietary

Limited.

• Other directorships held in the last 5 years: Savcio Holdings

Proprietary Limited.


David Ngobeni • Current directorships: Alexander Forbes Group Holdings Limited;

Shanduka Group Proprietary Limited; Incwala Platinum Proprietary

Limited; Born Free Investments 580 Proprietary Limited; McDonald’s

SA Proprietary Limited; Auram Restaurant Company Proprietary

Limited and Gino’s Corner Proprietary Limited.



Dave D Govender • Current directorships: Alexander Forbes Group Holdings Limited;

K2013116223 Proprietary Limited; Ixia Creek Home Owners

Association NPC and TBWA South Africa Proprietary Limited.



John Adrian van Wyk • Current directorships: Alexander Forbes Group Holdings Limited.

• Other directorships held in the last 5 years: RTT Group Proprietary

Limited.


Anthonie Christoffel de Beer • Current directorships: Alexander Forbes Group Holdings Limited;

Kevro Holdings Proprietary Limited; Idwala Industrial Holdings

Proprietary Limited and Friedshelf 1511 Proprietary Limited.

• Other directorships held in the last 5 years: Plumblink (SA)

(Proprietary) Limited and Main Street 63 Proprietary Limited.


Jean-Charles Emmanuel Douin • Current directorships: Alexander Forbes Group Holdings Limited;

(alternate); 2334906 Ontario Limited; Acorn Care 1 Limited; Odin

Luxco S.arl.; Eagle Superco Limited; Frontier Topco Limited.



Robert Ngetha Waithaka • Current directorships: Alexander Forbes Group Holdings Limited and

Autoxpress Limited Kenya.



Jabulani Steven Masondo • Current directorships: Alexander Forbes Group Holdings Limited;

K2013116223 Proprietary Limited; Incwala Resources Proprietary

Limited; Dinatla Investment Holdings Proprietary Limited; Lexshell

806 Investments Proprietary Limited and Lexshell 140 General

Trading Proprietary Limited.



270

Bradley John Eliot • Current directorships: Alexander Forbes AfriNet Investments

Proprietary Limited; Alexander Forbes Financial Services Holdings

Proprietary Limited; Alexander Forbes Group and Technology

Services Proprietary Limited; Alexander Forbes Group Services

Proprietary Limited; Alexander Forbes Risk and Insurance Services

Proprietary Limited and Alexander Forbes South Africa Holdings



Lisa Stott • Current directorships: Alexander Forbes Financial Services Holdings

Proprietary Limited and Alexander Forbes AfriNet Investments



Peter Alan Edwards • Current directorships: Alexander Forbes Financial Services Holdings


• Other directorships held in the last 5 years: Alexander Forbes Health


Vishnumurthie Kista Naicker • Current directorships: Alexander Forbes Financial Services Holdings

Proprietary Limited; Alexander Forbes Compensation Technologies

Proprietary Limited; AFL Employee Investments Proprietary

Limited; Alexander Forbes Group Services Proprietary Limited; GMA

Subsidiary Trading 9 Proprietary Limited and Arch Information and

Technology Services Proprietary Limited.

• Other directorships held in the last 5 years: Pan African Holdings


Luendran Pillay • Current directorships: Alexander Forbes AfriNet Investments



Lindiwe Angela Dlamini • Current directorships: Alexander Forbes Retail Holdings Proprietary

Limited.

• Other directorships held in the last 5 years: Liberty Active Limited;

Capital Alliance Limited; Rentmeester Proprietary Limited and The

Smart Life Insurance Company Limited.

Garikai Dombo • Current directorships: Alexander Forbes Insurance Company Limited;

Alexander Forbes Administration Services Proprietary Limited and

Alexander Forbes Direct Proprietary Limited.

• Other directorships held in the last 5 years: Alexander Forbes Risk

and Insurance Services Proprietary Limited; Alexander Forbes

Management Services Proprietary Limited; Guardrisk Holdings

Limited; Guardrisk Insurance Company Limited; Guardrisk Life

Limited; Board member of Ombudsman of the Short term Insurance

(OSTI), Board member of South African Insurance Association (SAIA).

Derrick Thembinkosi Vusumuzi

Msibi

• Current directorships: Investment Solutions Holdings Limited.

• Other directorships held in the last 5 years: RCL Foods Limited; Cape

Town Community Housing SOC (Proprietary) Limited; Bakwena

Platinum Concessionaire Company (Proprietary) Limited; Real People

Investment Holdings (Proprietary) Limited and Plusko (Proprietary)

Limited and New Foodcorp Holdings Proprietary Limited.

Janice Eva Salvado • Current directorships: Envirocover Proprietary Limited and GMA

Subsidiary Trading 7 Proprietary Limited.

• Other directorships held in the last 5 years: Alexander Forbes

Compensation Technologies Administration Proprietary Limited;

GMA Subsidiary Trading 4 Proprietary Limited and GMA Subsidiary

Trading 6 Proprietary Limited.

271

Grant Edwin Stobart • Current directorships: Alexander Forbes International Limited;

Alexander Forbes Financial Services Holdings Limited; Alexander

Forbes Group Jersey Limited; LCP; LCP Europe Limited; LCP Belgium;

10012 Limited (in Members’ Voluntary Liquidation); 10018 Limited

(in Members’ Voluntary Liquidation); AF DC Administration Services

Limited (in Members’ Voluntary Liquidation); AF DC Administration

Services Number 2 Limited (in Members’ Voluntary Liquidation);

10900 Limited (in Members’ Voluntary Liquidation); Alexander

Forbes Financial Services No. 2 Limited; 10723 Limited; 10800

Limited (in Members’ Voluntary Liquidation); Alfred Blackmore

Limited (in Members’ Voluntary Liquidation); Hillmorton Financial

Services Limited; Media Insurance Services Limited; Media Insurance

Services No. 2 Limited; Media Insurance Services UK Limited

(in Members’ Voluntary Liquidation); The Annuity Bureau Limited (in

Members’ Voluntary Liquidation) and The Investors Bureau Limited

(in Members’ Voluntary Liquidation).

• Other directorships held in the last 5 years: 10840 Limited (in Members’

Voluntary Liquidation); Alexander Forbes Consultants & Actuaries

Limited; Alexander Forbes Services Limited; Euroguard Insurance

Company PCC Limited; Mobius Life Administration Services Limited;

Mobius Life Group Limited and Mobius Life Limited.

Lynn Wilhemina Stevens • Current directorships: Alexander Forbes Insurance Company Limited

and Salesian Institute Youth Projects (NGO).

• Other directorships held in the last 5 years: TBSP Advertising

and Marketing Proprietary Limited; Guardrisk Holdings Limited;

Guardrisk Life Limited; Guardrisk Insurance Company Limited and

Guardrisk Allied Products and Services Proprietary Limited.

Thabo Mashaba • Current directorships: CEC Engineering Services Proprietary Limited

and Cometsa Capacity Development Agency (NPA).

• Other directorships held in the last 5 years: Cancer Association of

South Africa (NPA) and Emerald Sky Trading 352 Proprietary Limited.

Marilyn Ramplin • Current directorships: Investment Solutions Holdings Limited;

Ashburton Management Company (RF) Proprietary Limited; Strate

Limited, RMB CIS Manco (RF) Proprietary Limited and Hedge Fund

Academy.

• Other directorships held in the last 5 years: SEB Prime Solutions

(Luxembourg).

Ntobeko Goodman Nyawo • Current directorships: Investment Solutions Holdings Limited and

Africa Entsha Investments Proprietary Limited.

• Other directorships held in the last 5 years: Alexander Forbes AfriNet

Investments Proprietary Limited.

Mavuso Msimang • Current directorships: Investment Solutions Holdings Limited;

Investment Solutions Unit Trusts Limited; African Parks Networks;

Blueprint Holdings Proprietary Limited; Corruption Watch (RF)

NPC; Denel SOC Limited; Gidani Proprietary Limited; Harmony Gold

Mining Proprietary Limited; Isimangaliso Wetland Park Authority;

Peace Park Foundation; Save the Children South Africa; The Oliver

and Adelaide Tambo Foundation; Tourism Business Council of South

Africa; WWF South Africa; WWP-Memeza Holdings Proprietary

Limited and Delphini Limited.

• Other directorships held in the last 5 years: Centre for Development

and Enterprise (NPO); Denel Land Systems Proprietary Limited;

Design of Europe (SA); Emeritus Investment Holdings Proprietary

Limited; Infinitum Solutions Proprietary Limited and Sisakonke

Trading Proprietary Limited.

272

Phillip Mark Elliott • Current directorships: Alexander Forbes Financial Services Holdings

Limited; AF DC Administration Services Limited (in Members’

Voluntary Liquidation); AF DC Administration Services Number 2

Limited; 10900 Limited (in Members’ Voluntary Liquidation);

Alexander Forbes Financial Services No. 2 Limited; 10800 Limited

(in Members’ Voluntary Liquidation); Alfred Blackmore Limited (in

Members’ Voluntary Liquidation); The Annuity Bureau Limited (in

Members’ Voluntary Liquidation) and The Investors Bureau Limited

(in Members’ Voluntary Liquidation).

• Other directorships held in the last 5 years: 10170 Limited; The

Bureaux Limited; The Care Funding Bureau Limited; The Drawdown

Bureau Limited and The Long Term Care Bureau Limited.

273

Annexure 7

ISSUES AND OFFERS IN THE COMPANY AND ITS SUBSIDIARIES

Issues of Shares in the Last Three Years


The price and terms at which the securities were

issued or offered

873 ,339 ,806 ordinary par value shares were issued

at a total price of R5 ,254 ,593 ,241 or R6.01667 per

share.

The number of securities allotted in pursuance of

such issues or offers

873 ,339 ,806 ordinary shares.

Were the securities issued to all securities holders in

proportion to their holdings? If not, to whom they

were issued?

No. The shares were issued to Actis AF, CDPQ,

Ethos, HarbourVest, OTPP, AF Pref, the B-BBEE

Investors, Alexander Forbes Management Co-

Investment Trust, Management SPV and Actis

Affi liates.

The reasons for the issues and the basis of allotment The issues were made pursuant to the Restructure

of the Company, as set out under “Restructure”.

The dates of the issues or offers 31 March 2014.

The reasons for any premium or discount Not applicable. Shares were issued at fair value

estimated at a particular point in time.

How were such premiums or discounts dealt with? Not applicable. Shares were issued at fair value

estimated at a particular point in time.

Were some securities issued or offered at par and

others at varying premiums or discounts? If so,

provide the reasons for the differential.

Not applicable. All issued shares were issued at the

same value.

The value of the asset, if any, acquired or to be

acquired out of the proceeds of the issue or offer.

Not applicable. Shares were issued for the

redemption/conversion of various capital

instruments held by the Company or its, directly or

indirectly, owned subsidiaries.

The details of any share repurchases. The issuance of the ordinary shares pursuant to the

Restructure was effected as consideration for

repurchasing the entire issued redeemable “A”

preference shares in the Company.

Alexander Forbes Holdco Proprietary Limited


issued or offered

610 ,292 ordinary shares each having a par value of

R0.01 were issued to the Company at a total price of

R270 ,804 ,990.

1 ordinary share having a par value of R0.01 was

issued to the Company at a total price of

R2 ,287 ,532 ,947.



See above.



were issued?

No. However, the securities were issued to the sole

existing shareholder.




274

The reasons for any premium or discount 610 ,292 shares were issued without any premium

or discount with reference to book value of equity.

One share was issued at a premium to the book value

of equity to facilitate a capitalisation of an inter-

group company but the premium is irrelevant as the

Company is the sole shareholder.

How were such premiums or discounts dealt with? See above.




See above.



610 ,292 shares were issued to acquire preference

shares issued by AF PIK Funding Proprietary

Limited at a value of R270 ,804 ,990.

Not applicable to the one share which was issued to

facilitate a capitalisation of an inter-group company.

The details of any share repurchases. N/A.

Alexander Forbes PIK Funding Proprietary Limited


issued or offered


R0.01 were issued to Alexander Forbes Holdco

Proprietary Limited at a total price of R270 ,804 ,990.

1 ordinary share having a par value of R0.01 was

issued to Alexander Forbes Holdco Proprietary

Limited at a total price of R2 ,287 ,532 ,947.



See above.



were issued?


existing ordinary shareholder.




The reasons for any premium or discount 610 ,277 shares were issued without any premium


One share was issued at a premium to book value of

equity to facilitate a capitalisation of an inter-group

company but the premium is irrelevant as Alexander

Forbes Holdco Proprietary Limited is the sole

shareholder.





See above.



610 ,277 shares were issued without any premium




group company but the premium is irrelevant as

Alexander Forbes Holdco Proprietary Limited is the

sole shareholder.

275

The details of any share repurchases. The preference shares were repurchased from

Alexander Forbes Holdco Proprietary Limited in

consideration for the issuance of ordinary shares in

Alexander Forbes PIK Funding Proprietary Limited.

Alexander Forbes Funding Proprietary Limited


issued or offered

1 ,774 ,795 ordinary shares each having a par value

of R0.01 were issued to Alexander Forbes PIK

Funding Proprietary Limited for a total price of

R363 ,832 ,958.


R0.01 were issued to Alexander Forbes PIK Funding

Proprietary Limited for a total price of R130 ,110 ,783.

One ordinary share having a par value of R0.01 was

issued to Alexander Forbes PIK Funding Proprietary

Limited for a total price of R4 ,841 ,042 ,539.



See above.



were issued?






The reasons for any premium or discount 1 ,774 ,795 shares and the 229,623 shares were

issued without any premium or discount with

reference to book value of equity.





is the sole shareholder.




provide the reasons for the differential

See above.


acquired out of the proceeds of the issue or offer

Not applicable. 1 ,774 ,795 shares and 229 ,623 shares

were issued to convert inter-company loans into

equity and one share was issued to facilitate a

capitalisation of an inter-group company.

The details of any share repurchases The preference shares were repurchased by


from Alexander Forbes PIK Funding Proprietary

Limited in consideration for the issuance of ordinary

shares in Alexander Forbes Funding Proprietary

Limited.

Alexander Forbes Acquisition Proprietary Limited


issued or offered

One ordinary share having a par value of R0.01 for

a total consideration of R4 ,841 ,042 ,539.



See above.



were issued?



276




The reasons for any premium or discount The share was issued at a premium to the book value



Alexander Forbes Funding Proprietary Limited is

the sole shareholder.





See above.



Not applicable. The share was issued to facilitate a


The details of any share repurchases N/A.

AFIC


issued or offered

2 ,000 ,000 ,000 ordinary no par value shares for a

total consideration of R20 ,000 ,000 issued on

10 December 2012.

1 ,500 ,000 ordinary no par value shares for a total

consideration of R15 ,000 ,000 issued on

18 November 2013.

One ordinary no par value share for a total

consideration of R20 ,000 ,000 issued on

18 March 2014.



See above.



were issued?

The securities were issued to the sole existing

ordinary shareholder.

The reasons for the issues and the basis of allotment Capital injection in order to meet the capital

adequacy requirements as stipulated by the

Regulator.

The dates of the issues or offers See above.

The reasons for any premium or discount The shares were issued at a premium to the book

value of equity to facilitate a capitalisation of an

inter-group company. This is not material due to the

issue being made to the sole shareholder.





See above.



N/A. The shares were issued to facilitate a



Alexander Forbes Direct Proprietary Limited


issued or offered


consideration of R204 ,026 ,997.95 issued on

14 March 2014.



See above.

277



were issued?



The reasons for the issues and the basis of allotment In advance of the Restructure, Alexander Forbes

Risk and Insurance Services Proprietary Limited

capitalised Alexander Forbes Direct Proprietary

Limited in order for Alexander Forbes Direct

Proprietary Limited to repay a portion of its inter-

company loan with AF Acquisition. This was done to

align the inter-company loan balances with the

external debt of R1 ,250 ,000 ,000.










See above.






Alexander Forbes Financial Planning Consultants Proprietary Limited


issued or offered



14 March 2014.



See above.



were issued?




Retail Holdings Proprietary Limited capitalised

AF Financial Planning in order for AF Financial

Planning to repay a portion of its inter-company

loan with AF Acquisition. This was done to align the

inter-company loan balances with the external debt

of R1 ,250 ,000 ,000.










See above.






278

Alexander Forbes Financial Services Holdings Proprietary Limited


issued or offered



14 March 2014.



14 March 2014.



14 March 2014.



14 March 2014.



See above.



were issued?



The reasons for the issues and the basis of allotment In advance of the Restructure, AFFS Holdings

capitalised AFFS in order for AFFS to repay a

portion of its inter-company loan with

AF Acquisition. This was done to align the inter-

company loan balances with the external debt of

R1 ,250 ,000 ,000.










See above.






Alexander Forbes Health Proprietary Limited


issued or offered



14 March 2014.



See above.



were issued?




capitalised AF Health in order for AF Health to

repay a portion of its inter-company loan with



R1 ,250 ,000 ,000.


279









See above.





The details of any share repurchases. N/A.

Alexander Forbes Retail Holdings Proprietary Limited


issued or offered



14 March 2014.

One ordinary no par value shares for a total


14 March 2014.



14 March 2014.



See above.



were issued?




capitalised Alexander Forbes Retail Holdings

Proprietary Limited in order for Alexander Forbes

Retail Holdings Proprietary Limited to repay a

portion of its inter-company loan with AF Acquisition.

This was done to align the inter-company loan

balances with the external debt of R1 ,250 ,000 ,000.










See above.






280

Alexander Forbes Limited


issued or offered



14 March 2014.

One ordinary no par value shares for a total


14 March 2014.



14 March 2014.



14 March 2014.

1 ordinary no par value share for a total consideration

of R597 ,590 ,018.82 issued on 14 March 2014.



See above.



were issued?



The reasons for the issues and the basis of allotment In advance of the Restructure, AF Acquisition

capitalised Alexander Forbes Limited in order for

Alexander Forbes Limited to repay a portion of its

inter-company loan with AF Acquisition. This was

done to align the inter-company loan balances with

the external debt of R1 ,250 ,000 ,000.










See above.






Alexander Forbes Individual Client Administration Proprietary Limited


issued or offered



14 March 2014.



14 March 2014.



See above.



were issued?



281


Retail Holdings Proprietary Limited capitalised

AFICA in order for AFICA to repay a portion of its

inter-company loan with AF Acquisition. This was

done to align the inter-company loan balances with

the external debt of R1 ,250 ,000 ,000.










See above.






Alexander Forbes Risk and Insurance Proprietary Limited


issued or offered



14 March 2014.



See above.



were issued?




Limited capitalised Alexander Forbes Risk and

Insurance Services Proprietary Limited in order for

Alexander Forbes Risk and Insurance Services

Proprietary Limited to repay a portion of its inter-

company loan with AF Acquisition. This was done to

align the inter-company loan balances with the

external debt of R1 ,250 ,000 ,000.










See above.






282

Alexander Forbes South Africa Holdings Proprietary Limited


issued or offered



14 March 2014.



14 March 2014.



14 March 2014.



14 March 2014.



See above.



were issued?




Limited capitalised Alexander Forbes South Africa

Holdings Proprietary Limited in order for Alexander

Forbes South Africa Holdings Proprietary Limited

to repay a portion of its inter-company loan with



R1 ,250 ,000 ,000.










See above.






Alexander Forbes Group Services Proprietary Limited


issued or offered

1 ordinary no par value share for a total consideration

of R1.00 issued on 28 February 2014.



See above.



were issued?



The reasons for the issues and the basis of allotment Share issued at incorporation of the company.

The dates of the issues or offers 28 February 2014.

The reasons for any premium or discount N/A

How were such premiums or discounts dealt with? N/A




N/A

283



N/A.


Lane Clark & Peacock Netherlands BV


issued or offered

3 ,450 “A” shares to ActLogic BV for consideration of

€1 per share (nominal value).

3 ,450 A shares to Stuifheuvel BV for consideration

of €1 per share (nominal value).

100 B shares to Lane Clark & Peacock LLP BV for

consideration of €1 per share (nominal value).



See above.



were issued?

No. See above.

The reasons for the issues and the basis of allotment As part of a restructuring and shareholders

agreement for the exit of a shareholder/Netherlands

partner and reduction in LCP’s proportion of voting

rights/shares held. The issue of new shares was in

order to bring each shareholder’s proportion of

voting rights/shares held to that agreed by the

shareholders, being 70% LCP; 15% ActLogic BV and

15% Stuifheuvel BV.

The dates of the issues or offers 17 April 2012.

The reasons for any premium or discount N/A.

How were such premiums or discounts dealt with? N/A.




No.



N/A.


LCP Belgium


issued or offered

Consideration of €32 per ordinary share of

€1 nominal value.



12 ,500 ordinary shares.



were issued?

Yes.

The reasons for the issues and the basis of allotment Recapitalisation: The board of directors determined

on 15 October 2012 that the net-active of the

company had decreased under the thresholds as

mentioned in article 431 of the Belgian Companies

Code. Consequently, the directors proposed to

increase the capital through the contribution of a

part of the existing receivables in current-accounts

between LCP Belgium and its shareholders, LCP

Europe Limited, LCP Enterprises Limited and Peter

Bastiaens en Co BVBA, in order to strengthen its

capital. In total €400 ,000 was capitalised.

The dates of the issues or offers 12 November 2012.

284

The reasons for any premium or discount See above.

How were such premiums or discounts dealt with? The premium of €387 ,500 (12 ,500 shares at

€31 each) was credited to share premium account.

€1 ,286 ,108 of the share premium account was then

utilised against retained losses brought forward.




No.



N/A.


285

Annexure 8

DETAILS OF GROUP COMPANIES

Subsidiaries and Associates of the Company

The following tables set forth the subsidiaries and associates of the Company after the Offer.

None of these subsidiaries or associates are listed on the JSE.

Direct Subsidiaries

Alexander Forbes Holdco Proprietary Limited

Registration number 2006/024582/07

Date and place of incorporation 7 August 2006 in South Africa

Issued share capital 12 ,210 ,293 ordinary par value shares of R0.01 each

Nature of business To hold shares in Alexander Forbes PIK Funding Proprietary

Limited, as principal; and to enter into the approved

documents, exercise and perform its rights and duties under

such approved documents, and all related matters.

Date became subsidiary 1 February 2007

Alexander Forbes direct interest 100%

Indirect Subsidiaries





Nature of business To hold shares in Alexander Forbes Funding Proprietary





Alexander Forbes effective interest 100%





Nature of business To hold shares in Alexander Forbes Acquisition Proprietary






286

Alexander Forbes Acquisition Proprietary Limited


Date and place of incorporation 26 July 2006 in South Africa


Nature of business The holding company of the Alexander Forbes Limited group

of companies. AF Acquisition earns investment income

through loans made to various subsidiaries of Alexander

Forbes Limited.



Alexander Forbes Limited


Date and place of incorporation 16 June 1958 in South Africa

Issued share capital 461 ,506 ,296 ordinary no par value shares

Nature of business The holding company of the Alexander Forbes group of

companies which provides, inter alia, fi nancial, investment

and risk services.

Date became subsidiary 26 July 2007


Alexander Forbes Group Services Proprietary Limited


Date and place of incorporation 28 February 2014 in South Africa

Issued share capital 1 ordinary no par value share

Nature of business No restrictions on business activities.

Date became subsidiary 1 March 2014


Alexander Forbes South Africa Holdings Proprietary Limited (AFSA Holdings)



Issued share capital 100 ,004 ordinary no par value shares and 813 “C” no par

value shares

Nature of business To act as a holding company.



Alexander Forbes Investments Proprietary Limited


Date and place of incorporation 18 March 1997 in South Africa

Issued share capital 100 ordinary no par value shares

Nature of business To acquire and hold assets for investment purposes.



287

Alexander Forbes Group and Technology Services Proprietary Limited


Date and place of incorporation 14 October 1977 in South Africa

Issued share capital Group services and to hold all internally developed systems of

the Group for rental

Nature of business 1 ,375 ,035 ordinary no par value shares.



Alter Ego Investments Proprietary Limited


Date and place of incorporation 3 January 2006 in South Africa

Issued share capital 1 ,000 ordinary shares of R1.00 each

Nature of business To enter into approved documents and to exercise and perform

its rights, duties and obligations under such approved

documents.

Date became subsidiary 14 December 2012


Micawber 510 Proprietary Limited


Date and place of incorporation 8 September 2006 in South Africa




documents.



Micawber 511 Proprietary Limited






documents.



FFSGH Employee Investments Limited



Issued share capital 13 ,026 ,215 “C” ordinary shares of R0.28 each

Nature of business To carry on share investment on behalf of the G roup.



288

FFSGH (1990) Employee Investments Limited



Issued share capital 11 ,964 ,505 “C” ordinary shares of R0.04 each

Nature of business To carry on the business of a share investment company.



Naboom Lodge Golf Estate Proprietary Limited


Date and place of incorporation 26 May 1989 in South Africa


Nature of business The holder of immovable property.



GMA Subsidiary Trading 1 Proprietary Limited



Issued share capital 1 ,575 ordinary no par value shares

Nature of business To carry on the business of a holding company, including

administration and support services.

Date became subsidiary 31 August 2007




Date and place of incorporation 30 December 1997 in South Africa

Issued share capital 1 ,000 ordinary shares with a par value of R1.00 each

Nature of business To carry on the business of a holding company.






Issued share capital 7 shares with a par value of R0.25 each

Nature of business To engage in all aspects of the business of employee benefi ts

consultants.



289





Nature of business Insurance brokers.



RMB Insurance Brokers Proprietary Limited




Nature of business To carry on the business of insurance brokers.



Envirocover Proprietary Limited




Nature of business Receiving, holding and applying monies contributed to it in

order to discharge the post-closure and other environmental

liabilities of industrial and mining companies.



Alexander Forbes Financial Services Holdings Proprietary Limited


Date and place of incorporation 27 November 1995 in South Africa


Nature of business Holding company which provides various services, including

employee benefi ts, health and retirement fund actuarial

consulting; administration for umbrella and standalone

retirement funds, share schemes and discretionary savings

products; and individual and group life products.



Alexander Forbes Fiduciary Services Limited




Nature of business Trust administration.



290

Alexander Forbes Financial Planning Consultants Proprietary Limited



Issued share capital 2 ordinary shares of no par value

Nature of business Retail business, fi nancial planning, actuarial services,

consulting and advisory services, trust services and related

activities.



Alexander Forbes Financial Services Proprietary Limited



Issued share capital 3 ,509 ,068 ordinary shares of no par value

Nature of business To carry on the business of providing fi nancial services.



Alexander Forbes Health Proprietary Limited




Nature of business The provision of healthcare, wellness and related consulting,

broking and actuarial services and the development and

provision of health, wellness and related products.

Date became subsidiary 13 September 2007


Alexander Forbes Individual Clients Administration Proprietary Limited




Nature of business Retail business, fi nancial planning, actuarial services

administration services, consulting and advisory services,

trust services and related activities.



Alexander Forbes Intermediary Services Proprietary Limited




Nature of business Independent broker distribution channel services.



291

Alexander Forbes Life Limited




Nature of business To provide life assurance services to the public in terms of the

LTIA or any substitution thereof.



Alexander Forbes Retail Client Administration Proprietary Limited


Date and place of incorporation 19 April 2010 in South Africa


Nature of business General trading and investment in all aspects.

Date became subsidiary 13 November 2010


Alexander Forbes Retail Holdings Proprietary Limited




Nature of business Holding company for retail business.



Fireball Trade and Invest 30 Proprietary Limited




Nature of business General trading and investment in all aspects.

Date became subsidiary 3 May 2010


Seniors’ Finance Proprietary Limited



Issued share capital 272 ordinary shares with a par value of R1.00 each

Nature of business The provision of mortgage-related products.


Alexander Forbes effective interest 86.8%

292

Seniors’ Finance Security SPV Proprietary Limited



Issued share capital 1 ordinary share with a par value of R1.00

Nature of business To issue lender guarantees ; Seniors’ Finance guarantees,

obtain and hold the lender indemnity, obtain and hold debtor

indemnities, obtain, hold, maintain and execute collateral

ceded and pledged and enter into fi nance documents.



Alexander Forbes Nominees Proprietary Limited




Nature of business Registered holder of securities for and on behalf of clients.


Alexander Forbes interest 100%

Homeplan Proprietary Limited



Issued share capital 120 ordinary shares with a par value of R1.00

Nature of business Trading and investment.



Homeplan Financial Solutions Security SPV Proprietary Limited



Issued share capital One ordinary share of R1.00

Nature of business Issue guarantees to creditors of Homeplan Financial Solutions

Proprietary Limited and guarantee payment to such creditors

of their claims against issuer on the terms set out in such

guarantees.



Alexander Forbes Management Services Proprietary Limited




Nature of business Management, administration and support services.



293

Faranani Risk Solutions Proprietary Limited




Nature of business The provision of insurance broking and related services.



Fihrst Management Services Proprietary Limited



Issued share capital 100 ordinary shares of R0.10 each

Nature of business Financial management services as an agent.



Investment Solutions Holdings Limited (Investment Solutions)




Nature of business The holding company for the multi-manager asset

management and investment administration businesses.



Investment Solutions Limited




Nature of business In accordance with the LTIA or any substitution therefor.



Investment Solutions Administrative Services Proprietary Limited




Nature of business To deliver investment administrative services to non-long-

term insurance clients.



294

CFS II Investments Proprietary Limited




Nature of business To act as an investment company.



CFS I Investments Proprietary Limited


Date and place of incorporation 28 February 2006 in South Africa


Nature of business To act as an investment company.



Caveo Fund Solutions Proprietary Limited



Issued share capital 10 ,000 ordinary par value shares of R0.10 each

Nature of business To act as a fi nancial services provider in terms of the FAIS.



Investment Solutions Unit Trusts Limited




Nature of business To carry on business as the management company of unit

trust schemes in securities other than proper shares in

accordance with the Unit Trusts Control Act, No 54 of 1981.



Super Flex Limited




Nature of business Long-term insurance business of the nature of immediate

annuities only in accordance with the Insurance Act, 1943,

as amended, or any statutory substitution therefor.



295

Investment Solutions Trustee Company Proprietary Limited




Nature of business To act as trustees for various trusts.



Investment Solutions Offshore Funds (SA) Limited




Nature of business Investments as principal.



Investment Solutions International Proprietary Limited




Nature of business The business of an international investment company.



Investment Solutions Transition Management Company Proprietary Limited




Nature of business For the purpose of doing transition management and related

matters.



Alexander Forbes Risk and Insurance Services Proprietary Limited




Nature of business To provide risk and insurance services and all activities

ancillary thereto.



296

Alexander Forbes Insurance Company Limited




Nature of business The business of direct short-term insurance in accordance

with the provisions of the Insurance Act, 1943, as amended

from time to time.



Alexander Forbes Direct Proprietary Limited




Nature of business Direct marketing.



Alexander Forbes Administration Services Proprietary Limited



Issued share capital 7 ordinary shares of no par value

Nature of business A specialised company performing administration functions

and related services.



CRM Training Proprietary Limited



Issued share capital 100 ordinary shares with a par value of R1.00 each

Nature of business To provide risk management training to all existing risk

services and non-risk services clients.



Alexander Forbes Compensation Technologies Proprietary Limited




Nature of business The provision of cost containment services to the payers of

medical benefi ts.



297

Alexander Forbes Accident Compensation Technologies Proprietary Limited




Nature of business Provide management services to health care providers for

MVA claims and related activities.



Alexander Forbes Accident Verifi cation Unit Proprietary Limited




Nature of business Provide management services to healthcare providers for

MVA claims and related activities.



Alexander Forbes AfriNet Investments Proprietary Limited



Issued share capital 100 “A” ordinary no par value shares and 100 “B” ordinary

no par value shares.

Nature of business To act as a holding company for risk related fi nancial services

in Africa.



Alexander Forbes Botswana Group Holdings Proprietary Limited

Registration number 94/636

Date and place of incorporation 22 April 1994 in Botswana

Issued share capital 1 ,000 ordinary shares of P1 each

Nature of business To operate as an investment holding company, carry on the

business of agents of all kinds, provide fi nance and a number

of other detailed business.



Alexander Forbes Financial Services Botswana (Proprietary) Limited


Date and place of incorporation 30 March 1988 in Botswana


Nature of business The provision of employee benefi t administration services to

employers and institutional businesses.



298

Alexander Forbes Asset Consultants (Proprietary) Limited


Date and place of incorporation 31 May 2010 in Botswana

Issued share capital 100 ordinary shares of P1 each

Nature of business The provision of asset consulting/investment advisory

services.

Date became subsidiary 20 May 2011


Price Forbes Africa Group (Proprietary) Limited


Date and place of incorporation 8 May 1992 in Botswana


Nature of business Insurance and reinsurance brokers.



Alexander Forbes Financial Services (East Africa) Limited

Registration number C80894

Date and place of incorporation 8 May 1998 in Kenya

Issued share capital 250 ,000 ordinary shares of KSh100 each

Nature of business Provision of retirement consulting, actuarial and

administration services; houses the AFRF.



Alexander Forbes Namibia Investments Proprietary Limited


Date and place of incorporation 15 June 1990 in Namibia

Issued share capital 100 ordinary shares of N$1 each

Nature of business The provision of retirement consulting, actuarial and

administration services.



Alexander Forbes Namibia Holdings Proprietary Limited


Date and place of incorporation 10 May 1990 in Namibia


Nature of business Investment company.



299

Alexander Forbes Namibia Empowerment Holdings (Proprietary) Limited


Date and place of incorporation 27 February 2003 in Namibia

Issued share capital 8 ,001 ordinary shares of N$1 each (6 ,000 class A ordinary

shares and 2 ,001 class B ordinary shares) and 17 ,450

preference shares of N$1 each.

Nature of business Investments and all related activities.



Alexander Forbes Financial Services Namibia (Proprietary) Limited



Issued share capital 2 ,500 ordinary shares of N$2 each

Nature of business Short-term broking, life assurance, pension funds, retirement

planning, risk analysis and consulting, reinsurance broking

and consulting and all related business.



Alexander Forbes Insurance Company Namibia Limited



Issued share capital 4 ,000 ,000 ordinary shares of N$1 each

Nature of business The provision of short-term cell-captive insurance, selling

various insurance products off the promoter cell and the

provision of cell-captive solutions to clients.



Investment Solutions Namibia Limited




Nature of business The provision of life assurance services.



300

Lumley Agra Farmers Insurance Brokers (Proprietary) Limited


Date and place of incorporation 10 October 1996 in Namibia


Nature of business Farming and agricultural insurance broking and all objects

ancillary thereto.



Investment Solutions Holdings (Proprietary) Limited


Date and place of incorporation 19 February 2001 in Namibia


Nature of business Holding company.



Reinsurance Solutions Namibia (Proprietary) Limited


Date and place of incorporation 25 March 1993 in Namibia


Nature of business Short-term insurance broking and all objects ancillary

thereto.



Guardrisk Life Namibia Limited


Date and place of incorporation 15 March 2004 in Namibia


Nature of business To provide funeral and life assurance cover.



Optimum Vehicle Solutions Limited


Date and place of incorporation 5 November 1992 in Namibia


(2 ,000 class A ordinary shares and 2 ,000 class B ordinary

shares)

Nature of business Finance company.



301

Alexander Forbes Consulting Actuaries Nigeria Limited

Registration number LC 620284

Date and place of incorporation 31 March 2005 in Nigeria


Nature of business Conducting the business of pension fund valuation, benefi t

design and costing, individual member benefi t calculations of

pension benefi ts, calculating individual transfer values to the

new contributory pension scheme, advising on pension

increases, pension fund liquidation, assurance company

valuations, assurance product development, modelling of

liabilities for investment strategy planning, independent

advice on appointing service providers and statistical analysis

and profi t projections.



Alexander Forbes Financial Services Uganda Limited

Registration number 147409

Date and place of incorporation 10 April 2012 in Uganda

Issued share capital 10 ,000 shares of USh1 000 each

Nature of business Retirement fund administration.

Date became subsidiary 10 April 2012


WFDR (Private) Limited


Date and place of incorporation 1 March 1968 in Zimbabwe

Issued share capital 50 ,000 ordinary shares of US$0.01 each

Nature of business To carry on all kinds of insurance business, the business of

an investment company and many other detailed businesses.



Alexander Forbes Zimbabwe (Private) Limited


Date and place of incorporation 23 September 1977 in Zimbabwe


Nature of business To operate as a holding and investment company.



302

Alexander Forbes International Limited


Date and place of incorporation 8 June 1988 in England and Wales

Issued share capital 7 ,700 ,000 ordinary par value shares of £1 each

Nature of business Holding company for the EU businesses of the Group,

including the LCP business.



Lane Clark & Peacock Limited


Date and place of incorporation 13 February 2006 in England and Wales

Issued share capital 1 ordinary share fully paid up at £1 nominal value

Nature of business The company is dormant.



Lane Clark & Peacock LLP

Registration number OC301436


Issued share capital N/A (LCP LLP is a limited liability partnership)

Nature of business Actuaries and consultants.



Lane Clark & Peacock Services Limited


Date and place of incorporation 5 September 2013 in England and Wales

Issued share capital 1 ordinary share fully paid-up at £1 nominal value


Date became subsidiary 17 September 2013


Alfred Blackmore Limited



Issued share capital 100 ordinary shares of £1 each

Nature of business Dormant – in members’ voluntary liquidation.



303

10800 Limited


Date and place of incorporation 11 January 1978, England and Wales

Issued share capital £1 ,042 ,677.15 divided into 53 ,543 A ordinary shares of

£1 each, 986 ,457 B ordinary shares of £1 each and 267 ,715

C ordinary shares of 1p each




10900 Limited


Date and place of incorporation 2 April 1993, England and Wales

Issued share capital £1 ,194 ,725 divided into 1 ,172 ,000 preference shares of

£1 each and 2 ,272 ,500 A ordinary shares of 1p each




The Annuity Bureau Limited


Date and place of incorporation 30 June 1989, England and Wales

Issued share capital £100 ,000 divided into 100 ordinary shares of £1 each and

100 ,000 preference shares of £1 each




AF DC Administration Services Limited


Date and place of incorporation 2 December 1985, England and Wales

Issued share capital £150 ,000 divided into 150 ,000 Ordinary Shares of £1 each




AF DC Administration Services Number 2 Limited


Date and place of incorporation 18 September 2003, England and Wales

Issued share capital 1 ordinary share of £1




304

The Investors Bureau Limited


Date and place of incorporation 31 December 1985, England and Wales

Issued share capital 126 ,077 ordinary shares of £1 each




Alexander Forbes Financial Services Holdings Limited


Date and place of incorporation 7 December 2001 in England and Wales

Issued share capital 1 ordinary par value share of £1

Nature of business Holding company for a non-trading subsidiary in the Isle of

Man and is the Corporate Member in LCP.



Alexander Forbes Financial Services No. 2 Limited


Date and place of incorporation 11 June 1991 in England and Wales


Nature of business Non-trading.



10723 Limited

Registration number 111732C

Date and place of incorporation 14 September 2004 in Isle of Man


Nature of business Non-trading.



LCP Europe Limited


Date and place of incorporation 4 March 2004 in England and Wales


Nature of business Acts as a holding company for shareholdings in Belgium and

LCP Enterprises Limited.



305

LCP Enterprises Limited


Date and place of incorporation 30 March 2005 in England and Wales

Issued share capital 1 ordinary share of £1 nominal value

Nature of business Shareholder in the business of LCP Belgium.



LCP Trustees Limited


Date and place of incorporation 24 September 1979 in England and Wales

Issued share capital 2 ordinary shares fully paid up at £1 nominal value




IS Global Research Limited


Date and place of incorporation 22 November 2012 in England and Wales

Issued share capital 100 ordinary shares of £1 each

Nature of business Investment research services.

Date became subsidiary 22 November 2012


LCP Belgium

Registration number 863.840.923

Date and place of incorporation 3 March 2004 in Belgium

Issued share capital 35 ,000 shares of €1 each

Nature of business Actuarial, fi nancial, risk and business services fi rm

specialising in the areas of pensions, employee benefi ts and

compensation, investment, insurance and healthcare,

including provision of IT development, support and

maintenance related to these services.



Alexander Forbes Group Jersey Limited


Date and place of incorporation 29 January 1988 in Jersey

Issued share capital 51 ,447 ordinary par value shares of £1 each

Nature of business Holding company.



306

Investment Solutions (Jersey) Limited




Nature of business Fund multi-management.



Alexander Forbes Channel Islands Limited



Issued share capital 250 ,000 ordinary shares of £0.10 each

Nature of business Financial advisor offering independent fi nancial advice to

both corporate clients and individuals.



Lane Clark & Peacock Netherlands B.V.


Date and place of incorporation 25 February 2008 in The Netherlands

Issued share capital 55 ,000 shares of €1 each

Nature of business Actuarial and pension consultancy.

Date became associate 25 February 2008


Lane Clark & Peacock Trustee Services Limited


Date and place of incorporation 25 November 2009 in Ireland

Issued share capital 100 ordinary shares of €1 each

Nature of business The company is dormant and has not commenced trading.

Date became associate 25 November 2009


Lane Clark & Peacock Ireland Holdings Limited


Date and place of incorporation 2 February 2007 in Ireland

Issued share capital 1 ,545 ordinary shares of €1 each

Nature of business Investment holding company.

Date became associate 1 April 2008


307

Lane Clark & Peacock Ireland Limited


Date and place of incorporation 24 January 2001 in Ireland

Issued share capital 5 ordinary shares of €1.27 each

1 “A” ordinary share at €1.27

Nature of business Provision of actuarial consulting services to insurance and

pension funds and independent advice to private individuals

and companies.

Date became associate 1 April 2008


Swaziland Employee Benefi ts Consultants (Proprietary) Limited


Date and place of incorporation 15 May 1985 in Swaziland

Issued share capital 300 A shares of E1 each

Nature of business

Pension fund administration, consulting, actuarial and

related fi nancial services. This entity is currently in the

process of being disposed, subject to the receipt of certain

regulatory approvals.

Date became associate 26 July 2007


Alexander Forbes Lesotho Limited


Date and place of incorporation 7 October 1969


Nature of business To carry on business as insurance brokers and agents.



Associates

Alexander Forbes Risk & Insurance Brokers Proprietary Limited

Registration number C104447

Date and place of incorporation 7 July 2003 in Kenya

Issued share capital 150 ,000 ordinary shares of KSh 100 each

Nature of business Conducting the business of short-term insurance broking.

Date became associate 30 January 2009


308

Alexander Forbes Financial Services Zambia Limited

Registration number LCO 61720

Date and place of incorporation 17 March 2006 in Zambia

Issued share capital 1 ,100 ,000 ordinary shares of K1 each

Nature of business The administration of pension funds and the management

employee benefi t schemes.

Date became associate 4 October 2009


Alexander Forbes Risk Services Zimbabwe (Private) Limited


Date and place of incorporation 23 September 1977 in Zimbabwe


Nature of business Insurance broking, investment of capital, acquisition of

investments, to raise money as the company sees fi t, to

acquire property and to carry on any business to enhance the

value of the company.



Tibiyo Insurance Brokers (Proprietary) Limited

(trading as Alexander Forbes Risk Services Swaziland)


Date and place of incorporation 8 February 1978 in Swaziland

Issued share capital 10 ,000 A shares

Nature of business Insurance broking and services ancillary thereto. This entity

is currently in the process of being disposed of, subject to the

receipt of certain regulatory approvals.



309

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-Mar-1

33

years (

ex

pir

es 2

9-F

eb-1

6)

R1

29

.90

/m2

8.2

5%

AF

ICM

arsh

Prop

rie

tary

Lim

ited

50

A a

nd

51

Dorp

Str

eet

as

well

as c

orn

er D

orp

an

d

Pap

eg

aai

Str

eet,

Ste

llen

bosch

34

4.9

01

-Ap

r-1

41

year (

ex

pir

es 3

1-M

ar-1

5)

(Lease p

ursu

an

t to

Tran

sit

ion

al

Servic

es

Ag

reem

en

t betw

een

Ale

xan

der

Forbes G

rou

p a

nd

Tech

nolo

gy

Servic

es P

rop

rie

tary

Lim

ited

an

d M

arsh

Prop

rie

tary

Lim

ited

date

d 3

1 A

ug

ust

20

11

(th

e “

Marsh

TS

A”)

)

R4

3.5

7/m

2N

o

escala

tion

310

Les

see

Les

sor

Loc

ati

on

Flo

or S

pa

ce

(On

ly O

ffi c

e S

pa

ce E

xcl

B

ase

men

t a

nd

S

tora

ge)

(m2)

Com

men

ce-

men

t D

ate

Ten

ure

an

d U

nex

pir

ed

Ter

m o

f th

e L

ease

Cu

rren

t M

onth

ly

Ren

tal

An

nu

al

Esc

ala

tion

Su

b-L

esse

e

AF

FS

G.

E.

Prop

erty

an

d M

ark

eti

ng

Prop

rie

tary

Lim

ited

10

Torsvale

Crescen

t, L

a

Lu

cia

Offi

ce P

ark

, L

a L

ucia

Rid

ge,

Du

rban

4 ,9

76

(In

clu

din

g

su

b-l

et

area o

f

25

0.6

) N

et:

4 ,7

25

.4

30

-Ju

l-1

15

years (

ex

pir

es 3

1-J

ul-

16

)R

10

0.0

6/m

28.5

%B

ase 1

0 P

ayroll

Syste

ms

Clo

se C

orporati

on

&

Tran

su

nio

n C

redit

Bu

reau

Proprie

tary

Lim

ited &

Marsh

Proprie

tary L

imit

ed

AF

FS

Am

arak

a

Investm

en

ts

No.

10

Prop

rie

tary

Lim

ited

3 H

igh

gate

Driv

e,

Red

lan

ds

Esta

te,

1 G

eorg

e M

cF

arla

ne,

Pie

term

arit

zbu

rg

17

00

1-A

ug

-10

5 y

ears (

ex

pir

es 3

1-J

ul-

15

)R

13

2.0

9/m

29

%M

arsh

Prop

rie

tary

Lim

ited

AF

FS

Rom

an

co 5

Prop

rie

tary

Lim

ited

25

6 –

25

8 C

ap

e R

oad

, P

ort

Eli

zabeth

, E

rf

13

54

Mil

park

,

Port

Eli

zabeth

1 6

23

01

-Nov-1

36

years (

ex

pir

es 3

1-O

ct-

19

)R

12

7.0

0/m

27

.5%

AF

FS

Laeveld

Tru

st

20

01

Prop

rie

tary

Lim

ited

22

Ru

ssel

Str

eet,

Nels

pru

it1

89

01

-May

-11

5 y

ears (

ex

pir

es 3

0-A

pr-1

6)

R8

9.1

3/m

28

%M

arsh

Prop

rie

tary

Lim

ited

AF

IC (

as

su

b-l

essee)

Marsh

Prop

rie

tary

Lim

ited

(as s

ub-

lessor)

– l

easin

g f

rom

Brook

lyn

Cir

cle

Prop

erti

es

Prop

rie

tary

Lim

ited

(Lease i

s i

n t

he n

am

e

of

AF

RS

wh

ich

was

bou

gh

t by

Marsh

Prop

rie

tary

Lim

ited

)

Erf

87

1 B

rook

lyn

, P

reto

ria

Not

sta

ted

01

-Au

g-1

03

1-J

ul-

16

(L

ease p

ursu

an

t to

Marsh

TS

A)

R2

05

,48

6.5

28

%

AF

FS

(as

su

b-l

essee)

Marsh

Prop

rie

tary

Lim

ited

(as s

ub-

lessor)

– l

easin

g f

rom

Brook

lyn

Cir

cle

Prop

erti

es

Prop

rie

tary

Lim

ited

(Lease i

s i

n t

he n

am

e

of

AF

RS

wh

ich

was

bou

gh

t by

Marsh

Prop

rie

tary

Lim

ited

)

Erf

87

1 B

rook

lyn

, P

reto

ria

Not

sta

ted

01

-Au

g-1

03

1-J

ul-

16

(L

ease p

ursu

an

t to

Marsh

TS

A)

R1

43

,91

5.5

28

%

311

Les

see

Les

sor

Loc

ati

on

Flo

or S

pa

ce

(On

ly O

ffi c

e S

pa

ce E

xcl

B

ase

men

t a

nd

S

tora

ge)

(m2)

Com

men

ce-

men

t D

ate

Ten

ure

an

d U

nex

pir

ed

Ter

m o

f th

e L

ease

Cu

rren

t M

onth

ly

Ren

tal

An

nu

al

Esc

ala

tion

Su

b-L

esse

e

AF

FS

Brook

lyn

Brid

ge

Offi

ce P

ark

Prop

rie

tary

Lim

ited

Offi

ce B

21

3,

Bu

ild

ing

2,

Brook

lyn

Brid

ge O

ffi c

e P

ark

,

57

0 F

eh

rsen

Str

eet,

Brook

lyn

, P

reto

ria

25

8.2

60

1-A

pr-1

31

year (

ex

pir

ed

31

-Mar-1

4)

(lease n

eg

oti

ati

on

for f

urth

er

12

mon

ths o

ng

oin

g)

R1

37

.30

/m2

8%

Ale

xan

der

Forbes

Accid

en

t

Com

pen

sa-

tion

Tech

nolo

gie

s

Prop

rie

tary

Lim

ited

Grow

thp

oin

t

Prop

erti

es L

imit

ed

33

3 G

rosven

or S

treet,

Hatfi

eld

, P

reto

ria

1 ,1

96

.93

01

-Dec-1

35

years (

ex

pir

es 3

0-

Nov-1

8)

R9

4.7

5/m

28

%

AF

FS

Ash

lar P

rop

erti

es

Prop

rie

tary

Lim

ited

Blo

ck

B,

Fir

st

Flo

or,

Sh

ort

Mil

l H

ou

se,

Vic

toria

Crescen

t, t

he Q

uarry

Offi

ce

Park

, E

ast

Lon

don

Erf

47

72

7

52

50

1-J

an

-14

3 y

ears (

ex

pir

es 3

1-D

ec-1

7)

R1

00

.00

/m2

7.5

%

AF

ICC

ron

iel

Investm

en

ts

Prop

rie

tary

Lim

ited

6A

Pie

rrre S

treet

Ben

dor,

Erf

31

61

Ben

dor E

xt

30

,

Polo

kw

an

e.

Not

sta

ted

01

-Dec-1

31

year (

ex

pir

es 3

0-N

ov-1

4)

R1

3 ,7

88

.99

per a

nn

um

No

escala

tion

Marsh

Prop

rie

tary

Lim

ited

AF

IC (

as

su

b-l

essee)

Marsh

Prop

rie

tary

Lim

ited

(as s

ub-

lessor)

leasin

g f

rom

Corp

ufl

ex

Investm

en

ts C

C

(Lease i

s i

n t

he n

am

e

of

AF

RS

wh

ich

was

bou

gh

t by

Marsh

Prop

rie

tary

Lim

ited

40

Yu

su

f D

ad

oo A

ven

ue,

Wit

kop

pie

s,

Kle

rk

sd

orp

Not

sta

ted

01

-Nov-1

13

1-O

ct-

16

(L

ease p

ursu

an

t to

Marsh

TS

A)

R7

,62

3.9

28

%

AF

IC (

as

su

b-l

essee)

Marsh

Prop

rie

tary

Lim

ited

(as s

ub-

lessor)

leasin

g f

rom

WB

Prop

erti

es T

ru

st

(Lease i

s i

n t

he n

am

e

of

AF

RS

wh

ich

was

bou

gh

t by

Marsh

Prop

rie

tary

Lim

ited

)

8-1

0 R

eid

Str

eet,

Westd

en

e,

Blo

em

fon

tein

Not

sta

ted

01

-Ju

n-1

13

1-M

ay

-14

(L

ease p

ursu

an

t to

Marsh

TS

A)

(Neg

oti

ati

on

s i

n

process f

or d

irect

form

al

lease

by

AF

FS

wit

h W

B P

rop

erti

es

Tru

st,

wil

l th

en

su

ble

t to

AF

IC)R

6 ,6

56

.49

8%

312

Les

see

Les

sor

Loc

ati

on

Flo

or S

pa

ce

(On

ly O

ffi c

e S

pa

ce E

xcl

B

ase

men

t a

nd

S

tora

ge)

(m2)

Com

men

ce-

men

t D

ate

Ten

ure

an

d U

nex

pir

ed

Ter

m o

f th

e L

ease

Cu

rren

t M

onth

ly

Ren

tal

An

nu

al

Esc

ala

tion

Su

b-L

esse

e

AF

FS

(as

su

b-l

essee)

Marsh

Prop

rie

tary

Lim

ited

(as s

ub-

lessor)

leasin

g f

rom

WB

Prop

erti

es T

ru

st

(Lease i

s i

n t

he n

am

e

of

AF

RS

wh

ich

was

bou

gh

t by

Marsh

Prop

rie

tary

Lim

ited

8-1

0 R

eid

Str

eet,

Westd

en

e,

Blo

em

fon

tein

Not

sta

ted

01

-Ju

n-1

13

1-M

ay

-14

(L

ease p

ursu

an

t to

Marsh

TS

A)

(Neg

oti

ati

on

s i

n

process f

or d

irect

form

al

lease

wit

h W

B P

rop

erti

es T

ru

st)

R1

1 ,6

60

.50

8%

AF

IC (

as

su

b-l

essee)

Marsh

Prop

rie

tary

Lim

ited

(as s

ub-

lessor)

leasin

g f

rom

MM

Prop

erty

Investm

en

t (L

ease i

s

in t

he n

am

e o

f A

FR

S

wh

ich

was b

ou

gh

t by

Marsh

Prop

rie

tary

Lim

ited

)

Beacon

Pla

ce B

uil

din

g,

12

5 M

ead

e S

treet,

Erf

90

94

,

Georg

e

95

01

-May

-14

1 y

ear (

ex

pir

es 3

0-A

pr-1

5)

R6

,28

3.3

0N

o

escala

tion

AF

FS

(as

su

b-l

essee)

Marsh

Prop

rie

tary

Lim

ited

(as s

ub-

lessor)

leasin

g f

rom

MM

Prop

erty

Investm

en

t (L

ease i

s

in t

he n

am

e o

f A

FR

S

wh

ich

was b

ou

gh

t by

Marsh

Prop

rie

tary

Lim

ited

)

Beacon

Pla

ce B

uil

din

g,

12

5 M

ead

e S

treet,

Erf

90

94

,

Georg

e

Not

sta

ted

01

-May

-10

30

-Ap

r-1

4 w

ith

an

op

tion

to

ren

ew

for a

fu

rth

er f

ou

r y

ears

(Lease p

ursu

an

t to

Marsh

TS

A)

R2

,62

9.0

08

%

AF

IC (

as

su

b-

lessee)

Marsh

Prop

rie

tary

Lim

ited

(as s

ub-

lessor)

leasin

g f

rom

the S

uk

dev T

ru

st

Su

b 1

3 o

f L

ot

11

33

4,

9 L

ira

Lin

k,

Ric

hard

s B

ay

99

01

-Ju

n-1

31

year (

ex

pir

ed

31

-May

-14

)

(lease n

eg

oti

ati

on

for f

urth

er

12

mon

ths o

ng

oin

g)

R1

58

.73

/m2

9%

AF

ICM

ox

icorp

Investm

en

ts

Prop

rie

tary

Lim

ited

C/O

Du

rban

Prop

erty

Man

ag

ers

Lak

efi

eld

Sh

op

pin

g C

en

tre

Corn

er,

Lak

efi

eld

an

d

Sh

on

gw

en

i R

oad

, L

ak

efi

eld

,

Ben

on

i

18

30

1-A

pr-1

41

year (

ex

pir

es 3

1-M

ar-1

5)

R1

4 ,6

40

.00

No

escala

tion

313

Deta

ils o

f th

e p

rin

cip

al

imm

ovable

prop

erti

es l

eased

by

th

e C

om

pan

y a

nd

its

su

bsid

iarie

s i

n s

ub-S

ah

aran

Afr

ica, ex

clu

din

g S

ou

th A

fric

a, are a

s f

oll

ow

s:

Les

see

Les

sor

Loc

ati

on

Flo

or S

pa

ce

(On

ly O

ffi c

e S

pa

ce E

xcl

B

ase

men

t a

nd

S

tora

ge)

(m2)

Com

men

ce-

men

t D

ate

Ten

ure

an

d U

nex

pir

ed

Ter

m o

f th

e L

ease

Cu

rren

t M

onth

ly

Ren

tal

An

nu

al

Esc

ala

tion

Su

b-L

esse

e

Ale

xan

der

Forbes

Grou

p

Nam

ibia

(Pty

) L

td

Wern

hil

l P

ark

(Pty

) L

td

Ale

xan

der F

orbes H

ou

se

Win

dh

oek

63

69

.15

0 6

- May

-10

Roll

over e

very

tw

o y

ears f

or

a p

erio

d o

f 9

years a

nd

11

mon

ths a

t th

e o

pti

on

of

the l

essor

N$

62

6 ,7

96

.16

8%

Marsh

(N

am

ibia

)

(Pty

) L

td

Ale

xan

der

Forbes

Fin

an

cia

l

Servic

es,

a

div

isio

n o

f

Ale

xan

der

Forbes G

rou

p

Nam

ibia

(Pty

) L

td

Ku

du

Prop

erti

es C

CU

nit

3 K

ud

u B

uil

din

g

sit

uate

d a

t E

rf

83

9,

11

th R

oad

, W

alv

is B

ay.

13

00

1-A

pr-1

23

years (

ex

pir

es 2

8-F

eb-1

5)

N$

6 ,6

55

.00

10

%

Ale

xan

der

Forbes

Fin

an

cia

l

Servic

es,

a

div

isio

n o

f

Ale

xan

der

Forbes G

rou

p

Nam

ibia

(Pty

) L

td

Malh

erbe &

Partn

ers

Prop

erty

CC

Offi

ce 1

of

the S

tad

tmit

te

bu

ild

ing

, R

em

ain

ing

Ex

ten

t

Con

soli

date

d E

rf

25

9

Sw

ak

op

mu

nd

Not

sta

ted

01

-Sep

t-1

15

years (

ex

pir

es 3

1-A

ug

-16

)N

$1

3 ,2

30

.00

8%

Ale

xan

der

Forbes

Insu

ran

ce

Com

pan

y

Nam

ibia

Lim

ited

Lu

dw

ig S

ch

rod

er

Esta

te A

gen

ts C

C

Secti

on

50

an

d S

ecti

on

11

4,

Erf

37

52

, M

orin

ga G

ard

en

s,

Sw

ak

op

mu

nd

16

60

1-O

ct-

11

5 y

ears (

ex

pir

es 3

0-S

ep

-16

)N

$9

4.7

0/m

27

%

Ale

xan

der

Forbes

Insu

ran

ce

Com

pan

y

Nam

ibia

Lim

ited

Mrs G

isela

Wen

tsch

er

Secti

on

51

an

d S

ecti

on

11

5

Erf

37

52

, M

orin

ga G

ard

en

s,

Sw

ak

op

mu

nd

69

01

-Oct-

11

5 y

ears (

ex

pir

es 3

0-S

ep

-16

)N

$9

1.3

4/m

27

%

314

Les

see

Les

sor

Loc

ati

on

Flo

or S

pa

ce

(On

ly O

ffi c

e S

pa

ce E

xcl

B

ase

men

t a

nd

S

tora

ge)

(m2)

Com

men

ce-

men

t D

ate

Ten

ure

an

d U

nex

pir

ed

Ter

m o

f th

e L

ease

Cu

rren

t M

onth

ly

Ren

tal

An

nu

al

Esc

ala

tion

Su

b-L

esse

e

Ale

xan

der

Forbes

Fin

an

cia

l

Servic

es,

a

div

isio

n o

f

Ale

xan

der

Forbes G

rou

p

Nam

ibia

(Pty

) L

td

Rosh

kor T

ow

nsh

ip

(Pty

) L

td

Un

it 1

, 15 K

ok

erboom

Str

eet,

Plo

t 1

48

, R

osh

Pin

ah

Not

sta

ted

01

-Mar-1

1E

xp

ired

30

-Ap

r-1

4.

Th

e l

essor

has i

ssu

ed

a l

ett

er e

xte

nd

ing

the l

ease f

rom

1-J

ul-

14

for

12

mon

ths.

N$

2 ,6

79

.55

N$

2 ,8

26

.93

from

1-J

ul-

14

Ale

xan

der

Forbes

Fin

an

cia

l

Servic

es

Bots

wan

a

(Pty

) L

td

Vis

ible

Ed

ge

(Pty

) L

td

Un

it 1

, L

ot

68

2,

68

3

Gaboron

e

35

20

1-M

ay

-14

3 y

ears (

ex

pir

es 3

0-A

pr-1

7)

P3

6 ,9

60

p.m

.8

%

Ale

xan

der

Forbes

Fin

an

cia

l

Servic

es

Bots

wan

a

(Pty

) L

td

Prim

eti

me P

rop

erty

Hold

ing

s L

td

Com

mercia

l bu

ild

ing

con

str

ucte

d o

n P

lot

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317

Annexure 10

DETAILS OF MATERIAL BORROWINGS AND MATERIAL INTER-COMPANY LOANS

The funding for the Group consists of the Term Loan Facility, the RCF and the Settlement Facility. In addition

to these debt instruments, there are various inter-company loans in place in terms of which the debt of AF

Acquisition is pushed down to Alexander Forbes Limited (“AF Limited”) and in turn by AF Limited to the

subsidiaries of AF Limited. The terms of these inter-company loans track the terms of the Term Facility

Agreement. The material inter-company loans have been noted below.

The table below contains details, as at the Last Practicable Date, of:

• material loans, including issued debentures, made to the Company and its subsidiaries; and

• all material inter-company financial and other transactions.

Details of all outstanding loan capital are listed below as material borrowings of the Company as at the Last

Practicable Date. There are no material loans receivable outstanding made by the Company or its subsidiaries

to third parties.

Material Loans Made by Third Parties to the Company and its Subsidiaries

1. Term Loan Facility Agreement between AF Acquisition (as borrower) and FirstRand Bank Limited

(acting through its Rand Merchant Bank division) (as lender).

Reason for loan and brief description Term Loan Facility – AF Acquisition shall apply all amounts

borrowed by it under the facility towards refi nancing the existing

indebtedness of the Group.

Date on which the loan was made 31 March 2014

Signature date 26 March 2014

Amount R1 ,250 ,000 ,000

Interest rate The rate of interest on the loan for each interest period is 3-month

JIBAR plus 2.1% per annum. Default interest of 2% will be charged

on any unpaid amount. If there is any default other than a payment

default, an additional 1% default interest will be payable. All

accrued interest on the loan shall be payable quarterly in arrears

on 28 February, 31 May, 31 August and 31 November of each year.

Terms and conditions of repayment or

renewal

The fi nal repayment date is 31 March 2017.

Secured or unsecured Unsecured. No cross-guarantees from the Group. The lender did

not require security.

Security provided N/A

Conversion or redemption rights N/A

Financing of repayments of debts that

are repayable within 12 months

N/A

2. General Banking Facility Agreement (including a Revolving Credit Facility) between AF Acquisition,

Alexander Forbes Administration Services Proprietary Limited, Alexander Forbes Direct Proprietary

Limited, Alexander Forbes Financial Planning Consultants Proprietary Limited, Alexander Forbes

Financial Services Proprietary Limited, Alexander Forbes Group and Technology Proprietary Limited,

Alexander Forbes Health Proprietary Limited, AFIC, Investment Solutions Limited and Alexander Forbes

Accident Compensation Technology Proprietary Limited, as borrowers (“All Borrowers”) and FirstRand

Bank Limited (acting through RMB Corporate Banking), as lender.

Reason for loan and brief description General banking facility – including a revolving credit facility for

general banking products, corporate cards, fi rst auto cards, asset

based fi nance, interest rate hedges, foreign exchange contracts and

settlement.

318

Date on which the loan was made Loans are made and repaid on a revolving basis from time to time.

The credit facilities are utilised on a revolving basis for the purpose

stipulated in respect of the relevant facility.

Signature date 18 March 2014.

Amount The revolving credit facility is the sum of the below:

• R190 ,000 ,000 short-term direct general banking products

facility made available to AF Acquisition

• R101 ,000 short-term direct Corporate Cards facility made

available to All Borrowers

• R1 ,000 ,000 short-term direct FirstAuto Cards facility made

available to All Borrowers,

(collectively, the “Short Term Direct Facilities”).

The settlement facilities are the sum of the below:

• R9 ,000 ,000 long-term direct asset based finance revolving

facility made available to All Borrowers (the “Long Term Direct

Facility”)

• R70 ,000 ,000 long-term pre-settlement interest rate hedges

facility made available to All Borrowers (the “Long Term Pre-

Settlement Facility”)

• R1 ,000 ,000 (margined) short-term pre-settlement forward

exchange contracts facility made available to All Borrowers (the

“Short Term Pre-Settlement Facility”)

• R400 ,000 ,000 settlement facility made available to All Borrowers

(the “Settlement Facility”).

Interest rate Terms and conditions to be agreed from time to time in respect of

various facilities.


renewal

• The Short Term Direct Facilities are repayable on 60 days’ notice.

• The term of the Long Term Direct Facility may not exceed

60 months.

• The Long Term Pre-Settlement Facility, Short Term Pre-

Settlement Facility and the Settlement Facility are terminable

on 60 days’ notice. Individual contracts in respect of the Long

Term Pre-Settlement Facility may not exceed 36 months.

Secured or unsecured Unsecured. No cross-guarantees from the Group. The lender did

not require security.





N/A

Material Inter-Company Financial and Other Transactions

1. Inter-company Loan Agreement between AF International (as lender) and AFFS Holdings (as borrower)

Reason for loan and brief description The facility shall be available to be advanced to AFFS Holdings by

AF International upon request.

Dates on which the loans were made 1 April 2007.

Signature date 27 March 2011.

Amount Facility amount: £40 ,000 ,000.

Loan amount as at 31 March 2014 is R30 ,531 ,767.

319

Interest rate The loan together with accrued and unpaid interest shall bear

interest at the applicable rate (from the initial period the 6-month

LIBOR British Bankers’ Association Fixing for pound sterling as of

the determination date being, fi rst business day of April and

October each year that the loan remains outstanding, plus 100 basis

points and for the subsequent period the 6-month LIBOR British

Bankers’ Association Fixing for pound sterling as of the

determination date plus 410 basis points.


renewal

AFFS Holdings may make repayments from time to time as long as

the total principal amount (excluding accrued and unpaid interest)

outstanding under the agreement from time to time may never

exceed the facility and no event of default has occurred. AFFS

Holdings may borrow, repay and reborrow under this loan

agreement until 30 March 2022.

AFFS Holdings shall repay the loan on 30 March 2022 or such date

as may be agreed by the parties together with interest accrued

thereon and all other amounts due by the borrower under the

agreement. Interest will be payable on demand or at the lenders

sole opinion on other such date as may be agreed by the parties but

in any event no later than the repayment date, being 31 March 2022.

Period of the loan 1 April 2007 to 30 March 2022.

If the interest and/or capital redemption

payments are in arrears, the last date

on which payment was made and the

extent of the arrears

N/A

Secured or unsecured Unsecured. No security required as the loan is intra-Group.





The fi nal repayment date is 30 March 2022.

2. Inter-company Loan Agreement between Alexander Forbes Financial Services Holdings Proprietary

Limited (as lender) and Alexander Forbes South Africa Holdings Proprietary Limited (as borrower).

Reason for loan and brief description Alexander Forbes Financial Services Holdings Proprietary Limited

(AFFS Holdings) undertakes to advance the loan monies to

Alexander Forbes South Africa Holdings Proprietary Limited

(AFSA Holdings) as and when required as agreed between the

parties from time to time for the operational and working capital

requirements of AFSA Holdings.

Dates on which the loans were made There is no specifi c date – this loan is a function of a number of

transactions.

Signature date 29 April 2010.

Amount R1 ,148 ,991 ,436 (as at 31 March 2014).

Interest rate The loan has no interest or other obligations.


renewal

The loan has no fi xed repayment terms and conditions.

AFFS Holdings reserves the right at any time and at its sole election

and discretion to recall and demand full repayment of the loan

which shall be repaid (in full) by AFSA Holdings to the AFFS

Holdings.

Period of the loan N/A





N/A

320


Security provided N/A.

Conversion or redemption rights N/A.



N/A.

3. Inter-company Loan Agreement between Alexander Forbes Limited (as lender) and Alexander Forbes

Individual Client Administration Proprietary Limited (as borrower).

Reason for loan and brief description AF Acquisition funds to Alexander Forbes Individual Client

Administration Proprietary Limited (AFICA) for the purpose of

funding the purchase by AFICA from Alexander Forbes Financial

Services Proprietary Limited (AFFS) of the business of the Retail

Administration Division of AFFS in terms of a sale agreement

pursuant to a reorganisation. The loan was sold down by

AF Acquisition to AF Limited as part of the March 2014 Restructure.

Dates on which the loans were made 1 April 2007.

Signature date 12 September 2007.

Amount R134 ,800 ,000 (as of 31 March 2014).

Interest rate The terms of this loan shall track the terms of the Term Loan

Facility (see above).


renewal

The repayment terms of this loan shall track the terms of the Term

Loan Facility (see above).

Period of the loan N/A.





N/A.






N/A.

4. Inter-company Loan Agreement between Alexander Forbes Limited (as lender), and Alexander Forbes

Administration Services Proprietary Limited (as borrower).

Reason for loan and brief description AF Acquisition lent funds to AFAS for the purpose of funding the

purchase by AFAS from Alexander Forbes Management Services

Proprietary Limited (AFMS) of the business of the Personal Lines

Division of AFMS in terms of a sale agreement pursuant to a

reorganisation. The loan was sold down by AF Acquisition to

AF Limited as part of the Restructure.

Dates on which the loans were made 18 September 2007.






renewal



Period of the loan The loan and all accrued unpaid interest on the loans shall be repaid

(in whole or in part) by AFAS to AF Acquisition on demand by

AF Acquisition.

321





N/A.






N/A.


Direct Proprietary Limited (as borrower).

Reason for loan and brief description AF Acquisition wishes to lend funds to Alexander Forbes Direct

Proprietary Limited (AFD) for the purpose of funding the purchase

by AFD from Alexander Forbes Financial Services Proprietary

Limited (AFFS) of the business of the AF Direct Division of AFFS in

terms of a sale agreement pursuant to a reorganisation. The loan

was sold down by AF Acquisition to AF Limited as part of the

Restructure.







renewal




(in whole or in part) by AFD to AF Acquisition on demand by

AF Acquisition.





N/A.






N/A


Financial Planning Consultants Proprietary Limited (as borrower).

Reason for loan and brief description AF Acquisition lent funds to Alexander Forbes Financial Planning

Consultants Proprietary Limited (AFPC) for the purpose of funding

the purchase by AFPC from Alexander Forbes Financial Services

Proprietary Limited (AFFS) of the business of the Private Clients/

FPC Division of AFFS in terms of a sale agreement pursuant to a

reorganisation. The loan was sold down by AF Acquisition to

AF Limited as part of the Restructure.






322


renewal




(in whole or in part) by AFPC to AF Acquisition on demand by

AF Acquisition.





N/A.






N/A.


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.







renewal




(in whole or in part) by AFGTS to AF Acquisition on demand by

AF Acquisition.





N/A.






N/A.


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


Signature date 1 4 September 2007.





renewal




(in whole or in part) by AFH to AF Acquisition on demand by

AF Acquisition.





N/A.






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


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


R253 ,649 ,620 Alexander Forbes Limited

Alexander Forbes Risk & Insurance Services

Proprietary Limited

R193 ,242 ,000 Alexander Forbes Financial Services

Proprietary Limited

324

Annexure 11

EXTRACTS FROM THE MEMORANDUM OF INCORPORATIONOF THE COMPANY

Extracts from the Company’s Memorandum of Incorporation (the “Memorandum”) are set out below:

Voting Rights of Securities

“Classifi ed shares: 2 500 000 000 ordinary no par value shares, each of which shall entitle the holder, subject

to any preferences, rights or other share terms of any class of shares in the Company ranking prior to the

ordinary shares:

• to one vote for every ordinary share at every general meeting or annual general meeting, in person or

by proxy;

• to receive any distribution in accordance with the holder’s voting power;

• on a liquidation of the Company, to receive the net assets of the Company in accordance with the holder’s

voting power;

• to all of the preferences, rights or other terms set out in the Act and this Memorandum;

• to any other rights at common law insofar as such rights are not inconsistent with this Memorandum or

the Act.

45 ,000 ,000 non-convertible redeemable “B” preference shares, each of which shall entitle the holder to the

preferences, rights and other terms set out in the Act and this Memorandum.” (Schedule 1)

“Limitation of voting rights: The holders of any securities other than ordinary shares and any special shares

created for the purposes of black economic empowerment (“special shares”) shall not be entitled to vote on any

resolution taken by the Company, save as expressly provided for in this Memorandum. For so long as this is

required by the Listings Requirements, in instances where shareholders’ other than ordinary shareholders

and holders of special shares are allowed to vote at shareholders’ meetings or annual general meetings, their

votes may not carry any special rights or privileges and they shall be entitled to one vote for each share that

they hold, provided their total voting rights at a shareholders’ meeting or annual general meeting may not

exceed 24.99% (twenty-four point ninety-nine percent) of the total voting rights of all shareholders at such

meeting. It is recorded that the existing rights of the holders of the “B” preference shares in the Company are

preserved, as set out in Article 9.” (Article 4.13)

“Shareholders’ resolutions: There shall be no higher percentage of voting rights required to approve an

ordinary resolution than the percentage voting rights specifi ed in the Act, provided that resolutions required

to be approved by an increased majority in terms of the Listings Requirements must be approved by such

increased majority.

There shall be no different percentage of voting rights required to approve a special resolution than the

percentage voting rights of at least 75% specifi ed in the Act.

A special resolution is only required for matters contemplated in Section 65(11) of the Act.” (Article 6.8)

“ “B” Preference Shares: The holders of “B” preference shares shall not be entitled to receive notice of, attend

or vote, either in person or by proxy, at any general meeting of the Company, by virtue of or in respect of the

“B” preference shares, unless one or more of the following circumstances prevail at the date of the meeting:

• any redemption payment remains in arrear and unpaid after 5 (five) business days from due date thereof;

or

• a resolution of the Company is proposed which directly affects the rights and privileges attached to the

“B” preference shares or the interests of the holders of “B” preference shares, including the proposal of a

resolution for:

– the winding-up, liquidation, dissolution or commencement of business rescue proceedings, whether

provisionally or finally, of the Company;

– the reduction, repayment or distribution of the Company’s share capital or share premium account,

except in such manner as is permitted by applicable law and this Memorandum but only if such

repayment or distribution has the effect of reducing the share premium account to below the amount

required for the redemption of each “B” preference share plus any amount required to be retained in the

share premium account in respect of the redemption of any other shares; or

325

• a resolution of the Company is proposed for the disposal of the whole or substantially the whole of the

undertaking of the Company, or the whole or the greater part of the assets of the Company.” (Article 9.6)

“ “B” Preference Shares: At every general meeting of the Company at which holders of the “B” preference

shares as well as other classes of shares are present and entitled to vote, upon a poll, a holder of “B” preference

shares shall be entitled to that proportion of the total votes in the Company which the number of the

“B” preference shares held by that holder bears to the number of all shares issued by the Company and entitled

to be voted at such meeting.” (Article 9.7)

“Amendment of classes of shares, preferences, rights, limitations or other terms: If any amendment relates

to the variation of any preferences, rights, limitations and other terms attaching to any other class of shares

already in issue, that amendment must not be implemented without a special resolution taken by the holders

of the shares of that class of shares at a separate meeting. In such instances, the holders of the shares of that

class of shares may be allowed to vote at the meeting of ordinary shareholders subject to 4.13 and 9 and the

Listings Requirements. No resolution of shareholders may be proposed or passed, unless a special resolution

of the holders of the shares of that class of shares have approved the amendment.” (Article 8.1)

Preferential Conversion and/or Exchange Rights of Securities and Variation of Rights

“Alterations: For so long as is required by the Listings Requirements, any amendment to this Memorandum to:

• increase or decrease the number of authorised shares of any class of shares;

• reclassify any shares that have been authorised but not issued;

• classify any unclassified shares that have been authorised but not issued;

• determine the preferences, rights, limitations or other terms of any class of authorised shares or amend

any preferences, rights, limitations or other terms so determined;

• create any class of shares;

• convert one class of shares into one or more other classes;

• consolidate or sub-divide securities;

• change the name of the Company,

must be approved by special resolution of ordinary shareholders, save where such an amendment is ordered

by a court in terms of Sections 16(1)(a) and 16(4).” (Article 4.3)

“Capitalisation shares: This Memorandum does not limit, restrict or qualify the authority of the board, in

terms of Section 47 of the Act, to:

• approve the issue of any authorised shares of the Company as capitalisation shares, on a pro rata basis to

the shareholders of one or more classes of shares;

• approve the issue of shares of one class as capitalisation shares in respect of shares of another class; or

• permit shareholders to elect to receive a cash payment in lieu of a capitalisation share, at a value determined

by the board.” (Article 4.5)

Control Over Securities

“Authorisation for shares: The Company is authorised to issue the shares specifi ed in Schedule 1, provided

that, if required by the Act or the Listings Requirements, the Company may only issue:

• unissued shares to shareholders of a particular class of shares, pro rata to the shareholders’ existing

shareholding, unless any such shares were issued for an acquisition of assets;

• unissued shares or grant options, to subscribe for cash, other than as envisaged above, as the directors

in their discretion think fit, if approved by the shareholders at a shareholders’ meeting, subject to the

Listings Requirements; and

• shares that are fully paid-up.” (Article 4.2)

Rights to Dividends, Profi ts or Capital or any Other Rights of Each Class

“Company or subsidiary acquiring Company’s shares and distributions: Any acquisition by the Company

or a subsidiary company of the Company’s shares and any distribution to shareholders will be subject to the

provisions of the Act and the Listings Requirements. For so long as required by the Listings Requirements no

repayment of capital to shareholders shall be made on the basis that it may be called up again and dividends

must be payable to shareholders registered as at the date subsequent to the date of declaration or the date of

confi rmation of the dividend.” (Article 4.6)

326

“Registration of benefi cial interests: The registration of the Company’s issued securities in the name of, one

person for the benefi cial interest of another is allowed without limitation or restriction.” (Article 4.8)

“Commission: The Company may pay commission to any person in consideration of such person subscribing,

or agreeing to subscribe, for any shares of the Company or of such person procuring, or agreeing to procure,

subscriptions for shares, provided that such commission shall be subject to any limitations in the Act or the

Listings Requirements.” (Article 4.9)

“Information rights of persons holding a benefi cial interest in shares: This Memorandum does not establish

any information rights of any person in addition to the information rights provided in Sections 26(1) and (2)

of the Act.” (Article 5.1)

“Unclaimed Dividends: For so long as is required by the Listings Requirements, the Company must hold all

monies due to shareholders for the benefi t of shareholders, provided that the board may cause any such

monies unclaimed for a period of three years (from the due date for payment) to be forfeited for the benefi t of

the Company.” (Article 8.2)

“ “B” Preference Shares: It is recorded that the “B” preference shares will be redeemed immediately upon the

listing of the Company’s ordinary shares on the JSE, and that the provisions of Article 9 shall apply only until

such listing.

The following rights and privileges attach to the “B” preference shares:

• The “B” preference shares have been allotted and issued, credited as fully paid-up, in a single tranche

of 21 ,161 ,113 (twenty-one million one hundred and sixty-one thousand one hundred and thirteen)

“B” preference shares.

• The “B” preference shares will, on a liquidation, dissolution or winding-up of the Company, confer the right

upon the holder, in priority to any payments in respect of any other class of shares in the share capital of

the Company then issued, not ranking pari passu with the “B” preference shares, to receive in full out of

the assets of the Company the Redemption Amount. The “B” preference shares shall rank pari passu with

the “A” preference shares. Save as set out in Article 9, the “B” preference shares shall not be entitled to any

dividend or participation in the profits or assets of the Company or, on a liquidation, dissolution winding-

up, to any participation in any surplus assets of the Company.

• Subject to the provisions of the Act, the Company shall be obliged, but only upon the occurrence of an

event referred to in Article 9.4 to redeem the “B” preference shares for the Redemption Amount against

the tender to the Company of the certificate in respect of the “B” preference shares being redeemed and the

Company may apply its share premium for the purpose of any such redemption.

• The “B” preference shares shall forthwith become redeemable and be redeemed upon the occurrence of any

one of the following events, namely:

– the Company is placed into liquidation or business rescue proceedings begin, whether provisional or

final; or

– the Company gives any notice or takes any steps to convene a meeting of the Shareholders to adopt

a resolution placing it in liquidation or to begin business rescue proceedings whether provisional,

voluntary or otherwise; or

– the Company makes or attempts to make or recommends any general offer of compromise with any or

all of its creditors; or

– the Company gives written notice of redemption to the holders of “B” preference shares.

• If any certificate surrendered pursuant to any redemption of any of the “B” preference shares includes

any “B” preference shares not being redeemed on the occasion on which it is so surrendered, then a new

certificate for the remainder of the “B” preference shares not so being redeemed shall be issued free of

charge to the holder of “B” preference shares.” (Article 9)

“Disposal of Shares: “In the event that a shareholder holds more than one class of share, it shall not be

entitled to dispose (otherwise than by means of a redemption) of its shareholding of one category of shares

(the First Category) without simultaneously disposing of that number of shares of each other category

of shares held by such shareholder (each another Category) that is in the same proportion to the total number

of shares of such Other Category held by such shareholder immediately prior to the disposal as the number

of shares of the First Category being disposed of is to the total number of shares of the First Category held by

such shareholder immediately prior to the disposal.

Subject always to the prior approval of:

• a Special Majority of the shareholders; or

• written agreement signed by all of the ordinary shareholders,

327

the Company’s board is authorised to issue shares at any time, but only within the classes, and only to the

extent that the shares have been authorised by or in terms of this Memorandum.

Immediately upon Listing the provisions of Article 10 shall cease to apply.” (Articles 10.5 and 10.6)

Appointment/Term of Offi ce of Directors

“Composition of the board of directors: This Memorandum specifi es 4 directors as the minimum number of

directors of the Company, which number is higher than the minimum number of directors required in terms

of Section 66(2) of the Act, and 20 directors as the maximum number of directors of the Company.

Subject to Article 7.2 and the Listings Requirements, the shareholders shall elect the directors, and shall be

entitled to elect one or more alternate directors, in accordance with the provisions of Section 68(1) of the Act.

This Memorandum does not provide for the appointment of any person as an ex offi cio director of the Company.

Subject to the requirements of the Act, the chairman of the board shall be entitled, subject to the written

approval of the majority of the directors, to appoint any person as a director in terms of Section 66(4)(a)(i),

provided that such appointment must be approved by the shareholders at the next shareholders meeting or

annual general meeting.” (Articles 7.1.1 – 7.1.4)

“Vacancies: The board may appoint any person who satisfi es the requirements for election as a director to fi ll

any vacancy and serve as a director on a temporary basis until the vacancy is fi lled by election in accordance

with Section 68(1) of the Act.

If the number of directors falls below the minimum provided for in this Memorandum, the remaining directors

must as soon as possible and in any event not later than three months from the date that the number of

directors falls below the minimum, fi ll the vacancies or call a shareholders meeting for the purpose of fi lling

the vacancies. If required by the Listings Requirements:

• the appointment of a director to fill a vacancy or as an addition to the board must be confirmed by

shareholders at the next annual general meeting; and

• after the expiry of the three-month period the remaining directors shall be permitted to act for the

purpose of filling vacancies or calling shareholders’ meetings for the purpose of filling the vacancies.”

(Article 7.2.1 – 7.2.2)

“Composition of the board of directors: Without derogating from the provisions of the Act, a director shall

cease to be a director:

• if the director gives notice to the Company of the director’s resignation as a director with effect from the

date of, or such later date as is provided for in, such notice;

• if the director becomes insolvent, or assigns the director’s estate for the benefit of the director’s creditors

or suspends payment of the director’s liabilities or files a petition for the sequestration of the director’s

affairs, or compounds with the director’s creditors; and

• if the director is requested in writing by all the director’s co-directors to resign.” (Article 7.1.8)

“Life directorships: For so long as required by the Listings Requirements, life directorships and directorships

for an indefi nite period are not permissible.” (Article 7.11)

Qualifi cation of Directors

“Composition of the board of directors: Subject to Article 7.2, this Memorandum does not stipulate any

additional qualifi cations or eligibility requirements than those set out in the Act or the Listings Requirements

for a person to become or remain a director or a prescribed offi cer of the Company; provided that, for as long

as the Listings Requirements require it, the board, through its committee delegated responsibility to consider

nominations, should recommend eligibility of directors.” (Article 7.1.5)

Remuneration of Directors

“Directors’ compensation and fi nancial assistance to directors: The ability of the Company to pay

remuneration to its directors for their service as directors in accordance with Section 66(9) of the Act applies

without limitation, restriction or qualifi cation.” (Article 7.6.1)

“Director may be employed in the Company or subsidiary: A director may be employed in any other capacity

in the Company or as a director or employee of a subsidiary of the Company and, in such event, his appointment

and remuneration in respect of such other offi ce must be determined by a disinterested quorum of directors.”

(Article 7.9)

“Directors’ travelling and other expenses: Directors may be paid all their travelling and other expenses,

properly and necessarily incurred by them in and about the business of the Company, and in attending

meetings of the directors or of committees of the directors; and, if any director is required to perform extra

328

services, to reside abroad or be specifi cally occupied about the Company’s business, he may be entitled to such

remuneration as is determined by a disinterested quorum of directors, which may be either in addition to or

in substitution for any other remuneration payable, subject to the provisions of the Act.” (Article 7.10)

“Provisions applicable prior to Listing: Save for executive directors that may be nominated in terms of

Article 10.4.2.1.1 who shall not receive directors’ remuneration, the authority of the Company to pay

remuneration to the directors, in accordance with a special resolution approved by the shareholders within

the previous two years, is not restricted or varied by this Memorandum.” (Article 10.4.2.3)

“Indemnifi cation of directors, offi cers and employees: The ability of the Company to advance expenses to a

director to defend any legal proceedings arising from his service to the Company, or to indemnify a director

against such expenses if the proceedings are abandoned or exculpate the director or arise in respect of any

liability for which the Company may indemnify the director in terms of Sections 78(5) and 78(6) of the Act

applies without limitation, restriction or qualifi cation.” (Article 7.7.2)

Borrowing Powers of Directors

“Provisions applicable prior to Listing: Prior to Listing and, notwithstanding anything to the contrary in

this Memorandum, with respect to the Company, the board shall not, and with respect to each Affi liate the

board shall procure that none of the directors, offi cers or employees of the Affi liate shall have the authority to

bind or commit the Company or the Affi liate, as the case may be, to any of the resolutions or transactions set

out in Article 10.3 in relation to the Company or and Affi liate, nor will the shareholders or their nominees take

any steps of any nature to approve, authorise or permit the Company or any Affi liate to become bound or

committed to any such resolution or transaction, and no such resolution shall be validly passed or no such

transaction shall be implemented, unless such resolution or transaction shall have been approved in advance

by a Special Majority (provided that for purposes of this Article 10.2, the shareholding of Shareholder SC shall

not be counted in determining a Special Majority, except in respect of matters which require the approval of

Shareholders at a general shareholders’ meeting in terms of the Act).

Article 10.2 restricts the power of the board to:

• effect or approve any financing, refinancing or borrowing of monies by the Company in excess of

R350 ,000 ,000 individually or in the aggregate; or

• extend any loan to third parties or the enter into any contract of guarantee or indemnity by the Company

with a value in excess of R50 ,000 ,000 (whether viewed individually or cumulatively with other such loans,

guarantees or indemnities); …” (Articles 10.2 and 10.3)

Retirement of Directors by Rotation and/or Attaining an Age Limit

“Composition of the board of directors: Subject to the Act and this Memorandum, at every annual general

meeting of the Company, one-third of the directors for the time being or, if their number is not a multiple of

three, then the number nearest to, but not less than one-third or if there are less than three, then all the

directors shall retire from offi ce. The directors so to retire at every annual general meeting shall be those who

have been longest in offi ce since their last election. As between directors of equal seniority, the directors so to

retire shall, unless they otherwise agree among themselves, be selected by lot; provided that, notwithstanding

anything to the contrary in this Memorandum:

• if at the date of any annual general meeting any director shall have held office for a period of three years

since his last election or appointment (computed from his last election, appointment or date upon which he

was deemed re-elected), he shall retire at such meeting either as one of the directors to retire in terms of

this Article 7.1.6, or in addition to the directors who retire in terms of this Article 7.1.6;

• a director who intends to retire voluntarily at the annual general meeting may be taken into account in

determining the one-third of the directors to retire at such meeting;

• the identity of the directors to retire at such annual general meeting shall be determined as at the date of

the notice convening such meeting; and

• a director retiring at an annual general meeting shall retain office until the close or adjournment of such

meeting.” (Article 7.1.6)

“Composition of the board of directors: Retiring directors shall be eligible for re-election to the offi ce of

director at any shareholders’ meeting only upon the recommendation of the board.” (Article 7.1.7)

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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



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


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



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


operating expenses.

338



Investment

Solutions

Limited

Maitland Fund Services

Proprietary Limited

Maitland House 1, River Park,

River Lane, Mowbray,

Cape Town, 7700


Proprietary Limited is

appointed to provide asset



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


Proprietary Limited. These

range between depending on

transaction type.

The total charge levied by


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


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


339



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

Forbes

Fiduciary

Services

Limited and

Alexander

Forbes

Financial

Services

Proprietary

Limited

Sentinel International Advisory


6th Floor, Mariendahl House,

Newlands-On-Main, Main Road,

Newlands 7700, Cape Town


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.



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




be settled

R504 ,450 ,000, plus a working capital adjustment of

R15 ,623 ,640.


assets

Marsh Proprietary Limited (corner 5th Street and

Fredman Drive, Entrance 1, Building 1, Alice Lane,

Sandton).






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





be settled

R52 ,700 ,000, plus a working capital adjustment

of R375 ,829.


assets

Marsh Holdings Proprietary Limited (Corner

5th Street and Fredman Drive, Entrance 1, Building 1,

Alice Lane, Sandton).

342






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





be settled


of R1 ,323 ,608.


assets









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





be settled


of R1 ,174 ,185.


assets

MMC UK Group Limited (1 Tower Place West, Tower

Place, London, EC3R 5BU).






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





be settled

N$3 ,500 ,000, plus a working capital adjustment

of R847 ,865.


assets









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





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).






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




be settled


of R293 ,574.


sold assets








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




be settled

R17 ,850 ,000


sold assets








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




be settled


of R912 ,177.

344


assets








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




be settled


of R2 ,957 ,248.


assets








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




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.


assets

Momentum Global Investment Management Limited,

286 West Street, Centurion.






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




be settled

CHF18 ,709 ,000 in cash.


assets

Libera Holding AG (Zugerstrasse 8a, 6340 Baar,

Switzerland).

345






interest

None.

The sale of all of the issued shares of Investment Solutions Group Limited by AF International to Thessaly Limited





be settled

£6 ,610 ,000 in cash.


assets

Thessaly Limited (1 Royal Exchange, London, EC3V

3LN, United Kingdom).






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




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).


assets

JLT EB Holdings Limited (6 Crutched Friars,

London, EC3N 2PH).






interest

None.

Material Acquisitions

None.

346

Annexure 15

CORPORATE GOVERNANCE

Introduction

The Company subscribes to corporate governance laws and applies the principles of good governance as

contained in the King Code. To ensure that the Group’s operations are executed in accordance with these

requirements, the management system includes a code of ethics, as well as policies and protocols to govern

processes and operations. In fi nancial years 2012 and 2013, the Company focused on embedding the Group’s

governance principles and practices further down the organisation into the constituent businesses. To this

end, a fi t and proper policy was adopted to regulate and formalise the appointment of all directors in the

Group and the committees’ terms of reference were aligned to the King Code. In addition, risk committees

within the insurance-regulated subsidiaries of the Company were elevated to committees of the respective

boards to ensure the boards have greater oversight on governance, risk and compliance issues.

Governance Structures

Board Charter

The purpose of the board charter is to regulate how the board of the Company conducts business in accordance

with the principles of good corporate governance. It sets out the specifi c responsibilities board members have

to fulfi l collectively and the individual roles expected from them. The board charter complies with the

requirements of Section 7.F.6 of the Listings Requirements, save as specifi cally identifi ed and explained by

the Company, and contains a policy evidencing a clear balance of power and authority at board of directors

level, to ensure that no one director has unfettered powers of decision-making.

In terms of the board charter, a clear division of responsibilities at the head of the Company is required to

ensure a balance of power and authority, such that no one individual has unfettered powers of decision-

making. The board should provide leadership and vision to the Company in a way that will enhance shareowner

value and ensure that Company’s long-term organisational health. In particular:

• the board should allow every board member to play a full and constructive role in its affairs;

• a board member should be prepared, and able, where necessary, to express disagreement with colleagues

on the board including the chairman and the chief executive officer; and

• if a board member is in doubt as to whether a proposed course of action is consistent with his or her

fiduciary duties and responsibilities, then that course of action should rather not be supported.

The full charter is available on the Company’s website at

http://www.alexanderforbes.co.za/about-us/Investor%20Relations/2013/EquityCo%20Board%20Charter.PDF.

Governance Framework

The Group functions in accordance with a pre-defi ned system of governance arrangements informed by the

King Code and leading corporate governance practices. The framework is applicable to all of the Group’s

subsidiaries in addition to those policies and procedures that are specifi c to certain subsidiaries.

Board Committees

The board committee structure is designed to assist the board of the Company to perform its duties and

responsibilities. Although the board of the Company delegates certain functions to these committees, it retains

ultimate responsibility for their activities. The board of the Company has fi ve standing board committees:

• an Audit Committee;

• a Nominations Committee;

• a Remuneration Committee;

• a Social, Ethics and Transformation Committee; and

• a Retail sub-committee.

Each board committee has formal written terms of reference that are reviewed every year and, at a minimum,

effectively delegate is certain of the board’s responsibilities. The full terms of reference for each committee are

available on the Company’s website (www.alexanderforbes.co.za). The committees are empowered to get

outside or other professional advice, as the members consider necessary, to carry out their duties.

347

The board continually assesses the need for additional committees to assist it in carrying out its duties and

meeting its statutory and legislative requirements.

To maintain the Group’s commitment to corporate governance, the Company continues to participate as a

founding partner in the Institute of Directors’ governance assessment instrument. This is an automated web-

based tool that measures on a real-time basis the Company’s compliance with the King Code. The Company and

its major subsidiaries use the tool and have, in doing so, performed a detailed analysis of their application of

the King Code principles. The Group continues to improve the application of the King Code to improve the

level of governance maturity into the future. In fi nancial years 2012 and 2013, the Company made the

following improvements to its practices in line with the King Code:

• implemented a fit and proper policy in respect of the appointment of all directors;

• agreed the immediate succession plan in respect of the chairman; and

• aligned committee terms of reference with the King Code.

In fi nancial years 2012 and 2013, the internal audit unit completed an internal audit review to determine the

extent of conformity with the requirements of the Companies Act, the King Report on Governance for South

Africa and the King Code.

Audit Committee

The Audit Committee comprises three independent directors, one of whom chairs the committee. Dr Deenadayalen

Konar, Mark Collier and Barend Petersen were appointed to the committee as chairman and members,

respectively, by the shareholders at the Company’s annual general meeting held on 12 September 2013.

The internal and external auditors, management of the operations for which the committee is responsible, the

Group fi nance director, the Group chief risk offi cer, the Group IT executive and other board members and

invitees, as considered appropriate by the committee’s chairman, attend these meetings. The Audit Committee

has reviewed the competence, qualifi cations, performance, appropriateness, expertise and experience of the

fi nancial director, Deon Viljoen, and has confi rmed his suitability in terms of the Listings Requirements.

Dr Deenadayalen Konar, the chairman of the Audit Committee, is not the chairman of the board. The committee

meets at least four times per year.

During each of fi nancial year 2012 and fi nancial year 2013, the Audit Committee held four meetings as

scheduled and a summary of some of the matters it deliberated is included below. The committee:

• ensured the application of the combined assurance model to provide a coordinated approach to all assurance

activities;

• reviewed the annual integrated reporting and a number of aspects in relation thereto;

• was responsible for overseeing internal audit including its objectives, resources and the coverage of its

plans, reviewed the coordination with the external audit function and other assurance providers, considered

the results of internal audit work performed and the adequacy of management corrective action taken in

response to significant internal audit findings;

• was responsible for overseeing the external audit process and work, nominating the external auditor’s

appointment, agreeing the scope of audit and related matters and considered the external auditor’s

independence;

• ensured the formal risk management and assessment processes were in place, reviewed the Company’s

significant accounting and financial risks and steps being taken to mitigate these;

• received and considered tax status reports; and

• considered governance and reviewed regular IT governance reports.

Additional audit committees have been constituted at subsidiary board level. These additional audit committees

are mandated to review the operations of the subsidiary group. The Group Audit Committee reviews their

reports.

The Audit Committee of the Company has an independent role and its responsibilities include oversight of the

following:

• risk management, control and governance, including ensuring that a combined assurance model is

applied to provide a coordinated approach to all assurance activities and oversight of the development and

implementation of a policy and a plan for a systematic, disciplined approach to evaluate and improve the

effectiveness of risk management processes within the Company;

• the quality and integrity of the Company’s reporting practices and controls and the integrated reporting

(including financial statements) of the Company;

348

• the external auditor’s qualifications, independence, and performance, recommending the appointment of

the external auditor, developing and recommending to the board the Company’s policy regarding rotation

of external audit partners, assisting with the resolution of any differences of opinion between the external

auditors and management;

• the performance of the internal audit function, including satisfying itself that the internal audit coverage

plans and approach are informed by and addresses the strategy and risks of the Company and reviewing

the cooperation and coordination between the internal and external audit functions, and other assurance

providers, as well as risk management and compliance functions;

• the Company’s process for monitoring compliance with laws and regulations and the code of ethics;

• integrated reporting with regard to all factors and risks that may impact on the integrity of the integrated

report;

• reviewing developments in corporate governance and best practice and considering their impact and

implication for the Group processes and structures;

• IT governance;

• reporting of sustainability which has been delegated by the board to it;

• monitoring the ethical conduct of the Company, its executives and senior officials; and

• receiving and reviewing any status reports from the General Manager Tax and considering any significant

issues as may be required.

Nominations Committee

The Nominations Committee of the Company is chaired by the lead independent director, Mark Collier, with

additional members comprising an independent director (Hilgard Meyer) and the non-executive chairman of

the Company (Sello Moloko).

During each of fi nancial year 2012 and fi nancial year 2013, the Nominations Committee held four meetings

as scheduled and:

• adopted a fit and proper policy for application in respect of prospective director appointments;

• approved the profile for certain senior positions under consideration;

• interviewed candidates for executive positions and director appointments;

• considered the appointment of directors, taking into consideration fit and proper reports and the

requirements of its terms of reference, and made recommendations to the relevant boards in respect of

such director appointments; and

• conducted self-assessments and considered feedback therefrom.

The Nominations Committee has an independent role and its responsibilities include the following:

• making recommendations to the board on the appointment of new executive, non-executive and independent

directors, including making recommendations on the composition of boards in the Group generally and

the balance between executive, non-executive and independent directors appointed to the boards;

• regularly reviewing the board structures, size and composition and making recommendations to the

boards with regard to any adjustments deemed necessary;

• identifying, evaluating and nominating suitable candidates for appointment to subsidiary boards and

recommending, for the approval of the relevant board, to fill board vacancies as and when they arise;

• putting in place plans for succession, in particular for the Group chairman and Group chief executive;

• recommending directors that are retiring by rotation, for re-election, if evaluation of such directors deems

this to be appropriate;

• having due regard to the principles of governance and codes of best practice and considering all potential

candidates are to be considered in accordance with the fit and proper policy for directors; and

• making recommendations to a board for the continuation (or not) in service of any director that has

reached the age of 70.

Remuneration Committee

The Remuneration Committee of the Company is chaired by an independent non-executive chairman, Mark

Collier, with additional members comprising an independent director (Hilgard Meyer) and a non-executive

director (Sello Moloko). The chairman of the board is a member of the Remuneration Committee but does not

chair the committee.

349

During each of fi nancial year 2012 and fi nancial year 2013, the Remuneration Committee held four meetings

as scheduled and:

• considered the valuation of the Company and of the Alexander Forbes Management Trust and Alexander

Forbes Management Co-Investment Trust and made a recommendation in this regard to the board;

• considered and agreed the overall payroll increase to be applied for the year;

• considered the independent director fee increase for recommendation to shareholders at the Company’s

annual general meeting;

• approved the bonus pools available for each main business unit, executive annual bonuses and annual

increases;

• performed the annual review of its terms of reference and approved same;

• received updates and discussed the existing incentive schemes in place and any potential special incentives;

• approved performance contracts applicable to the Group and executives;

• considered director fee proposal adjustments, within the range of fees approved by shareholders;

• performed its annual self-assessment and received and considered the report in this regard;

• considered and approved its annual work plan.

Social, Ethics and Transformation Committee

The Social, Ethics and Transformation Committee of the Company is chaired by a non-executive chairman,

Sello Moloko, with additional members comprising Yvonne Themba and two non-executive directors (Lori

Hall-Kimm and Ngetha Waithaka). The committee is chaired by the chairman of the board.

During each of the 2012 and 2013 fi nancial years, the Social, Ethics and Transformation Committee held four

meetings as scheduled and:

• received reports on the Group and business units’ performance on B-BBEE verification by an independent

rating agency;

• reviewed transformation progress reports;

• received updates on the ethics programme and workplan;

• received reports on sponsorship and donations throughout the Group;

• reviewed reports on Occupational Health and Safety issues;

• received Treating Customers Fairly updates;

• reviewed fraud and whistle-blower reports;

• considered the responsible investing initiative;

• considered business unit social, ethics and transformation reports;

• considered the results of a staff employment equity survey;

• considered the functions and scope of the Social and Ethics Committee and oversaw a gap analysis in this

regard;

• discussed social and ethics matters to be reviewed by the committee and how to deal with overlap in respect

of the Audit Committee;

• adopted a work plan and terms of reference for the committee;

• considered the impact of the revised B-BBEE codes of good practice and the developments in respect of the

Financial Sector Charter.

The Social, Ethics and Transformation Committee has an independent role and its responsibilities include the

following:

• social and economic development, including the Group’s standing relative to the UN Global Compact

Principles, the OECD (Organisation for Economic Cooperation and Development) recommendations

regarding the combating of corruption, and the Employment Equity Act and the B-BBEE Act;

• good corporate citizenship, including the Group’s positioning and efforts in promoting equality,

preventing unfair discrimination and combating corruption, the Group’s contribution to the development

of communities in which it operates or markets its goods, as well as the Group’s record of sponsorships,

donations and charitable giving;

350

• the environment, health and public safety, including the impacts of the Group’s activities and products on

the environment and society;

• consumer relationships, including the Group’s advertising, public relations and compliance with consumer

protection laws;

• labour and employment, including the Group’s standing relative to the International Labour Organisation

(ILO) protocol on decent work and working conditions, as well as the Group’s employment relationships

and contribution to the educational development of its employees; and

• generally, the monitoring of the social, ethics, economic, governance, employment and environmental

activities of the Group.

Retail Sub- Committee

The Retail sub-committee of the Company comprises an independent director as its chairman (Mark Collier),

the Group chief executive as the deputy chairman (Edward Kieswetter) the Business Unit Leaders (being the

managing directors or chief executives, as appropriate, of AFFS Holdings, Investment Solutions Holdings,

AFIC), the managing director of AF Life, the Group Retail executive, the Group IT executive and the head of

business strategy and development.

During each of fi nancial year 2012 and fi nancial year 2013, the Retail sub-committee held seven meetings

and:

• adopted terms of reference;

• took responsibility for overseeing the development of Group retail business unit strategic plans and tactics

contained in the 2014 plan;

• conducted a Group-wide retail strategy review within the AFFS Holdings, Investment Solutions Holdings

and AFIC businesses;

• considered new market strategies and business proposals in support of the Group’s retail growth strategy;

• reviewed ways in which to maximise new business opportunities;

• received a briefing on technology enablement, resourcing and how Group information technology services

the existing businesses’ potential future enablement;

• conducted research updates;

• reviewed new retail opportunities and plans.

It worked with the retail businesses’ management teams to take the necessary steps to create an industry-

leading retail business. To date, these efforts have delivered a range of tactical and strategic new business

initiatives designed to create momentum in the retail arena.

The ultimate goal of the retail sub-committee is to ascertain what is required in order to propel Alexander

Forbes into the frontline of retail fi nancial services in South Africa and, by working closely with the managing

directors of the individual business units, move quickly to secure sustainable and profi table leadership

positions in a number of market sectors. The retail sub-committee has an independent role and its responsibilities

include the following:

• the co-ordination of the Group-wide retail growth strategy;

• collective leadership, vision and to build an understanding and consensus on all retail matters within the

Group’s South African businesses;

• oversight of the approach to analysis and interpretation of markets, customer needs, trends, competitive

activities and the development of coherent strategic plans, enhanced shareholder value through the

effective delivery of successful business growth initiatives that lead to stronger and more dynamic high

growth retail enterprises across the Group;

• improvement of cross-selling across the Group;

• increasing distribution networks and channels; and

• expanding product ranges.

351

Compliance with the King Code by the Company

The King Code principles were applied as follows during the year under review:

Principle Description Applied/Explained

Compliance Status

CHAPTER 1: ETHICAL LEADERSHIP AND CORPORATE CITIZENSHIP

1.1 The board should provide

effective leadership on an

ethical foundation.

Explained The board leads the organisation in accordance with

principles based on transparency, accountability,

integrity and ethical leadership. The principles are

incorporated in the approved board charters, code of

ethics, directors’ code of conduct, committee terms

of reference and established policies and practices

demonstrate a sound framework for effective

leadership premised on an ethical foundation.

The Company subscribes to being a responsible

corporate citizen. This is articulated in detail in the

integrated annual report under the sustainability

section (“Integrated Annual Report”).

Many of the principles of the Group’s ethical

foundation are integrated into the performance

management system that is reviewed annually.

The Company will be reviewing the ethics policy in

2014. An assessment on how the board has carried

out its mandate will be conducted towards the later

part of 2014.

1.2 The board should ensure that

the company is and is seen to

be a responsible corporate

citizen.

Applied The Social, Ethics and Transformation Committee

under delegated authority of the board is responsible

for ensuring that the Group protects, enhances and

invests in the wellbeing of the economy, society and

natural environment, and the Group is involved in a

number of corporate social investment initiatives via

the a separately established Community Trust. The

Integrated Annual Report for 2012/2013 outlines

the Group’s performance in this regard.


the Company’s ethics are

managed effectively.

Applied The Social, Ethics and Transformation Committee is

mandated to exercise oversight over ethics

management within the Group and to ensure that

the board has full oversight of ethics related matters,

regular reports on the Group’s ethics policy are

tabled to the committee on a quarterly basis. In

February 2014 the Social, Ethics and Transformation

Committee approved an ethics programme for the

Group. The programme is designed to further

entrench and integrate the requirements of good

corporate governance throughout the Group.

CHAPTER 2: BOARD AND DIRECTORS

2.1 The board should act as a focal

point for and custodian of

corporate governance.

Applied The board charter specifi cally emphasises this

responsibility. Through its meetings and interaction

with management, the board ensures that applicable

principles are implemented and a high level of

compliance maintained.

2.2 The board should appreciate

that strategy, risk, performance

and sustainability are

inseparable.

Applied In assessing performance and strategy, the board

takes cognisance of sustainable development and

risk management. This performance is assessed by

the Audit and Risk Committee and feedback is

minuted at the main board.

2.3 The board should provide

effective leadership based on

an ethical foundation.

Applied The Social, Ethics and Transformation Committee is

responsible for giving direction and providing

oversight over ethical leadership within the Group.

352


the Company is and is seen to

be a responsible corporate

citizen.

Applied The board is responsible for ensuring that the Group

protects, enhances and invests in the well-being of

the economy, society and natural environment. The

Alexander Forbes Community Trust has been

established as the facilitating agent and reports on

its progress to the Group Social, Ethics and

Transformation Committee on a quarterly basis.


the Company’s ethics are


Applied The management of ethics forms an important

aspect of the board’s responsibility and focus.

Quarterly reports are made to the Social, Ethics and

Transformation Committee.


the Company has an effective

and Independent audit

committee.

Applied The Group’s Audit Committee consists of three

independent non-executive directors, with the

collective skills and experience required to perform

their duties and appropriate to the Company. The

chairman of the board is not a member of the Audit

Committee. An annual performance review is

performed to ensure that the independence and

effectiveness of the committee is assessed and

actions taken to improve on identifi ed defi ciencies.

2.7 The board should be responsible

for the governance of risk.

Applied The Audit Committee together with Group capital

committee assists the board to execute its

responsibility in this regard and oversees and

monitors risks within the Group.


for technology governance.

Applied The Group CIO reports to the Audit Committee on a

quarterly basis. An IT governance framework which

defi nes the structures, processes and responsibilities

for IT governance has been adopted.


the Company complies with

applicable laws and considers

adherence to non-binding rules,

codes and standards.

Applied The board is responsible for ensuring that the Group

complies with applicable laws, considers adhering to

non-bindings rules, codes and standards and

recognises the fact that the Group’s operations are

located in various jurisdictions which are at different

levels of maturity and in which the rule of law exists

in varying degrees. The various board sub-

committees, i.e., the Audit and the Social, Ethics and

Transformation Committees assist the board in

monitoring such compliance. The Company

secretary monitors governance compliance.


there is an effective risk-based

internal audit.

Applied The board, through the Audit Committee, has

established a Group-wide risk-based internal audit

function whose purpose, authority and

responsibilities are defi ned in a board-approved

internal audit charter and which is consistent with

the principles of King III.


that stakeholders’ perceptions

affect the Company’s

reputation.

Applied The Company engages its stakeholders on multiple

levels and this allows the Company to manage issues

effectively and timeously and also mitigate/reduces

the likelihood of reputational risks.

2.12 The board should ensure the

integrity of the Company’s

integrated report.

Applied The chairman of the Group’s the Social, Ethics and

Transformation Committee and the Group chief

executive review the Integrated Annual Report

before submission to the board for approval.

2.13 The board should report on the

effectiveness of the Company’s

system of internal controls.

Applied A written assessment of the effectiveness of the

Company’s system of internal controls and risk

management is made in the Integrated Report

annually in the form of positive or negative

assurance.

353

2.14 The board and its directors

should act in the best interests

of the company.

Applied Directors are appointed in terms of the Company’s

memorandum of incorporation and the Act, and act

according to their fundamental duties. Confl icts of

interests are disclosed and appropriately managed.

A policy on directors’ dealings is in place and is

communicated to directors offi cers and select

employees before closed and sensitive periods.

2.15 The board should consider

business rescue proceedings or

other turnaround mechanisms

as soon as the Company is

fi nancially distressed as defi ned

in the Act.

Applied The Audit Committee reviews fi nancial information

in detail and recommends any special action to the

board if required. In this regard the Group’s cash

position and going concern status are reviewed on a

regular basis. Appropriate measures will be taken if

the Group suffers fi nancial distress at any stage.

2.16 The board should elect a

chairman of the board who is

an independent, non-executive

director. The CEO of the

Company should not also fulfi l

the role of chairman of the

board.

Applied Mr MS Moloko was the executive chairman of the

board and Mr EC Kieswetter the Group chief

executive offi cer. The roles of the chairman and

Group chief executive offi cer are thus separate and

clearly defi ned.

With effect from 1 July 2014, the chairman role was

changed to that of a non-executive chairman, still

held by Mr MS Moloko and M Collier has been

identifi ed from the current body of independent

directors to be appointed as the lead independent

director from the same date.

2.17 The board should appoint the

chief executive offi cer and

establish a framework for the

delegation of authority.

Applied Mr EC Kieswetter has been appointed as the Group

chief executive offi cer. The board has delegated to

the Group chief executive offi cer and other executive

directors the authority in the form of a “delegations

of authority” framework to run the day-to-day

business of the Group subject to an annual review

and approval.

2.18 The board should comprise a

balance of power, with a

majority of non-executive

directors. The majority non-

executive directors should be

independent.

Explained Due to the current private equity holding structure

and the shareholders’ agreement in place, it is not

feasible for the board to comprise more independent

non-executive directors than non-executive

directors. However, the board’s terms of reference

states: “There should be a clear division of

responsibilities at the head of the company to ensure

a balance of power and authority, such that no one

individual has unfettered powers of decision-

making” and includes a clause that addresses the

matter of balance of powers that provides, inter alia,

that every board member is to play a full and

constructive role in the board’s affairs, stating that

a board member should be prepared, and able, where

necessary to express disagreement with colleagues

on the board including the chairman and the chief

executive offi cer. This composition will be amended

in line with the Listings Requirements in the event

of a listing.

2.19 Directors should be appointed

through a formal process.

Sections 3.84(a) and (e) of the

JSE Listings Requirements.

Explained The Group has a Nominations Committee where the

identifi cation and evaluation of potential candidates

for appointment to the board forms part of its

mandate. The authority to appoint directors however

remains a function of the board and shareholders,

where necessary. The selection process considers the

existing balance of skills and experience required as

well as a continual process of assessing the needs of

the Group.

The Nominations Committee comprises two

independent directors and is chaired by the non-

executive chairman of the board.

354

2.20 The induction of an ongoing

training and development of

directors should be conducted

through formal processes.

Applied Both formal and informal induction are conducted

in accordance with an established programme and

based on the needs of each new director. Regular

updates are provided on governance and regulations

by the Company secretary. All directors have access

to key management members for information on the

Group’s operations.

2.21 The board should be assisted by

a competent, suitably qualifi ed

and experienced company

secretary.

Sections 3.84 (i) and (j) of the

Listings Requirements

Applied The board selects and appoints the Company

secretary and recognises the important role to be

played by this person in entrenching good corporate

governance. Ms Janice Salvado is the Group

Company secretary and was appointed with effect

from 1 July 2003.

2.22 The evaluation of the board, its

committees and the individual

directors should be performed

every year.

Explained A self-evaluation of the performance of the board

and its committees as a whole is performed annually.

The results of such evaluations are considered and

action plans implemented where required.

Independent directors were assessed as was the

board as a whole. (a decision was taken not to assess

non-executives as they represent private equity

shareholders). The board’s Nominations Committee,

Remuneration Committee and Audit Committees

were assessed.

2.23 The board should delegate

certain functions to well-

structured committees but

without abdicating its own

responsibilities.

Section 3.84(d) of the Listings

Requirements

Applied The board committees assist the board in executing

its duties, powers and authorities. The required

authority is delegated by the board to each committee

to enable it to fulfi l its respective functions through

formally approved terms of reference.

Delegating authority to board committees or

management, other than the specifi c matters for

which the Audit Committee carries ultimate

accountability in terms of the Companies Act, does

not mitigate or discharge the board and its directors

of their duties and responsibilities and the board

fully acknowledges this fact.

The board has established the following committees:

• Audit;

• Capital and Risk;

• Social Ethics and Transformation;

• Remuneration;

• Nominations; and

• Retail.

Formal terms of reference have been adopted by

each committee and are reviewed on an annual basis.

Committee chairpersons report back to the board at

each board meeting.

2.24 A governance framework

should be agreed between the

Group and its subsidiary

boards.

Explained Each subsidiary operates with a separate board of

directors but the main board and its committees

oversee all signifi cant aspects and transactions of

subsidiaries which are also governed in terms of

limits of authority.

2.25 Companies should remunerate

directors and executives fairly

and responsibly.

Applied The board believes that the Group’s remuneration

policy and strategy are designed to ensure that

executives are appropriately remunerated, with an

acceptable balance between guaranteed and

performance-based elements, as well between short-

and long-term incentives. Full details are disclosed

in the 2013 Integrated Report.

355

2.26 Companies should disclose the

remuneration of each

individual director and certain

senior executives.

Applied See 2.25 above.

2.27 Shareholders should approve

the Company’s remuneration

policy.

Applied Shareholders are asked to endorse the company’s

remuneration policy at the Company’s annual

general meeting (“AGM”), and last did so by ordinary

resolution at the company’s AGM held on

12 September 2013.

CHAPTER 3: AUDIT COMMITTEE


the Company has an effective

and independent non-executive

audit committee.

Section 3.84(d) of the JSE

Listings Requirements

Applied The Group Audit Committee compromises three

independent non-executive directors duly appointed

by shareholders at its annual general meeting.

The members are Dr D Konar, Mr M Collier and

Mr B Petersen.

3.2 Audit Committee members

should be suitably skilled,

experienced and independent,

non-executive directors.

Applied The Company’s Audit Committee comprises

fi nancially literate, professionally qualifi ed and

commercially astute members and is constituted

only by independent non-executive directors. The

chairman is a Chartered Accountant.

3.3 The Audit Committee should be

chaired by an independent,

non-executive director.

Applied Dr D Konar is the independent chairman of the

Audit Committee.

3.4 The Audit Committee should

oversee integrated reporting.

Explained The Integrated Annual Report is presented to the

chairman of the main board and the Group chief

executive for approval prior to it being tabled at the

main board. The Audit Committee oversees the

fi nancial statements and its report prior to the main

board’s approval of the Integrated Annual Report.


ensure that a combined

assurance model is applied to

provide a coordinated approach

to all assurance activities.

Applied An assurance framework is adopted in a piecemeal

basis with full implementation anticipated to be

completed in 2014/2015.


satisfy itself of the expertise,

resources and experience of the

company’s fi nance function.

Applied The expertise and experience of the fi nancial

director, Mr DM Viljoen, as well as the level of

fi nancial experience and qualifi cations of the Group

fi nancial department is evaluated informally on an

annual basis by the Audit Committee.


oversee the internal audit

function.

Applied The expertise, resources and experience of the

Group’s internal audit function and the internal

audit plan is assessed on a regular basis. The Audit

Committee approves the annual internal audit plan

and monitors performance against the plan. Reports

are submitted by the chief audit executive on a

quarterly basis.

3.8 The Audit Committee should be

an integral component of the

risk management process.

Applied The Audit Committee oversees the enterprise risk

management process and is therefore an integral

part of the strategy and framework developments in

relation to risk management.

356

3.9 The Audit Committee is

responsible for recommending

the appointment of the external

auditor and overseeing the

external audit process.

Applied Annually, the Audit Committee reviews the

independence of the external auditors, including

the professional suitability of the lead auditor, and

recommends the appointment to the board and

shareholders for the forthcoming fi nancial year. The

current external auditor is PricewaterhouseCoopers

Incorporated with Mr. J Gross kopf as the lead auditor

as approved by shareholders at the 2013 Annual

General Meeting.


report to the board and

shareholders on how it has

discharged its duties.

Applied The chairman of the Audit Committee reports to the

board verbally at each meeting and such feedback is

recorded in the minutes.

CHAPTER 4: THE GOVERNANCE OF RISK


for the governance of risk.

Applied The governance of risk within the Group is the

board’s responsibility. The Audit Committee reviews

the Group’s risk assessment and satisfi es itself of

the adequacy of responses and mitigations.

4.2 The board should determine the

levels of risk tolerance.

Applied The risk tolerance of the Group is in the process of

considering re-considered in light of the solvency

assessment and management currently being

implemented by the regulator. All previous

tolerances were defi ned in the authorities matrix of

the Group.

4.3 The Risk or Audit Committee

should assist the board in

carrying out its risk

responsibilities.

Applied The Audit Committee reviews all aspects of the risk

function for which the board is responsible.

A governance, risk and compliance forum consisting

of key management assists the audit committee in

this regard. The forum meets a minimum of three

times a year and the chairperson of the forum

reports to the Audit Committee subsequent to each

meeting. In addition the board has approved the

establishment of a Risk Committee in each of its

subsidiaries which is chaired by the Group chief

risk offi cer who is also responsible for preparing a

consolidated report on signifi cant issue to the Group

board.

4.4 The board should delegate to

management the responsibility

to design, implement and

monitor the risk management

plan.

Applied Management is accountable to the board through a

formal risk and the Audit Committee for embedding

the risk management process in the Group. The

Group’s risks are reviewed and assessed quarterly,

at a minimum by management. Risks are updated

and progress on mitigation plans are reported to the

risk and audit committees.


risk assessments are performed

on a continual basis.

Applied The risk assessment process is continuous but at a

minimum performed every quarter and assesses

current risks and potential emerging risks within a

formalised framework adopted by the board.


frameworks and methodologies

are implemented to increase the

probability of anticipating

unpredictable risks.

Applied The enterprise risk management framework

establishes formal governance, procedures and

processes for all risks. Workshop methodology has

been used as a basis upon which risk assessments

are conducted and ensures that unpredictable risks

are identifi ed.


management considers and

implements appropriate risk

responses.

Applied Risks are monitored by management and the Group

risk forum on a continuous basis. Progress of the

Group in managing its risks is reported to the Audit

Committee.

357

4.8 The board should ensure

continual risk monitoring by

management.

Applied See 4.7.

4.9 The board should receive

assurance regarding the

effectiveness of the risk

management process.

Applied The Audit Committee is provided with the assurance

of the effectiveness of the Group’s risk management

process through the Group internal audit function

under oversight by the Group’s chief audit executive

as well as the Group’s external auditors.


there are processes in place

enabling complete, timely,

relevant, accurate and

accessible risk disclosure to

stakeholders.

Applied The Audit Committee is provided with the assurance

of the effectiveness of the Group’s risk management

process through the Group internal audit function

under oversight by the Group’s chief audit executive

as well as the Group’s external auditors.

CHAPTER 5: THE GOVERNANCE OF INFORMATION TECHNOLOGY


for information technology

governance.

Applied The board has assumed the responsibility for IT

governance but has delegated the establishment of

an appropriate IT policies, frameworks and strategy

to management.

Information technology is represented at risk

committee, audit committee and board level.

5.2 IT should be aligned with the

performance and sustainability

objectives of the Company.

Applied It is fully integrated into the Group strategic

planning process which ensures alignment in the

achievement of the Group’s business objectives.


management the responsibility

for the implementation of an IT

governance framework.

Applied The Group CIO is mandated by the board to guide IT

governance within the Group. IT steering committees

have been established to assist with the

implementation of IT governance.

5.4 The board should monitor and

evaluate signifi cant IT

investments and expenditure.

Applied The IT steering committee monitors and evaluates

signifi cant IT investments and expenditure. A report

in this regard is tabled on a quarterly basis to the

Audit Committee.

5.5 IT should form an integral part

of the Company’s risk

management.

Applied The IT risk management framework includes the

assessment and management of all signifi cant IT

risks. The Audit Committee monitors disaster

recovery and other IT practices. Reports in this

regard are also presented to the board.


information assets are


Applied Reports in the regard are presented to the board.

5.7 The risk and audit committees

should assist the board in

carrying out its IT

responsibilities.

Applied IT reports on a quarterly basis to the Audit

Committee. The Group CIO also reports to the

divisional and main boards in this regard.

CHAPTER 6: COMPLIANCE WITH LAWS, RULES, CODES AND STANDARDS


the Company complies with

applicable laws and considers

adherence to non-binding rules,

codes and standards.

Applied Legislative and regulatory compliance is monitored

by the Group Company secretary and Group chief

risk offi cer and reports on a quarterly basis to the

Audit Committee.

358

6.2 The board and each individual

director should have a working

understanding of the effect of

the applicable laws, rules, codes

and standards on the Company

and its business.

Applied The board is continually informed of material

legislation, rules, codes, standards and changes

thereto. Information on laws, rules and codes are

shared with directors regularly through

documentation and training sessions.

6.3 Compliance risk should form

an integral part of the

Company’s risk management

process.

Applied The Group’s enterprise risk management framework

covers compliance risk management a signifi cant

risk category and compliance is performed within

the confi nes of an approved Compliance Framework.


management the

implementation of an effective

compliance framework and

processes.

Applied The Group’s businesses all function under an

approved compliance framework approved by the

Group Audit Committee. The framework clearly

articulates the governance structures and

procedures for performing compliance audits/

reviews.

See response in 6.1.

CHAPTER 7: INTERNAL AUDIT


there is an effective risk-based

internal audit function.

Applied An effective risk-based internal audit function

exists. The purpose, authority and responsibilities

of the internal audit function are defi ned in the

board-approved internal audit charter.

7.2 Internal audit should follow a

risk-based approach in its plan.

Applied A risk-based approach to internal audit planning is

adopted in assessing the Group’s control environment

and is aligned to the risk assessment process.

7.3 Internal audit should provide a

written assessment of the

effectiveness of the Company’s

system of internal control and

risk management.

Applied A written assessment regarding the effectiveness of

the Group’s internal controls and risk management

is tabled on an annual basis to the Audit Committee.


be responsible for overseeing

internal audit.

Applied The Group’s chief audit executive reports

functionally to the Audit Committee and

administratively to the Group’s chief risk offi cer

ensuring the high level of independence associated

with the function. The chief audit executive presents

an independent report on a quarterly basis to the

Audit Committee. The Audit Committee approves

the annual internal audit work plan and monitors

the performance of internal audit.

7.5 Internal audit should be

strategically positioned to

achieve its objectives.

Applied The chief audit executive has unrestricted access to

members of the chairman, board, Audit Committee

and executives of the Group. This function is

adequately skilled and resourced to discharge its

responsibilities.

CHAPTER 8: GOVERNING STAKEHOLDER RELATIONSHIPS


that stakeholders’ perceptions

affect a company’s reputation.

Applied Engagement with stakeholders is aimed at the

establishment of open, interactive relationships.


management to pro-actively

deal with stakeholder

relationships.

Applied The board has delegated the management of the

Group’s various stakeholders to management.

Stakeholder engagement is managed at various

levels within the Group by utilising different

platforms. An external communication strategy has

also been adopted.

359

8.3 The board should strive to

achieve the appropriate balance

between its various stakeholder

groupings, in the best interests

of the Company.

Applied The Group has identifi ed its stakeholder groups and

executive management are assigned to manage

relationships with stakeholders. The board realises

that there is a broad range of stakeholders who have

a genuine stake in or are affected by the Group and

its various activities.

8.4 Companies should ensure the

equitable treatment of

shareholders.

Applied Consistent and timeous information is disseminated

to all shareholders including the development and

presentation of an Integrated Annual Report.

8.5 Transparent and effective

communication with stake-

holders is essential for building

and maintaining their trust

and confi dence.

Applied The Group, through the Group chief executive

offi cer, maintains a dialogue with all stakeholders.

Regular market notifi cations of key fi nancial

information and material changes in the Group’s

operations are published.

The Group’s promotion of access to information

manual is available on its website.


disputes are resolved as

effectively, effi ciently and

expeditiously as possible.

Applied The chairman of the board does not have a deciding

vote. All matters are decided by consensus,

but where necessary a vote will be called. It is

the chairman’s role to ensure that genuine

disagreements are aired and resolved.

CHAPTER 9: INTEGRATED REPORTING AND DISCLOSURE

9.1 The board should ensure the

integrity of the Company’s

integrated report.

Explained The Integrated Annual Report is presented to the

chairman of the main board and the Group chief

executive offi cer for approval prior to it being tabled

at the main board. Certain elements contained in the

report are independently assured by independent

assurance functions situated at a Group level.

9.2 Sustainability reporting and

disclosures should be

integrated with the Company’s

fi nancial reporting.

Applied An Integrated Annual Report is produced which,

together with complementary reports, addresses the

sustainability of the Group, including fi nancial and

non-fi nancial aspects such as risk, environment,

social and governance issues. Reporting is prepared

in line with recognised guidelines that include

International Financial Reporting Standards

(“IFRS”), International Integrated Reporting Council

(“IIRC”) and King III.

9.3 Sustainability reporting and

disclosure should be

independently assured.

Explained The fi nancial section of the Integrated Annual

Report is independently audited by PWC. In the non-

fi nancial section, our B-BBEE is independently

assured by a recognised verifi cation agency. Other

elements are not independently reviewed.

A detailed schedule of compliance with the King Code is available on the Company’s website:

(http://www.alexanderforbes.co.za).

360

Annexure 16

SUMMARY OF NEW LONG-TERM INCENTIVE SHARE PLAN

Introduction and Purpose

Following the successful listing of Alexander Forbes Group Holdings Limited (“Alexander Forbes” or the

“Company”) on the JSE, the existing Alexander Forbes Management Trust will no longer be used. As a result,

the Company will require a new long-term incentive plan. In line with global and local best practice, the

Company has adopted the Alexander Forbes Long-term Incentive Share Plan (the “Plan”) which will be

implemented subject to the listing of the Company. The Plan is primarily a performance-driven long-term

incentive plan whereby awards are subject to appropriately stretching performance conditions and settled in

Company shares (“Shares”). The Plan may also be used for broad-based employee ownership purposes, as well

as retention and sign-on requirements. The Plan will therefore provide for the alignment of the interests of

participants and shareholders. Non-executive directors of the Company are not eligible to participate in the

Plan.

The salient features of the proposed Plan are detailed below:

Participants

The Plan will target executives, senior managers and key roles of the Group (“Participants”) for performance-

related awards. Other employees may receive awards that are not linked to Company performance conditions

to address broad-based employee share ownership requirements. The Remuneration Committee of Alexander

Forbes (the “Remco”) may, in its discretion, invite any person holding permanent salaried employment or

offi ce with any Company in the Group to participate in the Plan.

Nature of Instruments

In order to provide fl exibility and to respond to regulatory and funding considerations at the time of making

an award (“Award”), the Plan will provide for the following categories of Awards to be made to Participants:

• Forfeitable Shares: Participants will become owners of Shares on the settlement date, shortly after the

Award is made, and will have all shareholder rights in relation to the Shares; but the Shares will be

forfeited if certain conditions are not met.

• Conditional Shares: Participants will receive conditional rights to receive Shares. The Award will only be

settled after the vesting date and the Participant will not have any shareholder or voting rights prior to the

vesting date. The Company may elect to pay “dividend equivalents” in cash or in Shares on the vesting date.

In addition, Awards may comprise:

• Restricted Shares: Shares that are subject to the fulfilment of the condition that the Participants remain

employed with the Group (“Employment Condition”) for a set period of three to five years (“Employment

Period”).

• Performance Shares: Shares that are subject to the fulfilment of both an Employment Condition and

Company-related performance conditions (“Performance Condition”), which will be assessed over a set

period of three years, which will be aligned with the financial years of the Company (“Performance Period”).

Basis of Awards and Award Levels

Performance Shares

In line with the requirements of King III and best practice requirements, regular annual Awards of Performance

Shares will be made to Participants. Award levels for Performance Shares will be set by reference to the

Participants’ salary, grade, individual performance, retention requirements and market benchmarks. The

Award levels will be determined by the Remco each time that Awards are made, by taking into account the

particular circumstances at that time. Annual allocations will be benchmarked and set at a market-related

level of remuneration whilst considering the overall affordability thereof to the employer company. The

maximum face value of an Award will be 200% of the Participant’s total guaranteed pay with the further

restriction that the maximum number of Shares that may be Awarded to a Participant under the Plan in

respect of all Awards to that Participant (regardless of whether or not such Awards have Vested, but excluding

Awards which have been forfeited) shall not exceed 13 ,000 ,000 Shares which is approximately 1% of the

number of issued Shares at the date of adoption of the Plan. The exact quantum of the Award levels will be

fi nalised at the time of making the fi rst Award.

Each Award will be adjusted based on the Participant’s individual performance.

361

Restricted Shares

Awards of Restricted Shares may be made to employees to address broad-based employee share ownership

requirements.

In addition, Awards of Restricted Shares may be made on an ad hoc basis to address serious retention risks as

identifi ed by the Remco. These will only be made in exceptional circumstances based on the sustainable

individual performance of specifi c employees. From time to time, the Company may use a “sign-on payment”

to attract new employees. In order to align the interests of new employees with those of shareholders and to

address retention risks, the Plan may also be used to make an Award of Restricted Shares to address sign-on

requirements as identifi ed by the Remco. The Plan may also be used to defer a portion of the annual cash

incentive into an Award of Restricted Shares, if such bonus deferral is adopted as a remuneration policy.

Employment Condition

All Awards will be subject to the Employment Condition, i.e., the condition of continued employment measured

over the Employment Period. In line with market practice, the Employment Period in respect of annual Awards

of Performance Shares will be three years from the award date.

Restricted Shares will have a longer Employment Period of three to fi ve years.

If the Plan is used for bonus deferrals, an appropriate Employment Period will be set by the Remco taking into

consideration the level of the employee.

Performance Condition

The Performance Condition will be determined by the Remco for each annual Award of Performance Shares at

the relevant time in consultation with shareholders (where considered necessary). The Performance Condition

will be required to be fulfi lled over the Performance Period, which will be aligned to three fi nancial years.

In line with King III, vesting will occur on a sliding scale and to this end the Company intends to set a

“threshold” and “stretch” target for the Performance Condition. These targets will represent the levels of

achievement required for certain portions of the Performance Shares to become free of restrictions and vest

(“Vest”) and will be set in the context of the prevailing business environment. Threshold performance will act

as a “gatekeeper” and will represent the minimum performance that is required before Performance Shares

will Vest. Stretch performance relates to exceptional performance in the context of the prevailing business

environment. 30% of the Performance Shares will Vest at threshold performance and 100% will Vest at stretch

performance. Linear Vesting will occur between these points.

A Headline Earnings per Share (“HEPS”) condition is proposed for the fi rst Award of Performance Shares.

Over time as the Company is established as a listed company and as the impact of the Solvency and Assessment

Management (“SAM”) guideline is clarifi ed, two other performance conditions, will be considered: namely

Total Shareholder Return and Return on Capital Employed. The intended HEPS targets, for the fi rst Award of

Performance Shares will be as follows:

Condition Weighting Threshold Stretch

HEPS as defi ned in the annual

fi nancial statements of the

Company but will exclude any

accounting impact due to the

implementation of the Plan.

100% for

fi rst Award

The cumulative HEPS over the

Performance Period equal to

the sum of the base year HEPS

grown by the Consumer Price

Index (“CPI”) + real Gross

Domestic Product (“GDP”) per

annum over the Performance

Period.

The cumulative HEPS over

the Performance Period equal

to the sum of the base year

HEPS grown by CPI + real

GDP + 10% per annum over

the Performance Period.

In line with good corporate governance principles, the Performance Condition will not be retested if it is not

met at the end of the Performance Period. To the extent that the Performance Condition is not satisfi ed at the

end of the Performance Period, the Award of Performance Shares will be forfeited.

Settlement of Shares

The Company intends to settle the Plan by way of a market purchase of Shares. This will cause no dilution to

shareholders. The rules of the Plan will, however, be fl exible in order to allow for settlement of shares through:

• the purchase of Shares on the open market; or

• the use of treasury Shares; or

• the issue of new Shares (“New Shares”).

362

Dilution Limits and Adjustments

The maximum aggregate number of Shares which may at any one time be allocated under the Plan shall not

exceed 64, 000 ,000 Shares (“Overall Limit”) which equates to approximately 5% of the Company’s issued Share

capital.

New Shares that are issued and Shares held in treasury that are used to settle Awards will be included in the

Overall Limit. Shares purchased in the open market, which are used to settle Awards and Shares which are

Awarded and are subsequently forfeited, will be excluded from the Overall Limit.

If necessary, the Remco will adjust the Overall Limit (without the prior approval of shareholders in general

meeting), to take account of a sub-division or a consolidation of the Shares to ensure the same proportion of

equity capital before and after the event.

The maximum number of Shares, which may be allocated to a single Participant in respect of all Awards to

that Participant (regardless of whether or not such Awards have Vested, but excluding Awards which have

been forfeited) may not exceed 13 ,000 ,000 Shares (“Individual Limit”), which equates to approximately 1% of

the Company’s issued Share capital.

If necessary, the Remco will adjust the Individual Limit to take account of a capitalisation issue, a special

dividend, a rights issue or a reduction of Shares.

The auditors, or another independent advisor acceptable to the JSE, shall confi rm to the JSE in writing that

any adjustment to the Overall Limit or the Individual Limit has been properly calculated on a reasonable and

equitable basis, in accordance with the rules of the Plan. Any adjustment must be reported on in the Company’s

fi nancial statements in the year during which the adjustment is made. The issue of Shares as consideration

for an acquisition, and the issue of Shares for a vendor consideration placing will not be regarded as

circumstances that require any adjustment to the Overall Limit or the Individual Limit.

Consideration

The Participant will give no consideration for the making or settlement of an Award.

Cessation of Employment

Participants who cease to be employed by an employer company as a result of:

• resignation or dismissal on grounds of misconduct, proven poor performance, proven dishonest or

fraudulent conduct, or abscondment will be classified as “fault leavers” and will forfeit all unvested Shares;

• retirement, retrenchment, ill-health, disability, injury, the employer company ceasing to be part of the

Group or any other reason as determined by the Remco, will be classified as “no fault leavers” and the

Participant will continue to participate in the Plan. The portion of the Award, which shall Vest on the

normal vesting date will reflect the number of complete months served between the award date and the

date on which the Participant ceased to be employed by the employer company (the “date of cessation

of employment”), divided by the total number of months in the Employment Period, and in the case of

Performance Shares, the extent to which the Performance Conditions have been met at the end of the

Performance Period;

• death will also be treated as a “no fault leavers” and a portion of the Award will Vest on the date of cessation

of employment. The portion of the Award which shall Vest will reflect the number of complete months served

between the award date and the date of cessation of employment, divided by the total number of months

in the Employment Period, and in the case of Performance Shares, the extent to which the Performance

Conditions have been met on the date of cessation of employment with reference to immediately preceding

financial year.

Change of Control

In the event of a change of control of the Company occurring before the Vesting Date, a portion of the Award

will Vest. This portion will be calculated by reference to the number of complete months served since the

award date divided by the total number of months in the Employment Period, and in the case of Performance

Shares, the extent to which the Performance Conditions have been met.

The portion of the Award, which does not Vest as a result of the change of control, will continue to be subject

to the terms of the Award, unless the Remco determines otherwise, in which event the Remco will make such

adjustments to the awards or convert awards into awards in respect of shares in one or more other companies;

provided the Participants are no worse off as a result of such adjustment or conversion.

Awards will not Vest as a consequence of an internal reconstruction or similar event which does not result in

a change of control as defi ned in the rules. In this case the Remco shall make such adjustment to the number

of Awards or convert Awards into awards in respect of shares in one or more other companies; provided the

Participants are no worse off as a result of such adjustment.

363

Variation in Share Capital

In the event of a variation in share capital such as a capitalisation issue, sub-division of shares, consolidation

of shares, rights issue (only in the case of conditional shares), the Company entering into a scheme or

arrangement defi ned in Section 114 of the Companies Act or the Company making distributions other than an

ordinary dividend, Participants shall continue to participate in the Plan. However, the Remco will be entitled

to make such adjustment to the Award or take such other action as may be necessary to ensure Participants

are no worse off.

In the event of a rights issue (in relation to forfeitable shares) Participants will be allowed to follow their

rights as shareholders.

In the event of the liquidation of the Company, otherwise than for the purposes of a reorganisation, the

Awards will lapse.

Amendments

Subject to the provisions of the Listings Requirements, the Remco may amend the rules of the Plan from time

to time as it sees fi t, provided that such amendments do not negatively affect the rights of Participants under

existing Awards. Amendments to the following provisions will require shareholder approval:

• the category of persons who are eligible to participate in the Plan;

• the number of Shares, which may be utilised for purposes of the Plan;

• the Individual Limit entitlements under the Plan;

• the basis upon which Awards are made;

• the amount (if any) payable upon the settlement of an Award;

• the voting, dividend, transfer and other rights attached to the Awards, including those arising on a

liquidation of the Company;

• the adjustment of Awards in the event of a variation of capital or change of control of the Company or other

corporate actions; and

• the procedure to be adopted in respect of the Vesting of Awards in the event that a Participant ceases to be

employed by an employer company.

364

Annexure 17

SELLING SHAREHOLDERS

Name of Selling Shareholder

Number of Sale Shares

sold in the Offer(1)

Number of Overallotment

Shares(1)

Ontario Teachers’ Pension Plan Board 101,269,344 16,918,419

Actis AF Holdings Limited 48,410,110 8,087,566

Actis Investment Holdings No 86 Limited 22,181,379 3,705,701

Actis Executive Co-Investment Plan L.P. 292,152 48,808

Ethos Capital V (GP) (Jersey) Limited(2) 37,967,693 6,343,019

Ethos Capital V GP (SA) (Pty) Limited(3) 13,849,420 2,313,734

Ethos Fund V Co-Investment Trust 679,607 113,538

Caisse de dépôt et placement du Québec 52,190,944 8,719,206

HarbourVest International Private Equity Partners V – Direct Fund L.P 6,760,527 1,129,438

HarbourVest Partners 2004 Direct Fund L.P 6,760,527 1,129,438

Dream World Investments 518 Proprietary Limited 17,704,056 2,957,703

Golden Falls Trading 485 Proprietary Limited 15,927,216 2,660,858

K2013116223 Proprietary Limited 12,900,728 2,155,242

Alexander Forbes BEE Funding SPV Proprietary Limited 11,303,265 1,888,364

Born Free Investments 580 Proprietary Limited 8,633,328 1,442,315

AF MST Funding SPV Proprietary Limited 16,289,719 2,721,419

Alexander Forbes Management Trust 13,992,459 2,337,630

Alexander Forbes Management Co-Investment Trust 710,420 118,685

Total 387,822,895 64,791,081

(1) Assuming an Offer Price at the mid-point of the Offer Price Range.

(2) acting as general partner for and on behalf of the following holders of Shares:

Ethos US Dollar Fund V (non-Opic-Jersey) LP

Ethos US Dollar Fund V-B (non-Opic-Jersey) LP

Ethos SA Rand Fund V (non-Opic-Jersey) LP

Ethos US Dollar Fund V (Opic-Jersey) LP

Ethos US Dollar Fund V-B (Opic-Jersey) LP

Ethos SA Rand Fund V (Opic-Jersey) LP

(3) acting as general partner for and on behalf of the following holders of Shares:

Ethos Fund V (Non-Opic-Investments) Partnership SA

Ethos Fund V (OPIC-Investments) Partnership SA

365

APPENDIX A

FORM OF U.S. INVESTMENT LETTER

To: Alexander Forbes Group Holdings Limited

115 West Street

Sandton 2196


(the “Company”)


Winchester House

1 Great Winchester Street

London EC2N 2DB

United Kingdom


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


(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

Corner Rivonia Road and Fredman Drive [email protected]

Sandton 2196

Johannesburg

South Africa

The office of Deutsche Bank: The office of Morgan Stanley:Winchester House 25 Cabot Square

1 Great Winchester Street Canary Wharf

London EC2N 2DB London E14 4QA

United Kingdom United Kingdom

This private placing application form must be received by no later than 12:00 on Thursday, 17 July 2014.

Qualifying investors must contact their CSDP or broker and advise them that they have submitted the application form as instructed above. Pursuant to the application, qualifying investors must make arrangements with their CSDP or broker for payment to be made as stipulated in the agreement governing their relationship with their CSDP or broker, in respect of the shares allocated to them in terms of the private placing by the settlement date, expected to be 24 July 2014.

Conditions precedent

The Offer remains conditional upon the Listing of all of the Offer Shares on the JSE, failing which the Offer and any acceptance thereof shall not be of any force or effect and no person shall have any claim whatsoever against the Company, the Selling Shareholders, any of the Joint Bookrunners or any other person as a result of the failure of any condition. If the directors in their discretion determine, the Company shall not be obliged to proceed with the Offer but reserves the right to do so.

Reservation of rights

The directors of Alexander Forbes reserve the right to refuse any application(s), either in whole or in part, or to pro rate any or all application(s) (whether or not received timeously) in any manner as they may, in their sole and absolute discretion, determine.

The directors of Alexander Forbes reserve the right to accept or reject, either in whole or in part, any private placing application form should the terms contained in the pre-listing statement, of which this private placing application form forms part, and the instructions herein not be properly complied with.

Investors will only be allowed to acquire shares for an amount of R1 ,000 ,000 or more, except in the case of persons falling within one of the specified categories listed in Section 96(1) of the Companies Act.

To the directors:


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


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


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


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


AUDITORS AND INDEPENDENT REPORTING ACCOUNTANTSPricewaterhouseCoopers Inc.

2 Eglin Road

Sunninghill 2157


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