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15866 1 RMI AR 17 About RMI (1-9)

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15866 1 RMI AR 17 About RMI (1-9) INTEGRATED REPORT 2017 About this report RMI’S VALUE CREATION STORY FORWARD-LOOKING STATEMENTS This integrated report of Rand Merchant Investment Certain statements in this integrated report may Holdings Limited (RMI) for the year ended be regarded as forward-looking statements 30 June 2017 was prepared for all its stakeholders, or forecasts but do not represent an earnings including existing and potential shareholders. forecast. All forward-looking statements are based It contains comprehensive information about RMI’s solely on the views and considerations of the financial performance, stakeholders, governance, directors. Those statements have not been material issues, risks and opportunities and how reviewed and reported on by the external auditor. these influence RMI’s strategy. We show how we create value and how we will ensure that RESPONSIBILITY our value creation is sustainable. The board is ultimately responsible for this report. The company secretary and financial manager, Schalk THE CURRENT CONTEXT Human MCom(Acc) CA (SA), prepared this report; This year, particular emphasis was placed on RMI’s the chief executive and financial director, Herman ability to create value over time. Bosman LLM CFA, supervised the preparation; and management convened and contracted the relevant The macroeconomic environment within which the skills and experience to undertake the reporting group operates is currently under the extra pressure process and provided management oversight. of political uncertainty and the resultant downgrading The board, after consultation with the audit and risk of the sovereign risk ratings. This time of turmoil committee and applying its collective mind to the emphasises the need for strong, honest and proactive preparation and presentation of the report, concluded leadership, underpinned by sound and ethical values. that it was presented in accordance with the <IR> We will therefore outline our values-based approach Framework and approved it for publication. to creating sustainable value for our stakeholders. HOW THIS REPORT WAS COMPILED The report is compiled and presented in accordance with the Listings Requirements of the JSE Limited (JSE Listings Requirements), the King IV Report on Corporate Governance for South Africa, 2016 (King IV) and the International Integrated Reporting Council’s (IIRC) International Integrated Reporting Framework (<IR> Framework). The most material issues, being those which have the potential to substantially impact RMI’s ability to create and sustain value for its stakeholders, are discussed. The annual financial statements were prepared in accordance with International Financial Reporting Standards (IFRS) and the requirements of the Companies Act, 71 of 2008 (Companies Act). External assurance was received from RMI’s auditor, PricewaterhouseCoopers Inc. on the fair presentation of these annual financial statements. The annual financial statements are presented on pages 100 to 214. A summarised version of the annual financial statements is available as part of the results announcement on RMI’s website at www.rmih.co.za. About RMI Value created 1 Who we are 2 Our investments 4 How RMI creates value 8 Our strategy 10 What is material for stakeholders 13 The risks affecting value creation 15 Performance and outlook Chairman’s statement 18 Chief executive’s review 21 Key performance indicators 26 Financial review 27 contents Value-added statement 31 Portfolio overview Discovery 33 MMI Holdings 38 OUTsurance 42 Hastings 47 RMI Investment Managers 52 AlphaCode 56 Governance and sustainability Corporate governance report 57 Directors 63 Directors’ affairs and governance committee report 69 Investment committee report 71 Nominations committee report 72 Remuneration committee report 73 Social, ethics and transformation committee report 78 Our financial performance Group annual financial statements 81 Separate annual financial statements 195 Shareholder information Shareholding 216 Guide to where more information can be found Performance on the JSE Limited 217 Shareholders’ diary 218 This icon accompanies page number references of Notice of the annual general meeting 219 information contained elsewhere in this integrated report. Form of proxy 235 This icon indicates information Administration IBC that can be accessed on the referenced website. ABOUT RMI Rand Merchant Investment Holdings Limited (RMI) is a JSE-listed investment holding company with an investment team of experienced, alternative-thinking, financial services specialists who actively partner smart and industry-changing management teams by being a shareholder of influence. Investing is a craft. Bookbinding is an artistic craft of great antiquity and, at the same time, a highly mechanised industry. Today it still faces the same challenges – how to hold together the pages of a book; how to cover and protect the pages once they are held together and how to label and decorate the protective cover. Bookbinding relies on numerous basic operations being performed in a specific order and each one relying on accurate completion of the previous step. An extremely durable binding can be achieved by using the best hand techniques and finest materials. A book craftsmen needs a minimum set of hand tools but with experience will find an extensive collection of secondary hand tools and heavy equipment. Experience the craft of bookbinding throughout this report, and see how RMI’s new corporate identity unfolds. Value created for the year ended 30 June 2017 Compound shareholders’ return since listing in 2011 27.1% per annum Normalised earnings (from continuing operations) R3 927 million (2016: R3 342 million) +18% (+17% to 263.6 cents per share) Headline earnings (from continuing operations) R3 480 million (2016: R2 927 million) +19% (+19% to 234.2 cents per share) Dividend 118 cents per share unchanged (2016: 118 cents per share) 1 Who we are VALUE CREATION RMI’s primary objective is to create value for its shareholders by optimising, diversifying and modernising its investment portfolio. INVESTMENT PORTFOLIO As at 30 June 2017, RMI’s investments included Discovery Limited (Discovery), MMI Holdings Limited (MMI), OUTsurance Holdings Limited (OUTsurance), Hastings Group Holdings plc (Hastings), RMI Investment Managers Group Proprietary Limited (RMI Investment Managers), AlphaCode Proprietary Limited (AlphaCode) and its first two next- generation investments, Merchant Capital Advisory Services Proprietary Limited (Merchant Capital) and Entersekt Proprietary Limited (Entersekt). Entersekt, a mobile banking security technology company, was acquired on 30 June 2017 and therefore had no impact on the group’s results for the year under review. The sale of RMI’s investment in RMB-SI Investments Proprietary Limited (RMB Structured Insurance) was completed in March 2017. The results of RMB Structured Insurance, excluding Truffle Capital Proprietary Limited (Truffle), are disclosed as a discontinued operation in the RMI group results for the nine months while still under RMI’s control. RMB Structured Insurance’s stake in Truffle was sold to RMI Investment Managers in February 2017. Effective 1 March 2017, RMI acquired a 29.9% stake in the UK-listed short-term insurer, Hastings. RMI accounts for its stake in Hastings as an investment in associate from the effective date. RMI funded the RMI 2017 REPORT INTEGRATED acquisition through a combination of redeemable preference shares and 2 a GBP-denominated loan in terms of its domestic medium-term note and preference share programme. The stake in Hastings was involves the acquisition of meaningful interests bought in a wholly-owned subsidiary of RMI, Main Street in companies to have significant influence. Sound 1353 Proprietary Limited (Main Street 1353). In June 2017, management is an important investment criterion. The RMI sold 49% of its shareholding in Main Street 1353 group forges strategic alliances on a partnership basis to OUTsurance in exchange for additional shares and endeavour to add value, where possible. The purpose in OUTsurance, as well as cash. is to ensure superior returns to shareholders by way Refer to page 5 for a brief description of each of sustainable dividends and capital growth. of our existing investments which had an impact The financial services landscape is a dynamic environment on the results from continuing operations for the year ended 30 June 2017. and whilst it is important to enhance the current market positions and business models of the underlying The portfolio is intended to evolve over time to increase investments and evaluate traditional acquisition in size and geographic diversity and ensure the balance opportunities, it is equally important to be vigilant around between growth- and return-focused investments. the emergence of disruptive businesses and concepts and We invest, build and divest depending on market partner with industry-changing entrepreneurs. In line with opportunities to achieve our objectives of creating value this, RMI has a business, AlphaCode, which focuses on and maintaining a solid financial structure. RMI typically growing next-generation businesses. On 30 June 2017, invests for the long term. We are not geographically the second investment by AlphaCode was made with or size-bound. a 25.1% investment in Entersekt. We consider the anticipated long-term trends in financial DIVIDEND POLICY services (such as significant regulatory change and the RMI’s dividend policy is to pay out all dividends received speed of technological developments) and
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