integrated report 2018 · shafiek rawoot as financial director on 1 march 2018 and 1 july 2018...

INTEGRATED ANNUAL REPORT

2018

CONTENTS PageHighlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1About African Phoenix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2Leadership reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4Chairman’s report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4Executive report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6Board of directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Corporate governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10Remuneration, nomination, transformation and social and ethics committee report . . . . . . . . . . . . . . . . . 19Stakeholder engagement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30Shareholders' analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30Annual financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103Company information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123

HIGHLIGHTS

TOTAL EQUITY

R1.87 billion(2017: R1 .83 billion)

EARNINGS PER SHARE

3.2 cents(2017: 13 .0 cents)

NET ASSET VALUE PER

ORDINARY SHARE

52.0 cents(2017: 48 .8 cents)

HEADLINE EARNINGS PER SHARE

3.7 cents(2017: 13 .0 cents)

CASH AND FINANCIAL ASSETS AVAILABLE FOR INVESTMENT

R1.96 billion(2017: R1 .88 billion)

2 African Phoenix INTEGRATED ANNUAL REPORT 2018

ABOUT AFRICAN PHOENIXAfrican Phoenix Investments Limited (“African Phoenix” or “Phoenix” or “the Company” or “the Group”) is an investment holding company based in the Republic of South Africa . Its income is generated through interest, investment income and dividends received from its wholly-owned subsidiary, The Standard General Insurance Company Limited (“Stangen”) . Stangen provides a range of quality, personalised and affordable insurance products in the retail market .

The shares of African Phoenix are listed and tradeable on the Johannesburg Stock Exchange (“JSE”) . Please refer to the Company Information section in the Annual Financial Statements for the Company’s registration details and share codes .

A signed copy of the annual financial statements and the independent auditor’s report is available for inspection at our registered office.

African Phoenix INTEGRATED ANNUAL REPORT 2018 3

LEADERSHIP REPORTS


LEADERSHIP REPORT

The board of directors (“Board”) is pleased to present the 2018 Integrated Annual report to stakeholders . Whilst the financial performance in the current year is muted compared to the prior year, both the Company and Stangen have taken meaningful steps towards achieving their individual strategies as set out below . The current year 6 .6% growth in Net Asset Value per share from 48 .8 cents per share to 52 .0 cents per share should be read in the context of the Group’s long-term strategy .

GOVERNANCEAfrican Phoenix is committed to good corporate governance as expressed in the King IV Report on Corporate Governance for South Africa (2016) (“King IV”) as well as established principles of best governance practice .

In line with the principles outlined in King IV, the Company has, in particular continued to strengthen its Board during the course of the year . This is evident in the number of new appointments that took place during the period . The complementary knowledge, skills and experience of the new directors significantly enhances the Board’s overall capacity and capability, and contributes to gender and race diversity .

With regard to executive leadership, the short-term contract of Dr Enos Banda (“Enos”), as the Company’s Chief Executive Officer (“CEO”) expired in November 2017. On 1 March 2018, the Board recruited Siyabonga Nhlumayo (“Siya”) as CEO . Similarly the contract of John Evans as the Company’s Financial Director (“FD”) expired in February 2018 . On 1 July 2018, the Board recruited Shafiek Rawoot (“Shafiek”) as FD. Siya and Shafiek have taken great strides toward executing the Company’s strategy .

With regard to the independence of its directors, African Phoenix is chaired by an independent non-executive director and most of its Board members are independent non-executive directors . As a governing body, the Board ensures that African Phoenix complies with the Listings Requirements of the JSE and all applicable legislation . The Board is responsible

for the Company’s strategic direction and performance, and is accountable to both regulators and shareholders . At subsidiary level, this responsibility is delegated to the independent Board of Stangen, which is responsible for the good governance and financial performance of Stangen. Stangen is accountable to its shareholder, African Phoenix, for its financial performance and is required to comply with African Phoenix’s policies .

African Phoenix continues to evaluate the composition of its Board on an ongoing basis and will appoint additional members as and when necessary . The Board will seek appropriate external advice as required in discharging its duties .

STRATEGYAs a publicly listed investment holding company, African Phoenix’s primary aim is to create and sustain long-term value as measured by consistent growth in net asset value per share, before distributions to shareholders .

Accordingly, the Board has positioned African Phoenix as an investment holding company, managed primarily by black South Africans who have a proven track record of deploying capital in a manner that generates long-term economic value .

It is the Company’s intention to reach its long-term goal by owning meaningful equity interests in a range of diverse businesses that have either a proven track record or a proven business concept . These businesses should demonstrably generate or be able to generate cash and should earn acceptable returns in relation to the initial capital invested .

While African Phoenix is a listed company, it is able to benefit from the advantages of operating as a private equity investor without the limitations of a typical private equity structure, which usually demands an exit from investee companies within a defined period. Investments are selected with a long-term view in mind and the intention is that they will be maintained for as long as they continue to meet the Company’s investment criteria . Conversely, investments will be disposed of should they fall short of these criteria .

CHAIRMAN’S REPORT

African Phoenix, and its wholly-owned subsidiary, Stangen, set the course for developing their individual strategies in the current financial year. The Group is well positioned to execute on these strategies in the future .


The performance of deployed capital is actively assessed against the investment criteria on an ongoing basis to make sure that African Phoenix meets its long-term objective of growing the Company’s net asset value by more than the cost of capital at portfolio level .

During the year Stangen acquired the infrastructure & staff of the Joshua Trust (“JT”) call centre and the insurance & call centre operations of Different Life Proprietary Limited (“Different Life” or “DL”) . Stangen is now able to execute on its strategy of growing its individual life business through its own sales force, reducing acquisition cost per policy and improving productivity .

On 7 September 2018, the Company announced a summary of a proposed structure to achieve its strategy as set out above. This includes the establishment of a Black Fund Manager (“BFM”) structure. Further details of this structure will be communicated to shareholders for their approval through a circular, which is expected to be issued within two months from the release of this report .

The second part of the announcement released on 7 September 2018 related to a repurchase of preference shares . The non-cumulative, non-participating and non-redeemable preference shares are inherited from the old African Bank structure and are not suited for an investment holding company . Both ordinary and preference shareholders have requested a solution to this impasse and a simplification of the capital structure. The Board has obtained the requisite legal and expert advice and will include the details of its proposal in the same circular .

OUTLOOKAt subsidiary level, Stangen will continue to strengthen its distribution network and to actively seek out synergies that will enable it to secure its long-term sustainability .

Shareholders are encouraged to participate in the upcoming General Meeting to assist the Board in charting its future strategy . If shareholders agree with the Board’s proposals, the Company is well positioned to execute on its strategy of building long-term shareholder value by increasing the net asset value per share .

For and on behalf of the Board

Morris MthombeniChairman


LEADERSHIP REPORT

FINANCIAL PERFORMANCEThe Group reported net asset value (“NAV”) per share at 30 September 2018 (“FY2018”) of 52 .0 cents (2017: 48 .8 cents), an increase of 6 .6% for the year and 3 .6% for the six months from 31 March 2018 (50.2 cents).

The Group has increased cash and financial assets available for investment from R1 .88 billion to R1 .96 billion over the period and therefore remains both liquid and solvent . Profit after tax of R46 million for FY2018 is a decrease of 76% from FY2017 of R186 million. The profit after tax for the six-months to 31 March 2018 was R21 million. The decrease in profit after tax for the year was mainly due to:

• The lower Other Income (per the Statement of Profit or Loss), relating to the once off recoveries of fully impaired claims as the business rescue process for Ellerine Holdings Limited and Ellerine Furnishers Proprietary Limited which were not repeated in the current financial year (FY2018: R18 million, FY2017: R47 million);

• The lower amount of actuarial reserves released by Stangen during the current financial year as a result of the increase in expense reserves that relate to new insurance policies (FY2018: R12 million, FY2017: R62 million);

• The increase in operating costs (FY2018: R151 million, FY2017: R93 million), predominantly as a result of Stangen’s new business acquisition costs and above-the-line marketing campaigns, and in Phoenix an increase in legal costs attributed to the business rescue matters at Ellerine Group and directors’ remuneration due to increase in Board and committee meetings in support of the investment activity and the pending transaction announced on 7 September 2018; and

• The lower reversal of impairment as the valuation of the Residual Debt Services stub instruments are valued closer to the traded Over-The-Counter traded price compared to FY2017 (FY2018: R2 million, FY2017: R46 million) .

Total shareholders’ equity as at 30 September 2018 amounted to R1 .87 billion (30 September 2017: R1 .83 billion) .

The Board concluded that the preparation of the financial information on a going concern basis is appropriate . No ordinary or preference dividends were declared in the current year (FY2017: Rnil) .

PROPOSED TRANSACTIONAs announced on 7 September 2018, the Company advised shareholders of its proposal to implement certain strategic transactions . In summary, the proposed transaction includes: i) a repurchase of preference shares, ii) an acquisition of a limited partnership interest in a private equity fund to be established and managed by a black-owned fund manager (“BFM”), iii) amendments to the MOI to cater for i) & ii) above, and iv) a change in the JSE classification to an investment entity pursuant to section 15 of the JSE Listings Requirements .

Since announcing the transaction, the Company has been engaged with and continues to engage the regulatory authorities, including the JSE, to obtain all the necessary approvals to proceed with the transaction . The Company has received the JSE dispensations required to implement the proposed transaction and the Company expects to publish the circular to shareholders relating to the approvals required to implement the proposed transaction early next year . The notice to the next Annual General Meeting (“AGM”) will be published with the circular .

OPERATIONSIn the furtherance of the Company’s stated strategy of increasing shareholder value through owning meaningful equity interests in a range of diverse businesses, the Company appointed myself as Chief Executive Officer and Shafiek Rawoot as Financial Director on 1 March 2018 and 1 July 2018 respectively . The Company also employed two investment principals in Kamogelo Mudimbu and Alupheli Sithebe on 1 June 2018 and 1 July 2018 respectively . This investment team has a proven track record of originating, executing and realising investments in line with the Company’s strategy. In addition to the investment team, the BFM will include a majority independent non-executive investment committee to assist in vetting all proposed investment acquisitions and disposals . Further details of the investment committee will be included in the circular to shareholders .

CHIEF EXECUTIVE’S REPORT

The proposed transaction unlocks investment opportunities using an empowered investment vehicle with strong governance structures and a closely aligned management team .


The Company also moved offices from the space shared with Stangen at the Wanderers Office Park in Illovo, to a new office in Sturdee Avenue in Rosebank .

INVESTING ACTIVITIESIn July 2018 Stangen acquired the infrastructure and staff of the JT call centre . In September 2018, Stangen acquired the insurance and call centre operations of DL . As part of the DL acquisition, Stangen increased its stake from 15% to 25% and hence changed from accounting for DL as an investment to associate accounting. Marius Botha (Stangen Managing Director) was appointed as the non-executive chairman of DL .

The investment team has been able to evaluate many investment opportunities in line with the investment strategy of pursuing investments primarily in businesses operating in the mid-market space that are looking for equity risk capital . Since 1 March 2018, the executives and investment team have reviewed thirty three (33) investment opportunities in various sectors including food packaging, automotive trimming, food processing and telecommunications . From that universe of opportunities, the Company declined an opportunity after conducting a commercial and financial due diligence, one conditional offer was declined by sellers after concluding a comprehensive due diligence and five opportunities are still under consideration . The remaining investment opportunities were abandoned by the Company primarily on concerns over challenges in business models, sustainability of earnings and high price expectations .

LEGACY MATTERSThe former management team of Ellerine (before it was placed in business rescue) was incentivised in terms of a scheme known as the PARIS scheme to stay on and build value to enable Ellerine to be sold for a “good price” . Before the scheme term expired, the Ellerine Group was placed in business rescue . The PARIS participants (roughly 18 of them in number) then endeavoured to recover their incentive from Ellerine Furnishers and Ellerine Holdings by way of arbitration . This arbitration came to an end as Ellerine Furnishers insisted that Phoenix (then African Bank Investments Limited) be a party to these proceedings . Phoenix agreed to arbitrate before a retired judge . The judgement, in favour of Phoenix,

was handed down in December 2017 . Ellerine Furnishers took that matter on appeal and the arbitrator found in favour of Phoenix awarding the Company R1 .1 million in fees . The matter is now closed .

Phoenix submitted a deed of cession to the Ellerine Holdings business rescue practitioner in relation to the claim for banking facilities, which had been settled in full . The Company lodged a claim for all distribution benefits to which the bank would have become entitled, after April 2016, under the session . The Ellerine Holdings business rescue practitioner disputed the claim and the parties agreed to settle the dispute by arbitration . In August 2018, the arbitrator ruled in favour of Phoenix and a payment of R15 .8 million was deposited in the Phoenix account in September 2018 .

OUTLOOKAs the legacy matters highlighted above draw to a close, the proposed transaction (if the requisite approvals are obtained from shareholders in due course) allows the Company to simplify the capital structure and offers shareholders a unique opportunity to invest in a vehicle that provides empowerment credentials, growth and replacement equity risk capital to businesses operating in the mid-market without forgoing the liquidity offered by being listed on a public exchange. The fund manager structure will combine the experience of independent non-executive investment committee members and a management team that is aligned with Phoenix shareholders .

There is a compelling opportunity for well capitalised and empowered investment vehicles providing patient capital . In the period since announcing the proposed transactions, the Company has received interest from corporate advisers and medium sized companies looking for an equity partner with a longer investment horizon compared to traditional private equity and a partner that understands the needs of private businesses . The Company is looking forward to pursuing these opportunities in line with the investment policy, through the proposed fund manager structure .

Siya NhlumayoChief Executive Officer


BOARD OF DIRECTORS

MORRIS MTHOMBENI (“MORRIS”)Chairperson: BoardMember: RNTSEAppointed: 16 Sept 2013Age: 44Qualification: BProc, LLB, B Juris, MBA (Finance), PhD Fellow

Current role: Executive director at the University of Pretoria’s Gordon Institute of Business Science (GIBS), a governance practitioner and a mass-tech entrepreneur . Director at Stangen and Relyant Life Assurance Company .

Prior experience: Executive-level career in financial services for a period of two decades, during which time he held, amongst others, the position of CEO at a large investment management business and the position of Executive Director at a large insurance-based financial services company .

OYAMA ANDREW MABANDLA (“OYAMA”)Chairperson: Investment CommitteeMember: RNTSEAppointed: 22 Sept 2017Age: 55Qualification: BA (Political Science), Juris Doctorate

Current role: Director at Langa Lokulunga Investment Holdings and Mapungubwe Institute for Strategic Reflection.

Prior experience: Investment banker for the Union Bank of Switzerland, Deputy CEO of SAA . He has held various positions during his career, including board chairperson at both Vodacom Group Limited and Consol Glass Proprietary Limited; director of Group Five Limited and Mvela Group Limited; and as a member of the JP Morgan African Advisory Board .

RESHMA MATHURA (“RESHMA”)Chairperson: ARCAppointed: 16 Aug 2018Age: 41Qualification: BCom (Hons), CA(SA), PGD and MBA, Executive National Security Programme

Current role: Executive Director for finance at University of South Africa (“Unisa”) .

Prior experience: Reshma has over 18 years’ experience in financial management and in the areas of Risk Management, Strategy Design, Project Management and Enterprise Resource Planning Implementation . She was CFO for the National Regulator for Compulsory Specifications and held Senior Positions at the Road Accident Fund, Department of Defence and the South African Police Services .

INDEPENDENT NON-EXECUTIVE DIRECTORS

ALETHEA CONRAD (“LEA”)Chairperson: RNTSEMember: ARCAppointed: 6 Sept 2016Age: 54Qualification: BA, LLB, Management Advancement Programme, International Executive Development Programme

Current role: Managing director at Conrad Advisory, a project management, strategy and B-BBEE advisory firm. Lea remains an independent trustee on the Oceana Empowerment Trust .

Prior experience: Executive director of the JSE-listed group, Oceana, and Chairperson of the Oceana Empowerment Trust . Prior to joining Oceana, Lea held legal advisory and strategy positions at Transnet Limited and practised as an attorney . She is highly skilled in scenario planning as it relates to future policies and strategy development, particularly within highly regulated industries .

EXECUTIVE REPORT

RNTSE: Remuneration, Nomination, Transformation, Social & Ethics CommitteeARC: Audit & Risk Committee


SAMUEL SITHOLE (“SAM”)Member: RNTSEMember: Investment committeeAppointed: 22 Sept 2017Age: 45Qualification: BAcc (Hons), CA(SA), ACA(UIC), CA(Z), Executive Leadership ProgrammesCurrent role: CEO and co-founder of Value Capital Partners Proprietary Limited, a current shareholder in African Phoenix . Sam is currently a non-executive director for Allied Electronics Corporation Limited and Adcorp Holdings Limited .

Prior experience: He previously served as the group Financial Director of Brait SE and a member of the Brait Investment team for eight years . Prior to that, he was the Audit Leader for the Deloitte and Touche Group .

NONZUKISO SIYOTULA (“ZUKIE”)Member: ARCMember: Investment committeeAppointed: 22 Sept 2017Age: 34Qualification: CA(SA), MBA, Executive Leadership ProgrammesCurrent role: Director at Growth Point Properties, Takeover Regulation Panel, Stangen, Toyota Financial Services and Taste Holdings .

Prior experience: CEO of Thebe Capital at Thebe Investment Corporation from 2014 to 2016, where she was responsible for managing a portfolio of strategic investments . Prior to joining the Thebe Group, she held various senior positions at the Barclays Africa Group, Old Mutual Retail Mass, Royal Bafokeng Holdings and South African Breweries .

MAHLATSE KABI (“MAHLATSE”)Member: ARCAppointed: 16 Aug 2018Age: 48Qualification: BCom (Fin), BCompt (Hons), CTA, CIMA, MBACurrent role: CFO of GIBS, and is currently serving on the boards of Verimark Limited, Stangen, JM Busha Asset Management Company and Rand Water .

Prior experience: Over 22 years’ experience in management of which 14 years were in finance and the remainder in investments and structuring of BEE transactions. She held senior finance positions at Standard Bank, SAB Breweries and Multichoice SA before joining Mineworkers Investment Company (MIC) in 2005 to set up the finance function and later joined the Investment Transaction team as a Senior Investment Manager involved in investment execution .

EXECUTIVE DIRECTORS

SHAFIEK RAWOOT(“SHAFIEK”)Financial DirectorAppointed: 1 July 2018Age: 38Qualification: BBusSc (Fin Hons), BCom (Acc Hons), CA(SA)

Prior to joining African Phoenix Investments Limited in July 2018, Shafiek was a financial director at Brait South Africa, Corporate Advisor to the Brait SE Luxembourg and Johannesburg listed company .

His responsibilities included full administration, governance and accounting functions, as well as assisting the Investment Team in executing investment acquisitions and disposals . He was integral in the execution of large Brait transactions such as acquisition of Premier Foods & Pepkor in SA, and Virgin Active & New Look in the UK, as well as the disposal of Pepkor to Steinhoff in 2015, one of the largest corporate deals in South Africa . His responsibilities also included engagement with advisors and regulators in SA, Malta, Mauritius and the UK, as well as regularly reporting to Brait’s fully non-executive Board based in Malta.

Prior to joining Brait in 2008, Shafiek spent time with Old Mutual in Cape Town and Goldman Sachs in London. Shafiek commenced his career at KPMG in Cape Town where he qualified as a chartered accountant .

SIYABONGA NHLUMAYO (“SIYA”)Chief Executive OfficerAppointed: 1 Mar 2018Age: 39Qualification: BCom, PGDA, CA(SA)

Prior to joining African Phoenix Investments Limited in March 2018, Siya was at Medu Capital (Proprietary) Limited (Medu Capital), a black-owned private equity fund management business. Siya joined Medu Capital as an investment associate in August 2007 and was later promoted to Partner in September 2013 where he was responsible for strategic development, investment execution and management for the General Partner in Medu Fund II (R670 million in capital commitments) and Medu Fund III (R1 .2 billion in capital commitments) (collectively "the Funds") . The Funds were raised from limited partners namely the Public Investment Corporation, Eskom Pension and Provident Fund, Ke Nako Capital, and FMO. Siya sat on the Funds' investment committee and also represented the Funds on the underlying portfolio company boards .

Prior to joining Medu Capital in 2007, Siya spent two and half years at PricewaterhouseCoopers' Transaction Services advising on a range of transactions . Siya commenced his career at PricewaterhouseCoopers where he qualified as a chartered accountant .

INDEPENDENT NON-EXECUTIVE DIRECTORS NON-EXECUTIVE DIRECTOR


CORPORATEGOVERNANCE


EXECUTIVE MANAGEMENT

Chair: A ConradMembers: S Sithole,

M Mthombeni, O Mabandla

Chair: O MabandlaMembers: S Sithole,

N Siyotula

Chair: R Mathura Members: A Conrad,

M Kabi, N Siyotula

Independent Non-Executive Chair: M MthombeniIndependent Non-Executive Directors: A Conrad, M Kabi, R Mathura, O Mabandla, N Siyotula;

Non-executive director: S SitholeExecutive director: S Nhlumayo (CEO), S Rawoot (FD)

The Board delegates certain functions and oversight to the committees of the Board.

All non-executive directors have access to management and company information as required.

The Board and committees monitor and oversee:

REMUNERATION, NOMINATION,

TRANSFORMATION AND SOCIAL AND ETHICS

COMMITTEE

AUDIT AND RISK COMMITTEE

INVESTMENT COMMITTEE

BOARD

A third of the Board members retire at

each AGM

Annual external review of

Board effectiveness

LEADERSHIP AND GOVERNANCE STRUCTURES

CEO: S NhlumayoFD: S Rawoot


CORPORATE GOVERNANCE continued

The Board provides ethical leadership and is committed to good governance practices that add value to African Phoenix . It is the Company’s highest decision-making body and is responsible for the establishment and maintenance of the ethical culture of the Company based upon good corporate governance values . The chairperson of the Board and the Company Secretary ensure that a sound structure is in place to enhance good corporate governance .

The Board recognises that good corporate governance emanates from effective, responsible leadership, which is characterised by the values of responsibility, accountability, fairness and transparency . Its code of ethics provides guidance to the Company’s executive team to ensure that they act with uncompromising honesty and integrity in its interactions with all stakeholders .

The Board also plays a pivotal role in strategic planning and establishing clear benchmarks against which to measure the Company’s strategic objectives . It ensures the existence of necessary committee structures, with clear terms of reference that assist the Board committees in discharging their responsibilities and upholding the Company’s ethics and strategic objectives .

GOVERNANCE OBJECTIVESAfrican Phoenix recognises that the principles of good corporate governance and transparent, comprehensive business practices are essential to protect the interests of all of its stakeholders and is committed to ensuring that it remains a responsible corporate citizen . The Board is responsible for the Company’s compliance with applicable laws, rules, codes and standards which is an integral part of the Company’s culture, and key to ensuring it achieves its strategy. In order to ensure effective compliance with King IV, the Board appointed an external service provider to conduct a King IV gap analysis . The results of the analysis has enabled the Company to identify those areas which require the implementation of additional recommended practices to ensure the Company affectively embodies and upholds the principles of King IV .

THE BOARDThe Board reviews and approves the strategic objectives and policies of the Company, and provides overall strategic direction within a framework of incentives and controls . It ensures that the executive team maintains an appropriate balance between promoting the long-term sustainable growth

of the Company and delivering short-term performance objectives . The newly approved strategy is robust, targets areas for growth and will be implemented so as to balance value creation with maintaining sound controls and a strong focus on risk management . In setting African Phoenix’s strategy the Board considered future trends and economic assumptions and identified opportunities and risks that could impact the Company’s growth ambitions . The Board approved strategy is consistent with the strategy set out in the prior year integrated annual report and is more comprehensively set out on page 4 of the integrated annual report .

The Board delegates authority to the executive team to manage the Company’s day-to-day affairs. In this regard the Board, with the assistance of the Audit and Risk Committee, regularly monitors and reviews the delegated authorities to ensure that they are aligned with principles of best practice as well as the recommendations set out in King IV .

THE BOARD CHARTER The Board operates under an approved charter which regulates the way business is conducted, in line with the principles of sound corporate governance and King IV, and provides that the Board has ultimate accountability and responsibility for the Company’s performance and affairs. The Board is satisfied that it has fulfilled its responsibilities in accordance with the charter .

BOARD MEETINGS Board meetings are held at least quarterly . The agenda and relevant supporting documents are distributed to directors before each board meeting and the appropriate executive director will explain and motivate items where decisions should be taken by the Board .

BOARD APPOINTMENTS The Board, assisted by the RNTSE Committee, appoints new directors through a formal, fair and transparent process . The RNTSE Committee consists of a majority of independent non-executive directors and those discussions pertaining to the nomination and appointment of new directors is chaired by the Board chairperson .

The Board, together with the RNTSE Committee, considers diversity in terms of race, gender and skills when making new appointments .


CHANGES TO THE BOARD Enos Banda’s tenure as CEO ended on 30 November 2017, whereafter he remained as a non-executive director until his resignation on 15 January 2018 .

John Evan’s tenure as FD ended on 28 February 2018 .

Siya Nhlumayo appointed as CEO on 1 March 2018.

Danie Vlok resigned as independent non-executive director on 18 June 2018 .

Shafiek Rawoot appointed as FD on 1 July 2018.

Carmen Le Grange resigned as an independent non-executive director on 16 August 2018 .

Mahlatse Kabi and Reshma Mathura were appointed to the Board as independent non-executive directors on 16 August 2018 .

An abbreviated curriculum vitae of each newly appointed director appears on pages 8 and 9.

BOARD COMPOSITION AND SUCCESSION PLANNING The Board is comprised of nine directors: two executives, one non-executive and six independent non-executives . The Board is satisfied that it has the requisite balance of skills, knowledge, experience and diversity to make it effective.

The Board evaluates its composition on an ongoing basis and will appoint additional members as and when the need arises . The Board has approved a Board Diversity Policy, which stipulates the gender and race diversity targets at Board level . Considering the Board resignations and appointments in the current year, progress has been made in achieving the targets set in this policy .

The Board, with the assistance of RNTSE, considers the succession plan provided by management on an annual basis . The succession plan provides for succession of the chairman of the Board, CEO, FD and key investment professionals .

BOARD EVALUATION AND INDEPENDENCE As required by King IV, board evaluations are conducted on an annual basis with further reviews being conducted at appropriate intervals as and when required . Areas of improvement are noted and addressed on an ongoing

basis . An external service provider has been appointed to perform a comprehensive Board evaluation in October 2018 . This comprehensive evaluation assesses the Board’s effectiveness as a team, how well the Board committees function and discharge their duties as stated in the respective terms of reference, as well as the commitment and performance of the individual directors, as a self assessment, peer assessment and separate executive evaluation . The feedback from these assessments will assist the Board in improving its functionality. The Board is confident that there is an appropriate balance of power and authority on the Board to ensure that no one director has unfettered powers of decision making .

The Board specifically considers the independence of directors and their commitments on the date of appointment and annually thereafter . This evaluation is done to determine whether a director has sufficient time to discharge his or her duties effectively and is free from conflicts that cannot be managed satisfactorily .

COMPANY SECRETARY The Company Secretary (“Acorim”) provides the Board with guidance in respect of the discharge of directors’ duties and responsibilities, and regarding legislation, regulatory and governance procedures and requirements . The Board has access to, and is aware of, the responsibilities and duties of the Company Secretary, who also acts as secretary to the Board appointed committees .

The Board is satisfied that Acorim has the required competence, qualifications and experience to perform the functions and duties of the Company Secretary . In its assessment of the Company Secretary the Board concluded that Acorim maintains an arm’s length relationship with the Company and its Board in that no Acorim employees are directors of the Company, nor do they have any interests or relations that may affect independence.

ROLES AND RESPONSIBILITIESThe Board and its committees are structured to ensure that African Phoenix delivers on its mandate and responsibilities as an investment holding company, while simultaneously adhering to the principles of good governance set out in King IV . Within that framework, the Board and its committees strive to ensure that the Company delivers good performance and always operates ethically and with a social conscience .


• Strategy• Corporate governance• Legislative and regulatory compliance• Financial performance

• Oversight of all financial and sustainability reporting, including legal, regulatory and tax compliance

• Review of financial viability, solvency and going concern status• Oversight of external audit processes and internal financial controls• Risk governance and oversight of risk management• Information technology governance

• Development, implementation and monitoring of investment strategy in consultation with the Board

• Consider and recommend transactions and investment proposals to the Board for approval

• Provides an oversight function for the formulation, implementation and monitoring processes relating to the Human Resources Function, Social and Economic Development, Human Rights, Ethics & Conduct and Whistle Blowing & Corruption

• In the current year this includes a revised Executive Remuneration and Implementation Policy and adoption of a Board Diversity Policy

REMUNERATION, NOMINATION,

TRANSFORMATION AND SOCIAL AND ETHICS

COMMITTEE

AUDIT AND RISK COMMITTEE

INVESTMENT COMMITTEE

MAIN FUNCTIONS OF THE BOARD AND COMMITTEES

• Nominations• Committee charters• Delegation of authority• Oversight and accountability

• Identification and assessment of investment

• Review and assessment of capital structures and funding requirements

BOARD


• Considering the performance of the directors and executive management when determining their remuneration;

• Reviewing the terms and conditions of remuneration packages for directors and executive management at least once each year;

• Reviewing the terms and conditions of executive service level agreements at least once each year;

• Reviewing and recommending to the Board performance- related incentive schemes, performance criteria and measurements; and

• Ensuring that the Company creates value in a sustainable manner within the economic, social and environmental context .

The RNTSE Committee will review the remuneration policy on an annual basis to ensure that it is robust enough to support the Company’s strategic objectives and ensure that it is aligned to best market practice . The remuneration policy will record the measures the Board commits to in the event that a 25% or more dissenting vote against the remuneration policy or implementation report is received . Such measures will consider the following:

• Engagement with shareholders to ascertain the reasons for dissenting votes; and

• Appropriately addressing legitimate and reasonable objections and concerns raised which may include amending the remuneration policy, or clarifying or adjusting remuneration governance and/or processes .

AUDIT AND RISK COMMITTEE The Audit and Risk Committee comprises four independent non-executive directors who have specific statutory duties to shareholders which are described in its charter . The Audit and Risk Committee was chaired by Carmen Le Grange, until her resignation on 16 August 2018. Reshma Mathura was appointed as Audit and Risk Committee Chairperson on 17 September 2018 .

Responsibilities of the Audit and Risk Committee The Audit and Risk Committee responsibilities are set out in the Audit and Risk Committee’s report on page 42 of the annual financial statements.

As part of the appointment of the FD, effective on 1 July 2018, the RNTSE and Audit and Risk Committee considered and satisfied themselves of the appropriateness of the expertise and experience of the FD, whose qualifications appear on page 9 of this Report . The feedback provided by the Board evaluation exercise currently being conducted will assist in formally evaluating the performance of the FD .

BOARD COMMITTEES The Board delegates certain functions to various committees in which independent non-executive, non-executive and executive directors participate . The Board committees fulfil their obligations contained in the Companies Act and the Company’s Memorandum of Incorporation, as well as the recommendations contained in King IV . As and where necessary the committees execute further duties delegated to them by the Board .

In discharging its duties, the Board delegates authority to the committees and individuals through clearly defined and approved charters, which it reviews regularly . The Board maintains effective control through a continuously developing governance framework that provides for the delegation of authority, and which is improved on an ongoing basis . The chairperson of each committee is elected by the members of the relevant committee, who themselves are appointed by the Board .

The duties and responsibilities of the various committees do not reduce the individual and collective responsibilities of the Board in respect of the carrying out of their fiduciary duties and legal obligations .

THE RNTSE COMMITTEE The RNTSE Committee comprises of four members of which the majority are independent non-executive directors . The RNTSE Committee is chaired by an independent non-executive director .

The RNTSE Committee has had 11 meetings for the 2018 financial period, whereby the Chief Executive Officer (“CEO”) and Financial Director, who are not members of RNTSE Committee have attended by invitation since joining the Company .

Responsibility of the RNTSE CommitteeRegarding remuneration policy and practice, the RNTSE Committee is responsible for the following:

• Defining, implementing and monitoring annually a remuneration policy that is aligned with the strategy of the Company and is linked to individual performance;

• Ensuring that the remuneration policy reflects the interests of stakeholders, is comparable to the general remuneration environment in the sector, and complies with relevant principles of corporate governance;

• Ensuring that the directors, both executive and non-executive are fairly, responsibly and transparently rewarded;




The Audit and Risk Committee considered and satisfied itself regarding the appropriateness of the expertise, adequacy of the resources of the Company’s financial function and are of the opinion that the Company will remain a going concern in the year ahead . Their statement in this regard is contained in the directors’ approval to the financial statements. Refer to page 42 of the annual financial statements for the Audit and Risk Committee’s report . Further more, the committee has ensured that appropriate financial report procedures exist and are functioning effectively.

The Audit and Risk Committee obtained the information detailed in paragraph 22 .15(h) of the JSE Listings Requirements and performed an assessment on the suitability of the JSE-accredited auditors, Grant Thornton Johannesburg Partnership and Soné Kock, as the designated individual registered auditor . The Board assessment concluded that both the audit firm and the individual auditor understand their roles and have the competence, expertise, experience and skills required to discharge their specific audit and financial reporting responsibilities . Please refer to the Audit and Risk Committee Report on page 42 regarding mandatory audit engagement partner rotation and the expected merger of BDO and the Grant Thornton audit offices.

THE INVESTMENT COMMITTEEThe Investment Committee consists of three non-executive directors who consider all cash and other investment opportunities and capital expenditure proposed by the Company’s executive . The Investment Committee can recommend such investment opportunities and capital expenditure to the Board for final approval.

The Investment Committee’s duties and responsibilities are governed by its terms of reference, which is reviewed annually by the Board .

Responsibilities of the Investment Committee The Investment Committee is responsible for the following:• Development, implementation and monitoring of

investment strategies in consultation with the Board;• Identification and assessment of investment opportunities;• Review and assess capital structures and funding

requirements; and• Consider and recommend transactions and investment

proposals to the Board for approval .

BOARD MEETING ATTENDANCESummary of Board meeting attendance by non-executive directors

BoardAudit and Risk

Committee

Remuneration, Nomination,

Transformation and Social and Ethics Committee

Investment Committee

Total number of meetings 11 6 11 10In attendanceM Mthombeni 11 n/a 11 2A Conrad 11 1 11 n/aC Le Grange 10 5 1 n/aM Kabi 1 1 n/a n/aO Mabandla 10 n/a 11 10R Mathura 1 1 n/a n/aN Siyotula 8 6 n/a 6S Sithole 8 n/a 3 7D Vlok 7 4 n/a n/a

Notes:1. Lea was appointed to the Audit and Risk Committee on 16 August 2018.2. Carmen was a member of the Board and Audit and Risk Committee until 16 August 2018.3. Mahlatse was appointed to the Board and Audit and Risk Committee on 16 August 20184. Reshma was appointed to the Board and chair of Audit and Risk Committee on 16 August 2018.5. Danie was a member of the Board and Audit and Risk Committee until 18 June 2018.6. Sam Sithole recused himself from meetings in relation to the appointment and remuneration of the Black Fund Manager due to his shareholding interest.


AFRICAN PHOENIX RISK ANALYSISOVERVIEWAs an investment holding company, African Phoenix’s main assets comprise a combination of investments in Stangen, cash and other short-term investments . The Company is in a sound financial position.

The Company has one operating subsidiary, Stangen . An analysis of the Stangen-specific risks is set out below.

RISK MANAGEMENTAfrican Phoenix has a risk management framework in place and associated policies, risks, controls and mitigating actions are reviewed on an ongoing basis by the Board and Audit and Risk Committee . No material weaknesses have been identified in the control environment that could adversely impact the Company from achieving its strategic objectives .

The Board is aware that the implementation of the proposed transaction, planned in the next two to three months, may have an impact on the operational and strategic risks of the Company . An updated risk assessment will be performed following the completion of the proposed transaction .

RISK RATINGSThe Company’s financial position is sound, as such financial and solvency risks were rated as low .

Operational risks relating to the risk of loss resulting from inadequate or failed internal processes, people and/or systems or from external events was rated as low .

Strategic risks were rated as moderate and are discussed in more detail below .

STRATEGIC RISKSStrategic risk is the risk of an organisation not being able to fulfil its strategic objectives or implement its business plan.

Following the appointment of a new CEO, FD and two investment principles, the risk of not being able to fulfil the strategic objectives have reduced since the prior year . Following the key appointments, the main risk that exists is in the underperformance of investee portfolio companies . The key mitigants for this risk are; • thorough due diligence and analytical assessments by the

Investment Team; • All investments considered by a majority non-executive

Investment Committee; • analysis of opportunities against well-defined investment

criteria; • specific attention and consideration of investee cash

generation and gearing levels;

• use of industry experts at diligence and monitoring investment phases; (vi) report back to the Investment Committee on investee governance status and progress;

• active representation on investee company boards and regular communication with investee company management .

STANGEN RISK ANALYSISOVERVIEWStangen is the sole operating subsidiary of African Phoenix .

Stangen’s management has conclusively dealt with all legacy issues arising from the credit life book originated by African Bank Limited and Residual Debt Services Limited . The legal transfer of the run-down credit life portfolio to Guardrisk Life Limited was a major milestone for Stangen and has resulted in Stangen no longer having any legacy issues or risks arising from its historic relationship with African Bank Limited .

Stangen essentially operates as a start-up niche direct life insurer, but with the benefit of a small in-force portfolio that was retained and which will accelerate its development to maturity .

In the current year Stangen acquired the insurance and call centre operations of Joshua Trust and Different Life. The sales force and technology acquired enhances Stangen’s ability to execute on its strategy as detailed above .

RISK MANAGEMENTStangen’s risk management and control environment has stabilised following a major review and significant changes during the 2016 financial year. The risk management framework and associated policies are reviewed on an ongoing basis by the Stangen Board and Risk Committee in line with insurance industry regulatory requirements . No material weaknesses have been identified in the control environment .

The Stangen Board submits regulatory returns and Own Risk and Solvency Assessment Reports to the FSB on a regular basis . These detail Stangen’s exposure to current and future risks, as well as the interrelationships between the risks . They also set out the appropriate minimum levels for the regulatory and internal capital requirements necessary to meet prevailing regulatory solvency requirements and Board-approved strategic imperatives .

These assessments take place within the framework of the risk appetite defined by the Stangen Board, which targets a minimum return for shareholders taking into account the appropriate risk framework . Stangen has hosted regular onsite visits from the FSB over the past three years and in the current year met with the regulator to finalise all outstanding items raised. The regulator has confirmed that it has no outstanding matters with Stangen, which may have affected its ability to operate .



RISK RATINGSFinancial- and solvency-related risks were rated to be minor during the reporting period due to the strength of Stangen’s balance sheet, despite the payment of a R900 million dividend to the Company in September 2018 .

Operational, business and strategic risks were, however, rated as major risks by the Board given the infancy of Stangen’s new operating model . This was an expected outcome as the business model had been completely revamped and many operational processes had been changed during the 2016 financial year. While significant progress had been made by management in these areas since then, it was still too soon to adjust the risk rating to moderate .

Regulatory risks were previously rated as major, given the pace and extent of regulatory change . Since meeting with the regulator in the current year, this risk is reduced to moderate .

OPERATIONAL RISKOperational risk is the risk of loss resulting from inadequate or failed internal processes, people and/or systems or from external events . • Whilst the Stangen team has grown recently, this growth

is mostly in the sales team . The executive team remains small, managing multiple functions and, as such, both staff retention risk and succession planning risk remain a concern .

• The new sales and partner risks have been reduced in the current year with the acquisition of the JT and DL call centre staff. This risk also continues to be mitigated by: – Actively monitoring outsourced functions and engaging

regularly with business partners; and – Implementing new sales processes, which are

continuously monitored and improved whenever necessary .

STRATEGIC AND BUSINESS RISK Strategic risk is the risk of an organisation not being able to fulfil its strategic objectives or implement its business plan.

Business risk is the risk of changes occurring in the external environment that may have a direct or indirect impact on the business and its ability to fulfil its strategic objectives or implement its business plan .

Stangen is focusing on improving the quality of new business as well as the Company’s overall collection rates despite the fact that it is operating in a very constrained economic environment, which naturally impacts on affordability and policy lapse rates .

REGULATORY RISKRegulatory risk is the risk of losses arising from changes in legislation or regulation .

Stangen operates in a highly regulated insurance industry environment . While the Board does not expect any material impact due to regulatory changes during the 2019 financial year, the pace and extent of change is onerous . The Board therefore actively monitors changes to the regulations affecting the insurance industry, including changes to International Financial Reporting Standards accounting standards, Protection of Personal Information Act and other regulations such as the Financial Sector Charter Code .


REMUNERATION REPORTPART ONE: THE BACKGROUND STATEMENTWe are pleased to present the African Phoenix Investments Limited remuneration report which is aligned to King IV™ Report on Corporate Governance for South Africa (“King IV™”) . To align with King IV™, we have divided our report into three sections, i .e .:

• Part One: the background statement• Part Two: the overview of the remuneration policy• Part Three: the implementation report

As envisaged in King IV™, we recognise the importance of linking remuneration to company performance, company strategy and individual performance . This remuneration report will illustrate our remuneration elements including; applicable performance conditions and targets, for executive management and on a high-level other employees .

African Phoenix Investments Limited has combined the Remuneration, Nomination, Transformation and Social and Ethics into a single committee called the Remuneration, Nomination, Transformation and Social Ethics Committee (“RNTSE Committee”) . The RNTSE Committee deals with remuneration, nomination, transformation and social and ethics matters of the Company . Executive and non-executive directors’ remuneration is a key focus area for the RNTSE Committee, recognising that the Company executives need to be remunerated and incentivised fairly, responsibly and transparently to promote acceptable behaviour and actions required to deliver on the Company’s strategy and to enhance shareholder value . Therefore, the RNTSE Committee makes remuneration decisions and determines the criteria necessary to measure the performance of executives when discharging their functions and duties .

REMUNERATION ADVISERSTo assist the RNTSE Committee to perform its functions, it has received advice from PricewaterhouseCoopers Inc . (“PwC”) on various remuneration aspects and the Board is satisfied that the advice received from PwC was objective and independent .

ACTIVITIES UNDERTAKEN IN 2018In the 2018 financial year, the RNTSE Committee undertook the following activities:

• Successfully recruited a permanent Chief Executive Officer, Financial Director and Investment Principals to implement the Company strategy and enhance shareholder value;

• Reviewed guaranteed packages for executives and directors’ fees for non-executives;

• Reviewed performance conditions, transaction-related targets applicable to the short-term incentive for executives;

• Established the terms of the long-term incentivisation of the executives based on a carry structure;

• Considered shareholders’ recommendation regarding aligning the remuneration policy to the strategy and introducing financial and non-financial indicators to assess performance; and

• Appointed a consultant to assist in benchmarking the non-executives’ fees .

ACHIEVEMENT OF STATED OBJECTIVESDuring the 2018 financial period, the RNTSE Committee has achieved the following:• An increase of 7% of the remuneration of the executives

and staff has been approved for the 2019 financial year after considering inflation and market movements.

• After receiving advice from the independent consultants, in line with market practice, the RNTSE Committee recommended that the basis for non-executive members’ remuneration should change from a per meeting arrangement to an annual retainer fee .

AREA OF FOCUS FOR 2019• The RNTSE Committee will design the short-term incentive

(“STI”) that will ensure our employees get an opportunity to grow in the Company and will create a culture that promotes empowerment .

• Based on shareholder feedback, which highlighted concerns regarding the lack of non-financial performance measures, in future the RNTSE Committee will review the Company performance measures applicable to the STI and ensure that there is a balance of financial and non-financial indicators to ensure high-performance which will motivate the achievement of the business strategy and create shareholder value .

REMUNERATION, NOMINATION, TRANSFORMATION AND SOCIAL AND ETHICS COMMITTEE REPORT


VOTING OUTCOMESResults of voting at the 2016 and 2017 Annual General Meetings (“AGM”) are indicated in the table below:

% vote in favour 2017 2016

Remuneration policy 78 .08 50 .72Non-executive directors’ fees 99 .97 99 .69

VOTING AT THE AGM FOR 2018 FINANCIAL YEARIn line with King IV™ at the 2018 AGM, shareholders of the Company will be given an opportunity to pass separate non-binding advisory votes on the policy and the implementation report. Non-executive directors’ fees for the 2020 financial year will also be put to shareholders by way of special resolution as recommended by the Companies Act No 71 of 2008, as amended (“the Companies Act”) . In the event that less than 25% or more dissenting votes for either the remuneration policy or the implementation policy is not achieved, engagement with shareholders will be made regarding their concerns to address legitimate concerns so as to make the necessary changes and improvement to the policy as well as reporting .

Lea ConradChairperson

2018

REMUNERATION, NOMINATION, TRANSFORMATION AND SOCIAL AND ETHICS COMMITTEE REPORT continued


PART TWO – THE OVERVIEW OF THE REMUNERATION POLICYAfrican Phoenix is committed to being a high-performing investment holding company and the Company’s remuneration policy reflects this objective and aims to reward high-performing individuals for their contribution to the successful implementation of the business strategy . In line with this, its remuneration framework is modelled on those used by private equity fund managers with remuneration linked to value creation .

In a bid to ensure that African Phoenix, amongst other objectives, establishes a black economic empowerment investment platform which will provide an opportunity to invest in unique opportunities such as high-performing medium- and mid-market enterprises, the Company has proposed certain strategic transactions in its announcement to the market on 7 September 2018 . These proposed transactions include the acquisition of a limited partnership interest in a private equity fund to be known as API Capital Fund which will be managed by a black-owned fund manager (Black Fund Manager).

This proposed capital restructuring of the business will lead to the reconstitution of the current Board in line with the requirements of the JSE and King IV™ . These proposed transactions have resulted in the need for the RNTSE Committee to review the Company’s remuneration policy to ensure that it will attract, motivate and retain an experienced executive management team, both internally and through the limited partnership agreement with the Fund Manager to ensure to the successful implementation of the business strategy .

REMUNERATION PRINCIPLESThe remuneration policy operates according to the following principles . If the business strategy is successfully implemented, insofar as the principles relate to reward of employees, these will include any employees of the proposed Black Fund Manager:

• Provide a framework for the management of total reward within the Company;

• Attract, reward and retain employees with the necessary skills to foster the continuous growth of the Company;

• Encourage sustainable long-term performance that will be in the best interests of the Company;

• Support and encourage behaviour consistent with its values, culture and corporate citizenship;

• Promote an appropriate balance between the needs, expectations and risk exposure of its stakeholders to ensure the creation of sustainable long-term value;

• Demonstrate transparency based on external benchmarks to ensure fairness and equity; and

• Ensure alignment with the principles of good corporate and compensation governance .

RNTSE COMMITTEEAs mentioned above, the remuneration policy is implemented and monitored by the RNTSE Committee which has been appointed by the Board as one of its sub-committees in terms of the guidelines specified in King IV™.

The members of the RNTSE Committee, as at the date of this report, are as follows:

Name Date appointed Directorship status

Number of meetings attended

Ms Alethea Conrad 28 September 2016 Independent Non-executive Director and Chair 11/11

Mr Morris Mthombeni 19 September 2017 Independent Non-executive Director 11/11

Mr Oyama Mabandla 22 September 2017 Independent Non-executive Director 11/11

Mr Samuel Sithole(1) 16 November 2017 Non-executive Director 3/8

(1) Sam Sithole recused himself from meetings in relation to the appointment and remuneration of the Black Fund Manager due to his shareholding interest.

RNTSE continued


RNTSE continued

REMUNERATION ELEMENTSThe executive reward framework is designed to fairly, responsibly and transparently reward each individual’s contribution and value to the Company . The remuneration of executive directors will consist of a mix between guaranteed pay and variable pay which is linked to performance . This is to ensure that there is alignment between the interests of the executives and the shareholders . Total remuneration comprises three components which are the Total Guaranteed package (TGP), Short-Term Incentive and Long-Term Alignment .

The different elements include:

Remuneration element Key features Link to strategy

Total Guaranteed Package

To make informed decisions around the guaranteed package, the RNTSE Committee considers the following factors:

• Size and complexity of the role;• Reference checks; and• Market survey data.The Company benchmarks executive remuneration against comparable companies in order to ensure that the total guaranteed package element is market-related and fair . As a general guideline, the Company aims to remunerate employees who perform as expected at above the median . This principle can, however, be adjusted if necessary, in order to attract and retain scarce human resources . These guaranteed packages are recommended by the Chief Executive Officer after taking the following into consideration:

• Company performance;• market benchmarks;• inflation;• individual skills, experience and qualification;• individual performance;• future career progression; and• resource availability .The following factors are taken into consideration when determining salary increases:

• Company performance; and• Market conditions;• Overall affordability;• Inflation; and• Individual performance .

The Company offers market-related total guaranteed packages in order to attract, recruit and retain, highly skilled, talented executives who are competent enough to employees to drive business performance and create shareholder value .


Remuneration element Key features Link to strategy

Short Term Incentive A fit-for-purpose STI scheme will be implemented to reward members of executive management with a cash bonus based on the achievement of the proposed transactions . Following the achievement of the proposed transactions, the RNTSE will consider an appropriate “business as usual” STI to be implemented .

The aim of the STI scheme is to encourage the achievement of the alignment of the various class of shareholders of the Company and implementation of a Black Fund Manager structure for the Company to invest its capital .

Long-term alignment The Company has not adopted a long-term alignment scheme for executives primarily due to the proposed transaction relating to the implementation of the Black Fund Manager that will form part of the investment strategy for the Company . Upon the successful completion of the proposed transactions, the Company will have implemented a long-term alignment scheme . Details of the long-term alignment are disclosed below .

The introduction of the long-term alignment scheme will align the interests of the Black Fund Manager (employing the investment executives) with shareholders and promote high-performance, which will result in shareholder value creation .

SHORT TERM INCENTIVE (STI)As mentioned above, for the successful implementation of the proposed transaction, African Phoenix intends to establish a private equity fund to be known as API Capital Fund. API Capital Fund will be managed by a Black Fund Manager. Both African Phoenix and the Black Fund Manager will invest in API Capital Fund.

In order to motivate the executives to successfully implement and execute the proposed transactions, African Phoenix intends to introduce a STI for the key employees who are vital in driving the implementation of the proposed transaction .

Short-Term Incentive

Description of the STI A fit for purpose STI in the form of a cash settled transaction bonus has been introduced for the 2019 financial year.

Eligibility This STI will be for four executives who are key in implementing the proposed transaction, namely the CEO, FD and two investment principals .

Performance Conditions The substantive achievement of the proposed transaction, including the repurchase of preference shares, acquisition of partnership interest in the API Capital Fund, amendment of the MOI and classification of African Phoenix as an Investment Entity in terms of the s15 JSE listing requirements .

Following the achievement of the proposed transactions, the RNTSE Committee will consider an appropriate “business as usual” STI to be implemented which will be designed to incorporate appropriate financial and non-financial performance measures.

Other Upon the successful completion of the proposed transaction, the Black Fund Manager will receive a market-related management fee .


RNTSE continued

LONG-TERM ALIGNMENTLong-term alignment

Description of the long-term alignment

Should the proposed transaction be successfully implemented, executives in the Black Fund Manager will participate in a Long-Term Incentive in the form of a capital performance participation:

• On the award date participants will receive unlisted class B convertible shares of no value .• The value of these shares is calculated as 16% of the growth in Invested NAV of API Capital

Fund and growth in the market capitalisation of African Phoenix over a six-year measurement period, where such growth is in excess of the performance hurdle (being 10%) .

• On achieving the participation, the issued B shares will be converted to listed class A shares in the hands of the Black Fund Manager participants.

Eligibility The participants will be the Black Fund Manager members who own the issued B shares.

Types of awards Unlisted convertible class B shares with no value will be awarded to the participants . After the relevant measurement period of six years, subject to the fulfillment of specific performance conditions, the class B shares will automatically be converted to listed class A shares .

Performance conditions, weightings and targets Performance

condition Weighting Targets/hurdle Calculation

Invested Net Asset Value Growth

75% Invested NAV growth of 10% Compound Annual Growth Rate (“CAGR”) over the six-year measurement period .

At the end of each six-year measurement period, the participants receive 16% of the growth above the 10% CAGR hurdle rate calculated by taking into account the average of 75% of the invested net asset value growth during a measurement period and 25% of the increase in African Phoenix's market capitalisation during the same measurement period .

Increase in African Phoenix market capitalisation

25% African Phoenix market capitalisation growth of 10% CAGR over the six-year measurement period .

Measurement period The measurement periods over which the hurdle rate of growth must be exceeded is an initial period of six years, followed by subsequent periods of six years .

Other This proposed long-term alignment scheme will be implemented upon the successful completion of the proposed transaction subject to the approval from both the Johannesburg Stock Exchange and 75% of shareholders through special resolution .


TERMINATION POLICYThe following applies in the event of termination of employment:

Voluntary resignationTermination due to dismissal

Retirement, retrenchment and death

Guaranteed package Paid over the notice period . Paid until the date of termination . Paid over the notice period or as a lump sum .

Benefits Benefits will fall away at such time that employment ceases .

Benefits will fall away at such time that employment ceases .

Benefits will fall away at such time that employment ceases .

STI Payment is forfeited in its entirety and will lapse immediately at the date of termination unless the RNTSE Committee in its absolute discretion determines otherwise .

Proposed long-term alignment

Termination policy as it related to the long-term alignment scheme will be disclosed in the circular to shareholders relating to the transactions .

NON-EXECUTIVE DIRECTOR FEESCertain factors were considered as per the Company’s remuneration policy when recruiting non-executive directors . External remuneration consultants were appointed to independently benchmark the fees payable to the non-executive directors . The benchmarking exercise was done against a peer group of comparator companies . Publicly available information for the comparator company has been used to do the analysis . During the benchmarking exercise, cognisance has been taken that the Company has a combined Remuneration, Nomination, Transformation and Social and Ethics Committee whilst most companies have separate respective committees .

NON-BINDING ADVISORY VOTE ON REMUNERATION POLICYThe remuneration policy is subject to an advisory vote by shareholders at the AGM for the 2018 financial year. Shareholders will be requested to cast an advisory vote on the remuneration implementation report as contained in part three of this report .


RNTSE continued

PART THREE – IMPLEMENTATION REPORTTwo executive directors (Chief Executive Officer and Financial Director) and independent non-executive directors have been appointed during the reporting year .

TERMINATION OF EMPLOYMENTThere were no payments in terms of termination of employment during the financial year.

REMUNERATION OF EXECUTIVE MANAGEMENTThe remuneration for each member of executive management received as well as the elements that make up this total for the reporting period is provided in the table below:

Salary Other fees

Total cost- to-company

package Incentive

Total single figure of

remunerationR000 R000 R000 R000 R000

2018Enos Banda1 417 – 417 – 417John Evans2 1 463 261 1 724 – 1 724Siya Nhlumayo3 1 371 – 1 371 – 1 371Shafiek Rawoot4 500 – 500 – 500

2017Enos Banda1 2 483 – 2 483 – 2 483John Evans2 3 196 1 329 4 525 – 4 525

1. Enos Banda was appointed as non-executive chairman on 6 September 2016, Executive Chairman on 1 October 2016 and subsequently Chief Executive Officer on 14 December 2016. Enos’ term as Chief Executive Officer ended on 30 November 2017. Enos remained on the board as a non-executive director until his resignation on 16 January 2018.

2. John Evans was appointed as Financial Director on 1 October 2016. Prior to his appointment as Financial Director he was the business rescue practitioner of Phoenix from 5 June 2015 to 19 May 2016. The other fees incurred and paid to John for the 2017 and 2018 financial years were in respect of his contract as business rescue practitioner of Phoenix. These fees relate to assets established and preserved during business rescue, as well as proceeds received by Phoenix after business rescue. John’s tenure as Financial Director ended on 28 February 2018 and the basic salary relates to employment to this date. In addition to the above amounts, John received R881 thousand, while not a director, but in accordance with his contract as business rescue practitioner.

3. Siyabonga Nhlumayo was appointed as Chief Executive Officer on 1 March 2018.4. Shafiek Rawoot was appointed as Financial Director on 1 July 2018.


NON-EXECUTIVE DIRECTOR FEESThe RNTSE Committee has reviewed and recommended the fees payable to the non-executive directors, having had due regard to the findings of a survey on non-executive directors’ practices and remuneration trends by external consultants. The survey included comparative information in relation to a group of listed companies similar to Phoenix . 2018 directors’ fees were approved at the previous AGM with 0% increase.

The fees paid to non-executive directors are disclosed in the table below:

2018 2017Services

to the Company

Services to other group companies Total

Services to the

Company

Services to other group companies Total

R000 R000 R000 R000 R000 R000

E Banda 9 – 9 – – –A Conrad 935 – 935 714 – 714C Le Grange 696 211 907 263 – 263M Kabi 77 342 419 – – –O Mabandla 1 118 – 1 118 – – –R Mathura 82 – 82 – – –P Mountford – – – 173 – 173M Mthombeni 1 358 438 1 796 916 391 1 307I Shongwe – – – 612 – 612S Sithole 817 – 817 – – –N Siyotula 831 222 1 053 – – –D Vlok 469 – 469 693 – 693

6 392 1 213 7 605 3 371 391 3 762

BoardAudit and Risk

CommitteeRNTSE

CommitteeInvestmentCommittee

2018 – Total number of meetings 11 6 11 102017 – Total number of meetings 9 5 4 4

The non-executive directors’ fees for 2017 and 2018 were based on a retainer as well as a fee per meeting . The increase in fees in 2018 primarily relate to the increased meeting requirements . These were primarily driven by:• The review of the business strategy after the July 2017 AGM.• The increase in the number of non-executives on the Board to execute the required strategy .• Resignations and appointments of CEO and FD positions and the resultant benchmarking of remuneration and incentive

structure .• Consideration of multiple strategies to simplify the current capital structure and reinvigorate the listed investment company .• Developing the framework for the current proposed transaction .The RNTSE Committee reviewed and recommended the fees payable to the non-executive directors at the October 2018 AGM, having had due regard to the findings of a survey on non-executive directors’ practices and remuneration trends by external remuneration consultants . The survey included comparative information in relation to a group of listed companies similar to African Phoenix .

Previously Board members were paid an annual fee and an attendance fee per meeting . The approved fee is a total annual retainer (meeting attendance fee included) to Board members based on benchmarking . Fees for the next two years (2019 to 2020) increase at CPI of 5% (five percent). The RNTSE Committee also considered the complexity of the business as well as the time, commitment, level of experience, skills and capabilities required of the non-executive directors . The approved fee levels indicated above would ensure that the remuneration of the non-executive directors is market-related in light of the proposed transaction being implemented .


RNTSE continued

RandsFY2017

ApprovedFY2018

ApprovedFY2019

ApprovedFY2020

ApprovedBoard – Pro forma based on five meetings per annumChairperson 525 000 525 000 360 000 378 000Member 315 000 315 000 180 000 189 000

Board – FY2017 and FY2018 approved per meetingChairperson 52 500 52 500 – –Member 42 000 42 000 – –

Board – Annual retainer FY2017 & FY2018, FY2019 and FY2020Chairperson 262 500 262 500 360 000 378 000Member 105 000 105 000 180 000 189 000

Audit and Risk – Pro forma based on four meetings per annumChairperson 126 000 126 000 130 000 136 500Member 105 000 105 000 80 000 84 000

Audit and Risk – FY2017 and FY2018: per meetingChairperson 31 500 31 500Member 26 250 26 250

Audit and Risk – FY2019 and FY2020 – annual retainerChairperson 130 000 136 500Member 80 000 84 000

RNTSE – Pro forma based on three meetings per annumChairperson 94 500 94 500 130 000 136 500Member 78 750 78 750 80 000 84 000

RTNSE – FY2017 and FY2018: per meetingChairperson 31 500 31 500Member 26 250 26 250

RTNSE – FY2019 and FY2020: annual retainerChairperson 130 000 136 500Member 80 000 84 000

Investment Committee – Pro forma based on four meetings per annumChairperson 126 000 126 000 80 000 84 000Member 105 000 105 000 60 000 63 000

Investment committee – FY2017 – FY2018: per meetingChairperson 31 500 31 500Member 26 250 26 250

Investment committee – FY2019 – FY2020: annual retainerChairperson 80 000 84 000Member 60 000 63 000


STATEMENT REGARDING COMPLIANCE WITH, AND ANY DEVIATIONS FROM THE REMUNERATION POLICYAfter engagement with shareholders, the RNTSE Committee decided to change the basis for remuneration to a retainer fee . This is a deviation from the previous remuneration and was approved by shareholders at the October 2018 AGM.

NON-BINDING ADVISORY VOTE ON THE IMPLEMENTATION REPORTThis report is subject to a non-binding advisory vote by shareholders at the AGM for the 2018 financial year.

Shareholders are requested to cast a non-binding advisory vote on the remuneration implementation report as contained in part 3 of this report at the upcoming AGM.

APPROVAL OF REMUNERATION REPORT BY THE BOARD OF DIRECTORSThis Remuneration report was approved by the Board of African Phoenix on 23 November 2018 .

NOMINATIONS AND APPOINTMENT OF DIRECTORSIn respect of the nominations and appointment of directors the RNTSE Committee is responsible for the following:• Ensure the establishing of a formal process for the appointment of directors, which includes, identification of suitable

members of the Board; and performing independent reference and background checks prior the nomination of the candidate;• Oversee an evaluation of the Board and individual directors annually;• Ensure that the succession plan is in place for all directors;• Establish and oversee a formal induction programme for new directors;• Report to shareholders regarding the promotion of gender diversity at Board level .

TRANSFORMATION, SOCIAL AND ETHICSIn the areas of transformation, social and ethics issues, the RNTSE Committee is responsible for the following:• Assist the Board in creating and sustaining the ethical business culture aligned to the principles defined in King IV™;• Monitoring and assessing progress of the Company measured against annually approved targets for transformation signed off

by the Financial Services Coat and informed by the Employment Equity Act and Broad-Based Black Economic Empowerment (BBBEE) Act and Labour Relations Act;

• Review the Company’s transformation strategy to ensure that it is in line with the current legislation and make recommendations to the Board;

• Ensure that the Company is a good citizen;• Monitoring the Corporate Social Responsibility (CSR) programmes undertaken by the Company;• Monitoring and developing stakeholder relations and ensure that consultation with stakeholders is in place;• Monitoring any reports from the independent whistle-blowing facility provider.

During the year the RNTSE Committee considered the following:• Ensure that the nomination and appointment of directors were in line with the Company policies on Gender and Diversity;• Ensure that the appointment of executive and employees was in line with the transformation objectives and targets;• Initiated the process for an independent culture and values assessment in the Company; and• Monitor the succession plan for executives and key employees.

JSE COMPLIANCE CERTIFICATEThe corporate and financial governance compliance certificate for the reporting period, which is required in terms of the JSE Listings Requirements, has been submitted to the JSE .

In accordance with section 3.4(b)(VI) of the JSE Listings Requirements, the Company confirms adoption of Net Asset Value per share as its reporting measure for trading statement purposes .


The ordinary shares held in African Phoenix are as follows:

Ordinary shares: Top beneficial owners

Government Employee Pension Fund (PIC) 214 017 338 15 .00%Steyn Capital SNN Retail Hedge Fund 106 326 665 7 .45%Steyn Capital SA Equity Fund SP 88 409 852 6 .20%SOC GEN Acting OBO Pereg Equities 80 000 000 5 .61%Peregrine Equity CC-Sentinel RF-PL 70 573 827 4 .95%Morgan Stanley and Company LLC 68 572 566 4 .81%

Ordinary shares: Top ordinary shareholders/managers

Steyn Capital Management (Pty) Ltd (ZA) 369 441 805 25 .89%PIC (ZA) 216 210 289 15 .15%Value Capital Partners (ZA) 212 893 803 15 .00%Coronation Asset Management (Pty) Ltd (ZA) 112 041 632 7 .81%Peregrine Capital (Pty) Limited (ZA) 72 217 747 5 .06%Briarwood Chase Management LLC (US) 68 572 566 4 .81%

The preference shares held in African Phoenix are as follows:

Preference shares: Top beneficial owners

Steyn Capital Management (Pty) Ltd 2 649 660 19 .59%36One Asset Management 1 956 473 14 .47%Morgan Stanley & Co Intl (Custody) 1 214 910 8 .98%STANLIB Asset Management 836 985 6 .19%RMB Morgan Stanley (Pty) Ltd 630 000 4 .66%Investec Securities (Pty) Limited 483 542 3 .58%

Preference shares: Top preference shareholders/managers

360ONE SNN QI Hedge Fund 1 281 945 9 .48%Morgan Stanley and Company 1 214 910 8 .98%Steyn Capital SNN Retail Hedge Fund 726 792 5 .37%Rand Merchant Bank Collateral Receiver 630 000 4 .66%Steyn Capital SNN QI Hedge Fund C/O 574 469 4 .25%Steyn Capital SA Equity Fund SP 469 331 3 .47%Steyn Capital Equity Fund 469 177 3 .47%

SHAREHOLDER ANALYSIS as at 30 September 2018

STAKEHOLDER ENGAGEMENTas at 30 September 2018

The Company places high importance on continued engagement with all stakeholders . The newly appointed CEO and FD have been authorised by the Board to engage with any stakeholder where requested . The Company website, www .phoenixinvestments .co .za contains useful information about the Company, including press releases, interviews and financial results.

In particular, in the current year, a large part of the proposed transaction being proposed to shareholders is as a result of requests from shareholders to resolve the impasse between ordinary and preference shareholders . For the proposed transaction key ordinary and preference shareholders were engaged under Non Disclosure Agreements to assess their support for the proposed transaction. This support was confirmed in the 7 September 2018 market announcement.


ANALYSIS OF ORDINARY SHAREHOLDERSas at 30 September 2018

Number of

holders % of total

shareholders Number of

shares

% of totalissuedshare

capital

Range1 – 999 5 118 47 .78% 1 471 911 0 .10%1 000 – 9 999 3 486 32 .54% 11 369 005 0 .80%10 000 – 99 999 1 644 15 .35% 46 864 177 3 .28%100 000 – more 464 4 .33% 1 367 300 179 95 .82%

Total 10 712 100.00% 1 427 005 272 100.00%

Shareholder spreadNon-public 5 0.02% 426 911 141 30.00%

Directors 4 0 .01% 212 893 803 15 .00%Shares in excess of 10% of I/C 1 0 .01% 214 017 338 15 .00%

Public 10 707 99.98% 1 000 094 131 70.00%

Total 10 712 100.00% 1 427 005 272 100.00%Distribution of shareholdersIndividuals 9 449 88 .21% 103 246 157 7 .24%Growth funds/unit trusts 119 1 .11% 636 798 518 44 .62%Nominees and trusts 440 4 .11% 92 213 869 6 .46%Insurance companies 22 0 .21% 9 959 247 0 .70%Limited companies 23 0 .21% 9 429 137 0 .66%Close corporations 84 0 .78% 1 740 229 0 .12%Private companies 152 1 .42% 7 528 912 0 .53%Other corporate bodies 423 3 .95% 566 089 203 39 .67%

TOTALS 10 712 100.00% 1 427 005 272 100.00%

Top beneficial shareholders – 1% or more of Issued CapitalGovernment Employee Pension Fund (PIC) 214 017 338 15 .00%Steyn Capital SNN Retail Hedge Fund 106 326 665 7 .45%Steyn Capital SA Equity Fund SP 88 409 852 6 .20%SOC GEN Acting OBO Pereg Equities 80 000 000 5 .61%Peregrine Equity CC-Sentinel RF-PL 70 573 827 4 .95%Morgan Stanley and Compnay LLC 68 572 566 4 .81%Steyn Capital SNN QI Hedge Fund C/O 64 238 722 4 .50%Steyn Capital Equity FD 60 872 888 4 .27%Sentinel RF Value 54 598 949 3 .83%Morgan Stanley PTY LTD 49 186 924 3 .45%H4 Cap Growth Selection Sigma QI Hedge 31 501 638 2 .21%PGR Cap High Growth H4 31 042 376 2 .18%Coronation Top 20 Fund 28 082 609 1 .97%Allan Gray Optimal Fund 26 478 730 1 .86%Citiclient Nominees No8 NY GW 25 992 232 1 .82%GSCO Equity Security Client Segregation 19 600 611 1 .37%State Steet Bank and Trust 19 014 622 1 .33%Peregrine Equities (PTY) LTD 15 300 931 1 .07%

SHAREHOLDER ANALYSIS as at 30 September 2018 continued


SHAREHOLDER ANALYSIS as at 30 September 2018 continued

ANALYSIS OF PREFERENCE SHAREHOLDERS as at 30 September 2018

Number of

holders % of total

shareholders Number of

shares


capital

Range1 – 999 267 33 .50% 113 198 0 .84%1 000 – 9 999 413 51 .82% 1 163 342 8 .60%10 000 – 99 999 88 11 .04% 2 401 577 17 .76%100 000 – more 29 3 .64% 9 844 912 72 .80%

Total 797 100.00% 13 523 029 100.00%

Shareholder spreadNon-public – –% – –%

Directors – –% – –%Shares in excess of 10% of I/C – –% – –%

Public 797 100.00% 13 523 029 100.00%

Distribution of shareholdersIndividuals 512 64 .24% 1 890 481 13 .98%Growth funds/unit trusts 48 6 .02% 6 459 900 47 .77%Nominees and trusts 140 17 .57% 742 408 5 .49%Insurance companies 7 0 .88% 707 581 5 .23%Limited companies 4 0 .50% 25 131 0 .19%Close corporations 12 1 .51% 132 998 0 .98%Private companies 28 3 .51% 570 426 4 .22%Other corporate bodies 46 5 .77% 2 994 104 22 .14%

TOTALS 797 100.00% 13 523 029 100.00%


ANALYSIS OF PREFERENCE SHAREHOLDERS as at 30 September 2018

Number of

shares


capital

Top beneficial shareholders – 1% or more of Issued Capital360ONE SNN QI Hedge Fund 1 281 945 9 .48%Morgan Stanley and Company 1 214 910 8 .98%Steyn Capital SNN Retail Hedge Fund 726 792 5 .37%Rand Merchant Bank Collateral Receiver 630 000 4 .66%Steyn Capital SNN QI Hedge Fund C/O 574 469 4 .25%Steyn Capital SA Equity Fund SP 469 331 3 .47%Steyn Capital Equity Fund 469 177 3 .47%36ONE BCI Flexible Opportunity Fund 468 196 3 .46%Personal Trust Equity Fund 402 612 2 .98%Liberty Life Association of Africa LTD 319 319 2 .36%H4 Cap Gro Sel Sigma QI 299 914 2 .22%Titan Nominees PTY LTD 281 350 2 .08%Safron SCI Opportunity Incom Fund 238 933 1 .77%ATF Cadiz Balanced Fund 237 493 1 .76%Standard Chartered Bank as Trustee 210 000 1 .55%State Street Bank and Trust 200 000 1 .48%Liberty Group Shareholders Portfolio 182 666 1 .35%Frederick Carter Marais 182 000 1 .35%Hollard Insurance Company LTD 168 000 1 .24%BCI Best Blend Flexible Income Fund Seffron 162 432 1 .20%NGI Pri W Pref 151 362 1 .12%Coreshares Proptrax Preference Share 143 688 1 .06%Sean Wanckel 137 000 1 .01


ANNUAL FINANCIAL STATEMENTS


ConsolidatedDirectors’ responsibility and approval of the annual financial statements . . . . . . . . . . . . . . . . . . . . . . . . 36Certification by the Company Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37Preparation of the annual financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37Independent auditor’s report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38Audit and risk committee report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42Directors’ report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44Consolidated statement of financial position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48Consolidated statement of profit or loss and other comprehensive income . . . . . . . . . . . . . . . . . . . . . . 49Consolidated statement of changes in equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50Consolidated statement of cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51Notes to the consolidated annual financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

CompanyIndependent auditor’s report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103Company statement of financial position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106Company statement of profit or loss and other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . 107Company statement of changes in equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108Company statement of cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109Notes to the Company annual financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110Annexure A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122

CONTENTS


DIRECTORS’ RESPONSIBILITY AND APPROVALOF THE ANNUAL FINANCIAL STATEMENTS

The directors are responsible for the preparation and fair presentation of the consolidated annual financial statements of African Phoenix Investments Limited (“Phoenix” or the “Company”), comprising the statement of financial position as at 30 September 2018, the statement of comprehensive income, the statement of changes in equity and cash flows for the year then ended, and the notes to the financial statements, which include a summary of significant accounting policies and other explanatory notes, in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa.The directors’ responsibility includes selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.The directors are responsible for the systems of internal control. These are designed to provide reasonable, but not absolute, assurance as to the reliability of the consolidated annual financial statements, and to adequately safeguard, verify and maintain accountability of assets, and to prevent and detect material misstatement and loss. The systems are implemented and monitored by suitably trained personnel with appropriate segregation of authority and duties. Nothing has come to the attention of the directors to indicate that any material breakdown in the functioning of these controls, procedures and systems occurred during the year under review.The Standard General Insurance Company Limited (“Stangen”), the Group’s only operating subsidiary, is regulated by the Financial Services Board and has a fully functioning board and committee structure which is separate from that of Phoenix. The directors, in preparing and approving the consolidated annual financial statements have, inter alia, relied on the work of the Stangen board and their approval of the annual financial statements of Stangen.For the reasons set out in note 3.1 (going concern) of the notes to Group’s annual financial statements, the directors have assessed the Group’s ability to continue as a going concern and believe it is appropriate that the annual financial statements are prepared on the going-concern assumption.The auditor is responsible for reporting on whether the financial statements are fairly presented in accordance with International Financial Reporting Standards and the Companies Act of South Africa.

APPROVAL OF THE ANNUAL FINANCIAL STATEMENTSThe annual financial statements set out on pages 48 to 122 were approved by the board of directors and signed on its behalf by:

Morris MthombeniChairman

Siyabonga NhlumayoChief Executive Officer

Rosebank23 November 2018


I certify in accordance with the provisions of section 88(2)(e) of the Companies Act of South Africa, that to the best of my knowledge and belief, the Company has lodged with the Companies and Intellectual Property Commission, all returns, and notices prescribed by the Companies Act, in respect of the year ended 30 September 2018 and that all such returns and notices are true, correct and up to date.

Acorim Proprietary LimitedCompany secretaryHyde ParkJohannesburg23 November 2018

PREPARATION OF THE ANNUAL FINANCIAL STATEMENTS

These consolidated annual financial statements were prepared under the supervision of the Financial Director, Shafiek Rawoot CA(SA) and have been audited in compliance with the applicable requirements of the Companies Act, 71 of 2008, as amended.

CERTIFICATION BY THE COMPANY SECRETARY


INDEPENDENT AUDITOR’S REPORT

TO THE SHAREHOLDERS OF AFRICAN PHOENIX INVESTMENTS LIMITEDREPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS

OPINION We have audited the consolidated financial statements of African Phoenix Investments Limited and its subsidiaries (the Group) set out on pages 48 to 102 which comprise the consolidated statement of financial position as at 30 September 2018, and the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 30 September 2018, and its consolidated financial performance and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa.

BASIS FOR OPINIONWe conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the Independent Regulatory Board for Auditors Code of Professional Conduct for Registered Auditors (IRBA Code) and other independence requirements applicable to performing audits of financial statements in South Africa. We have fulfilled our other ethical responsibilities in accordance with the IRBA Code and in accordance with other ethical requirements applicable to performing audits in South Africa. The IRBA Code is consistent with the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (Parts A and B). We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion .

KEY AUDIT MATTERSKey audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.


Key audit matter How our audit addressed the key audit matter

Valuation of insurance contracts Our audit procedures included:The Group is required to assess the valuation of insurance contracts in accordance with the provisions of the Long Term Insurance Act, No 18 of 2017 and valued in terms of the Financial Soundness Valuation (FSV) basis in terms of SAP 104 issued by the Actuarial Society of South Africa. In terms of IFRS 4 Insurance Contracts an insurer shall assess at the end of each reporting period whether its recognised insurance liabilities are adequate.The balance of the insurance liabilities is R116 million as at the reporting period end and therefore material and we consider this valuation to be of significance to the statement of financial position. Specifically actuarial assumptions and methodologies entails judgements about future events. In addition judgement is required in estimating the reserves in respect of claims not yet reported to be settled as well as the expense reserve.Due to these factors we considered this to be a Key Audit Matter.Refer to policyholder liabilities under the accounting policies pages 58 to 59, as well as notes 15 and 39 to the consolidated financial statements.

• With the assistance of our actuarial experts, assessed the valuation methodology and management’s assumptions for compliance with the latest actuarial guidance, legislation and Company accounting policies.

• We assessed management’s analysis of movements in insurance contract liabilities and obtained evidence to support large and unusual movements.

• On a sample basis, we tested the data integrity in the policyholder database to source documents.

• We performed test checks on reconciliations of underlying reports to the general ledger.

We also focussed on the adequacy of the Group’s disclosures that is required in terms of IFRS4 – Insurance Contracts, as included to notes 15 and 39 of the financial statements.

OTHER INFORMATIONThe directors are responsible for the other information. The other information comprises the Directors’ Report, the Audit Committee’s Report and the Company Secretary’s Certificate as required by the Companies Act of South Africa, which we obtained prior to the date of this report, and the Annual Report. Other information does not include the consolidated financial statements and our auditor’s report thereon.Our opinion on the consolidated financial statements does not cover the other information and we do not express an audit opinion or any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.


INDEPENDENT AUDITOR’S REPORT continued

RESPONSIBILITIES OF THE DIRECTORS FOR THE CONSOLIDATED FINANCIAL STATEMENTSThe directors are responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTSOur objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether

due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit 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 Group’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.

• Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion . Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report . However, future events or conditions may cause the Group to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion .


We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTSIn terms of the IRBA Rule published in Government Gazette Number 39475 dated 4 December 2015, we report that Grant Thornton Johannesburg has been the auditor of African Phoenix Investments Limited for four years .

Grant ThorntonRegistered AuditorsPractice number: 903485ESJ KockPartnerRegistered AuditorChartered Accountant (SA)23 November 2018@Grant ThorntonWanderers Office Park52 Corlett DriveIllovo, 2196


The audit and risk committee (“committee”) presents its report for the financial year ended 30 September 2018 as required by section 94 (7) (f) of the Companies Act, No. 71 of 2008, as amended (“the Companies Act”). The committee has been constituted in accordance with applicable legislation and regulations.

PURPOSE OF THE AUDIT AND RISK COMMITTEEThe main purpose of the committee, in so far as it relates to audit activity, is to assist the board in discharging its duties relating to the safeguarding of assets, adequacy of accounting systems and practices, the integrity of internal financial control processes and the preparation of accurate financial reporting and statements in compliance with all applicable legal requirements and accounting standards.

MEMBERSHIP AND ATTENDANCEThe committee consists of four independent, non-executive directors. The committee met six times during the period under review. The annual financial statements were recommended to the board on 23 November 2018 and approved by the board on the same day.

CHANGES AND COMPOSITIONThe committee members changed during the year and are as follows:Carmen Le Grange – appointed on 14 June 2017, appointed as Chairperson of the committee on 19 September 2017 and resigned from the board on 16 August 2018.Danie Vlok – appointed on 6 September 2016 and resigned from the board on 18 June 2018.Nonzukiso Siyotula – appointed on 22 September 2017.Alethea Conrad – appointed on 6 September 2016 and appointed as a committee member on 13 August 2018.Mahlatse Kabi – appointed on 16 August 2018 to the board and committee.Reshma Mathura – appointed on 16 August 2018 to the board and appointed as chairperson of the committee on 17 September 2018.

FUNCTIONS OF THE COMMITTEEThe committee approved a revised committee charter during the year under review and has discharged its functions in terms of the charter which included:• reviewing the consolidated annual financial statements to confirm the financial statements are prepared in

accordance with International Financial Reporting Standards (“IFRS”), the Companies Act and the Listings Requirements of the JSE Limited;

• reviewing the accounting policies adopted by the Group and all proposed changes in accounting policies and practices;

• reviewing and approving the Group’s external audit plan including the proposed audit scope, approach to Company operating risks and the audit fee;

• confirming the independence of the external auditors, Grant Thornton;• reviewing the external audit reports;• assessing the nature and extent of non-audit services by the auditors;• reviewing the Group’s compliance and assessing the procedures for identifying all risks;• reviewing the Group’s risk management plan and risk management processes; and• reviewing the legal matters that could have a significant impact on the Group’s financial statements;• recommending an IT Governance Framework & Charter to the Board for approval. The ARC and RNTSE

have identified IT Governance as an area of focus for the upcoming year. The ARC endeavours to implement an IT Policy which will account the provisions of the POPI Act (Protection of Personal Information).

AUDIT AND RISK COMMITTEE REPORT


INDEPENDENCE OF EXTERNAL AUDITORSThe committee has satisfied itself that Grant Thornton Johannesburg Partnership, the external auditor, and Ms S Kock, the designated auditor, are independent of the Company and of the Group.The audit committee has reviewed sections 3, 8, 13, 15 and 22 and Schedule 8 of the JSE Listings Requirements and confirm that based on the amended requirements for the JSE-accreditation of Auditors, effective 15 October 2017, we are satisfied that:(i) the audit firm has met all the criteria stipulated in the requirements, including that the audit regulator

has completed a firm-wide independent quality control (ISQC 1) inspection on the audit firm during its previous inspection cycle;

(ii) the auditors have provided to the audit committee, the required IRBA inspection decision letters, findings report and the proposed remedial action to address the findings, both at the audit firm and the individual auditor levels; and

(iii) both the audit firm and the individual auditor understand their roles and have the competence, expertise, experience and skills required to discharge their specific audit and financial reporting responsibilities.

The committee has noted that in accordance with mandatory audit engagement partner rotation, 30 September 2018 is the last year-end that Ms S Kock will serve as the audit engagement partner. In addition, the Board will engage with BDO following the BDO and Grant Thornton Johannesburg audit office merger. Further announcements in this regard will be made once the audit firm and engagement partner are confirmed by the Board. Shareholders will also be given an opportunity to indicate their support of the Board’s proposed auditor engagement at the next AGM.

EXPERTISE AND EXPERIENCE OF FINANCIAL DIRECTORThe Company appointed Shafiek Rawoot as Financial Director on 1 July 2018. The committee satisfies itself on an annual basis as to the competence, expertise, experience and skills of the Financial Director and confirmed that he has the necessary expertise, experience and skills required.

INTERNAL AUDITDue to the size of the Company and the nature of operations no internal audit function has been established for the Company itself. In line with the Internal Audit Charter, the need for internal audit will be considered and assessed annually. The Standard General Insurance Company Limited (Stangen) the Group’s only operating subsidiary utilised the services of Ernst and Young as internal auditors for the period under review. They took over the function after KPMG resigned effective 31 December 2017.

INTERNAL FINANCIAL CONTROLS, ACCOUNTING PRACTICES AND ANNUAL FINANCIAL STATEMENTSNothing has come to the attention of the committee which indicates that the Group’s system of internal financial controls and accounting practices, in all material respects, does not provide a basis for reliable consolidated annual financial statements. The committee is satisfied that the Group’s annual financial statements are in compliance, in all material respects, with the requirements of the Companies Act, 71 of 2008, as amended and International Financial Reporting Standards, and recommend the annual financial statements for approval by the board.

Reshma MathuraChairperson: Audit and Risk Committee23 November 2018


The directors present their report to shareholders, together with the audited Group annual financial statements for the financial year ended 30 September 2018.

NATURE OF THE BUSINESSPhoenix is a publicly quoted investment holding company listed on the Johannesburg Stock Exchange Limited (JSE). Phoenix’s subsidiaries (also refer to annexure A) are:

Phoenix subsidiaries Type of business

Ellerine Holdings Limited (EHL)Gilt Edged Management Services Proprietary Limited (GEMS)Residual Debt Services Limited (RDS)The Standard General Insurance Company Limited (Stangen)

Retail (in business rescue)DormantBanking (in curatorship)Long-term insurance (operational)

The Company’s primary aim is to create and sustain long-term value as measured by consistent growth in net asset value, before distributions to shareholders. During the year, in the furtherance of this strategy, the Company announced changes to its board and announced summary transaction terms on 7 September 2018, subject to regulatory and shareholder approval.The Group’s only operating entity is Stangen. Stangen is a registered long-term insurance company in terms of the Long-term Insurance Act (Act No 52 of 1998). Stangen’s license has not yet been renewed under the new Insurance Act 18 of 2017. As part of the process for the Prudential Authority is to convert the registrations of all previously registered insurers to new licences under the new Insurance Act, Stangen’s conversion is expected to take place between 1 October 2019 and 31 July 2020 (based on currently available information). Stangen is also a licenced financial services provider in terms of the Financial Advisory and Intermediary Services Act (Act No 37 of 2002).Stangen is licenced to sell assistance, life, disability, health and retrenchment classes of business in the South African market. Stangen is in a restart phase and has transformed itself into primarily a direct life insurer, with digital, call-centre and third-party channels with the intention of being a challenger brand in the market. It sells primarily non-underwritten (eg funeral), individual underwritten (eg life cover and critical illness cover) and group schemes business. During the year Stangen acquired the trading assets of the Joshua Trust (“JT”) call centre and the call centre and infrastructure assets of Different Life. See notes 6, 9, 11 and 41 for further detail .

SHARE CAPITALORDINARY SHARESThe Company’s authorised share capital is 2 000 000 000 shares of 2.5 cents each.At 30 September 2018, the issued ordinary share capital totalled 1 427 005 272 (2017: 1 427 005 272) shares of 2 .5 cents each .

PREFERENCE SHARESThe authorised preference share capital remains unchanged at 20 000 000 shares of 1 cent each. No preference shares were issued during the current or previous financial year.The issued preference share capital at 30 September 2018 totalled 13 523 029 (2017: 13 523 029) shares of 1 cent each .

GOING CONCERNThe directors consider that the Group has adequate resources to continue operating for the foreseeable future and therefore deem it appropriate to adopt the going-concern basis in preparing the Group’s annual financial statements for the year ended 30 September 2018 (refer to note 3.1).

DIRECTORS’ REPORT


EVENTS AFTER THE REPORTING PERIODThe directors are not aware of any material events occurring between the reporting date and the date of authorisation of these consolidated financial statements as defined in IAS 10 – Events after the reporting period. As disclosed in the market announcement on 7 September 2018, the Company intends to issue a circular to its shareholders with details regarding the Proposed Transaction as defined in the announcement. The directors expect that the circular will be issued within two months following the release of the financial statements.

DIRECTORS AND CHANGES IN DIRECTORSThe following directors resigned or retired during the 2018 financial years:• Enos Banda’s tenure as the Chief Executive Officer ended on 30 November 2017, whereafter he remained

as a non-executive director until his resignation on 15 January 2018.• John Evans tenure as Financial Director ended on 28 February 2018 .• Siyabonga Nhlumayo was appointed as the Chief Executive Officer on 1 March 2018.• Daniël Vlok resigned as non-executive director on 18 June 2018.• Shafiek Rawoot was appointed as Financial Director on 1 July 2018.• Carmen Le Grange resigned as non-executive director on 16 August 2018.• Mahlatse Kabi was appointed as non-executive director on 16 August 2018.• Reshma Mathura was appointed as non-executive director on 16 August 2018.

PHOENIX BOARD OF DIRECTORSAt 30 September 2018, the following were the board of directors:

Director Designation Appointment date

Morris Mthombeni Independent non-executive chairperson 16 September 2013Alethea Conrad Independent non-executive director 6 September 2016Samuel Sithole Non-executive director 22 September 2017Nonzukiso Siyotula Independent non-executive director 22 September 2017Oyama Mabandla Independent non-executive director 22 September 2017Siyabonga Nhlumayo Chief Executive Officer 1 March 2018Shafiek Rawoot Financial Director 1 July 2018Mahlatse Kabi Independent non-executive director 16 August 2018Reshma Mathura Independent non-executive director 16 August 2018

COMPANY SECRETARY AND REGISTERED OFFICEThe Company Secretary’s role is performed by Acorim Proprietary Limited.Their business address is: 2nd Floor North Wing, Hyde Park Corner Office Towers, Corner 6th Road and Jan Smuts Avenue. Their postal address is: PO Box 41480, Craighall, 2024.The board considered and is satisfied with the competence, qualifications and performance of the Company Secretary. The board confirms that the Company Secretary is independent.


DIRECTORS’ REPORT continued

DIRECTORS’ INTEREST IN SHARESThe directors’ and former directors’ direct and indirect interests in the issued share capital of the Company are set out in the following table. All the shares are held beneficially.There has been no material change in the interest of directors in the ordinary and preference issued share capital of the Company between 30 September 2018 and the date of this report.

INTEREST OF DIRECTORS OF THE COMPANY DIRECTLY AND INDIRECTLY IN THE SHARES OF PHOENIX

2018 2017

Name Direct Indirect Total Direct Indirect Total

Ordinary sharesNon-executive directors

Sam Sithole – 212 893 803 212 893 803 – – –

Past directors*

Enos Banda 9 269 – 9 269 9 269 – 9 269John Evans 98 000 – 98 000 – – –

Total ordinary shares 107 269 212 893 803 213 001 072 9 269 – 9 269

* The shareholding of past directors is as at 30 September as indicated. The directors are not aware of changes in shareholding by directors since that date.

INTEREST OF DIRECTORS AND OFFICERS IN TRANSACTIONSDuring the financial year, no material contracts were entered into in which directors and officers of the Company had an interest and which significantly affected the business of the Company or subsidiaries. The directors had no interest in any third party or company responsible for managing any of the business activities of the Company or subsidiaries.

INDEMNITY INSURANCE FOR DIRECTORS AND OFFICERSAs permitted by the Company’s Memorandum of Incorporation, the Company has, by way of directors’ and officers’ insurance, granted indemnities to the directors and Company Secretary, in relation to certain losses and liabilities which they may incur in the course of acting as directors or officers of the Company or of one or more of its subsidiaries. The board believes that it is in the best interest of the Company to attract and retain the services of the most able and experienced directors and officers by offering competitive terms of engagement, including the granting of indemnities on terms consistent with legislation and best practice.

AUDITORSThe Group’s auditor is Grant Thornton Johannesburg Partnership and the designated audit partner is Soné Kock. Grant Thornton Johannesburg Partnership was appointed as auditor on 24 August 2015.Please refer to the Audit and Risk Committee Report on page 46 regarding mandatory audit engagement partner rotation and the expected merger of BDO and the Grant Thornton audit offices.


DIVIDENDSNo dividends were declared during the period under review.

DIRECTORS’ EMOLUMENTSThe directors’ emoluments are set out in note 43.

SPECIAL RESOLUTIONS: PHOENIXThe following special resolutions were passed at the AGM of Phoenix on 17 October 2018:• Approval of the non-executive directors’ remuneration.• Loans or other financial assistance to related and inter-related entities.• General approval to acquire ordinary shares.

SPECIAL RESOLUTIONS: STANGENThe following special resolutions were passed at the AGM of The Standard General Insurance Company Limited (Stangen) on 30 June 2018:• The appointment of C Le Grange and N Siyotula as directors was approved.• The appointment of C Le Grange, M Mthombeni and M Kabi as members of the Stangen audit committee

was approved.• The appointment of Grant Thornton as auditors was approved.• The remuneration of the non-executive directors of Stangen was approved.• Approval was given to the board of Stangen to provide financial assistance in terms of section 45 of the

Companies Act.• The Stangen remuneration policy was endorsed on a non-binding advisory basis.


R thousand Notes 2018 2017

AssetsCash and cash equivalents 5 1 656 447 1 881 333Financial assets 6 300 127 20 000Other assets 7 55 205 100 530Reinsurance assets 8 637 326Investment in associate 9 16 462 –Taxation 1 622 1 230Deferred tax asset 10 18 608 1 170Equipment 11 5 207 1 147Intangible assets 12 16 377 12 585

Total assets 2 070 692 2 018 321

Liabilities and equityOther liabilities 13 40 391 37 395Reinsurance creditor 14 272 72Taxation 17 186 3 046Policyholders’ liabilities under insurance contracts 15 117 639 128 182Borrowings 16 23 377 23 377

Total liabilities 198 865 192 072

Ordinary share capital and share premium 17 14 649 929 14 649 929Reserves 19 (13 907 905) (13 953 483)

Ordinary shareholders’ equity 742 024 696 446Preference shareholders’ equity 18 1 129 803 1 129 803

Total equity (capital and reserves) 1 871 827 1 826 249

Total liabilities and equity 2 070 692 2 018 321

Net asset value per ordinary share (NAV) (cents) 52.0 48 .8Tangible net asset value per ordinary share (TNAV) (cents) 50.9 47 .9

Number of shares in issue (thousand) 1 427 005 1 427 005

CONSOLIDATED STATEMENT OF FINANCIAL POSITIONas at 30 September 2018



Continuing operationsInsurance premium and reinsurance income 20 66 711 63 838Investment income 21 155 977 139 852Other income 22 17 598 47 078

Net income 240 286 250 768Net insurance claims 23 (9 424) 38 241Operating and administration expenses 24 (151 143) (92 933)Interest expense (308) (96)

Profit before capital items and equity accounted items 79 411 195 980Capital items (5 367) 46 115

Reversal of impairment of financial instruments 1 977 46 115Impairment of goodwill (2 555) –Deemed loss on stepped acquisition of associate (4 789) –

Share of loss from associate (205) –

Profit before taxation 73 839 242 095Direct taxation: SA normal 25 (28 261) (47 410)

Profit for the year from continuing operations 45 578 194 685Loss for the year from discontinuing operations 26 – (8 563)

Profit for the year 45 578 186 122Other comprehensive income – –

Total comprehensive income for the year 45 578 186 122

Basic earnings per share (cents) – continuing operations 27 3.2 13 .7Basic loss per share (cents) – discontinuing operations 27 – (0.6)

Basic earnings per share (cents) 27 3.2 13 .0

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOMEfor the year ended 30 September 2018


R thousand

Ordinaryshare capitaland premium

Accumulatedloss

Preferenceshare capitaland premium Total

Balance at 30 September 2016 14 649 929 (14 139 605) 1 129 803 1 640 127Total comprehensive income for the year – 186 122 – 186 122

Balance at 30 September 2017 14 649 929 (13 953 483) 1 129 803 1 826 249Total comprehensive income for the year – 45 578 – 45 578

Balance at 30 September 2018 14 649 929 (13 907 905) 1 129 803 1 871 827

CONSOLIDATED STATEMENT OF CHANGES IN EQUITYfor the year ended 30 September 2018


CONSOLIDATED STATEMENT OF CASH FLOWSfor the year ended 30 September 2018


Cash inflow from continuing operations 29 72 414 131 534

Cash receipts from policyholders and investments 30 240 159 250 768Cash paid to policyholders, suppliers and employees 31 (167 745) (119 234)

Direct taxation paid 32 (31 951) (43 532)Interest paid (308) (96)

Net cash inflow from continuing operating activities 40 155 87 906Net cash outflow from discontinuing operating activities 26 – (11 893)

Net cash inflow from operating activities 40 155 76 013Cash flows from investing in continuing operations (265 041) (27 605)

Acquisition of equipment 11 (3 022) (239)Acquisition of intangible assets 12 (7 535) (13 791)Acquisition of investment in Different Life 6, 9 (1 456) (20 000)Acquisition from business combination 41 (4 435) –Other investing activities 33 (300 000) –Proceeds from other assets 7 51 407 6 425

(Decrease)/increase in cash and cash equivalents (224 886) 48 408Cash and cash equivalents at the beginning of the year 1 881 333 1 832 925

Cash and cash equivalents at the end of the year 5 1 656 447 1 881 333


NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTSfor the year ended 30 September 2018

1. GENERAL INFORMATIONAfrican Phoenix Investments Limited (“Phoenix”) is a listed company incorporated in the Republic of South Africa. The company is the ultimate holding company of The Standard General Insurance Company Limited (Stangen), its only operational entity.The principal activities of the Group are disclosed in the directors’ report.

2. ADOPTION OF NEW STANDARDS AND INTERPRETATIONS2.1 NEW AND REVISED IFRSs AFFECTING AMOUNTS REPORTED IN THE CURRENT YEAR

The new standards and interpretations that came into effect during the current year are listed below as part of the new and revised IFRSs in issue.The standards were adopted in the current year, but none were material to the financial statements.IFRS effective for periods beginning on or after 1 January 2017 (applicable to the annual financial statements for the year ended 30 September 2018)

IFRS/IAS/IFRIC Title and details Expected impact

IAS 7 Statement of cash flowsDisclosure Initiative: Amendments requiring entities to disclose information about changes in their financing liabilities. The additional disclosures will help investors to evaluate changes in liabilities arising from financing activities, including changes from cash flows and non-cash flows changes (such as foreign exchange gains and losses.

The Group adopted the amendments to the standards (which had no impact) during its current financial year.

IAS 12 Income tax• Recognition of Deferred Tax Assets for

Unrealised Losses (Amendments to IAS 12): Narrow-scope amendments to clarify the requirements on recognition of deferred tax assets for unrealised losses on debt instruments measured at fair value.

• Annual Improvements 2015-2017 cycle: Clarification that all income tax consequences of dividends should be recognised in profit or loss, regardless how the tax arises .

The Group adopted the amendments to the standards (which had no impact) during its current financial year.


2. ADOPTION OF NEW STANDARDS AND INTERPRETATIONS continued2.2 NEW AND REVISED IFRSs IN ISSUE BUT NOT YET EFFECTIVE

The Group has not applied the following new and revised IFRSs that have been issued but with a future effective date.IFRS effective for periods beginning on or after 1 January 2018 (applicable to the annual financial statements for the year ended 30 September 2019)


IFRS 4 Insurance contractsApplying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts.Two amendments to IFRS 4 to address the interaction between IFRS 4 and IFRS 9:• A temporary exemption from IFRS 9 has

been granted to insurers that meet specified criteria; and

• An optional accounting policy choice has been introduced to allow an insurer to apply the overlay approach to designated financial assets when it first applies IFRS 9.

The Group will comply with the amendments to the standard when the standard becomes effective – the impact of the standard is not expected to be material.Effective date of the standard is for annual periods beginning on or after 1 January 2018 .

IFRS 15 Revenue contracts from customers• The new standard that requires entities to

recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This core principle is achieved through a five-step methodology that is required to be applied to all contracts with customers.

• The new standard will also result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively and improve guidance for multiple-element arrangements.

• The new standard supersedes: – IAS 11 Construction Contracts; – IAS 18 Revenue; – IFRIC 13 Customer Loyalty Programmes; – IFRIC 15 Agreements for the Construction

of Real Estate; – IFRIC 18 transfer of assets from

customers – SIC-13 Revenue – Barter transactions

involving advertising service

The Group will comply with the standard when the standard becomes effective – the impact of the standard is not expected to be material.Effective date of the standard is for annual periods beginning on or after 1 January 2018 .


NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS continuedfor the year ended 30 September 2018


IFRS 9 Financial Instruments A final version of IFRS 9 has been issued which replaces IAS 39 Financial Instruments: Recognition and Measurement. The completed standard comprises guidance on Classification and Measurement, Impairment Hedge Accounting and Derecognition.• IFRS 9 introduces a new approach to the

classification of financial assets, which is driven by the business model in which the asset is held and their cash flow characteristics. A new business model was introduced which does allow certain financial assets to be categorised as “fair value through other comprehensive income” in certain circumstances. The requirements for financial liabilities are mostly carried forward unchanged from IAS 39. However, some changes were made to the fair value option for financial liabilities to address the issue of own credit risk.

• The new model introduces a single impairment model being applied to all financial instruments, as well as an “expected credit loss” model for the measurement of financial assets.

• IFRS 9 contains a new model for hedge accounting that aligns the accounting treatment with the risk management activities of an entity, in addition enhanced disclosures will provide better information about risk management and the effect of hedge accounting on the financial statements.

• IFRS 9 carries forward the derecognition requirements of financial assets and liabilities from IAS 39.

• Prepayments Features with Negative Compensation. The narrow-scope amendments allows companies to measure particular prepayable financial assets with negative compensation at amortised cost or at fair value through other comprehensive income if a specified condition is met.


Effective date of the standard is for annual periods beginning on or after 1 January 2019 .

2. ADOPTION OF NEW STANDARDS AND INTERPRETATIONS continued2.2 NEW AND REVISED IFRSs IN ISSUE BUT NOT YET EFFECTIVE continued

IFRS effective for periods beginning on or after 1 January 2018 (applicable to the annual financial statements for the year ended 30 September 2019) continued



IFRS 16 LeasesNew standard that introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognise a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. A lessee measures right-of-use assets similarly to other non-financial assets (such as property, plant and equipment) and lease liabilities similarly to other financial liabilities. As a consequence, a lessee recognises depreciation of the right-of-use asset and interest on the lease liability, and also classifies cash repayments of the lease liability into a principal portion and an interest portion and presents them in the statement of cash flows applying IAS 7 Statement of Cash Flows.• IFRS 16 contains expanded disclosure

requirements for lessees. Lessees will need to apply judgement in deciding upon the information to disclose to meet the objective of providing a basis for users of financial statements to assess the effect that leases have on the financial position, financial performance and cash flows of the lessee.

• IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently.

• IFRS 16 also requires enhanced disclosures to be provided by lessors that will improve information disclosed about a lessor’s risk exposure, particularly to residual value risk.



IFRS effective for periods beginning on or after 1 January 2019 (applicable to the annual financial statements for the year ended 30 September 2020)




IFRS 17 Insurance contractsThe new standard combines current measurement of the future cash flows with the recognition of profit over the period that services are provided under the contract; presents insurance service results (including presentation of insurance revenue) separately from insurance finance income or expenses; and requires an entity to make an accounting policy choice of whether to recognise all insurance finance income or expenses in profit or loss or to recognise some of that income or expenses in other comprehensive income.The key principles are that an entity:• identifies as insurance contracts those

contracts under which the entity accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder;

• separates specified embedded derivatives, distinct investment components and distinct performance obligations from the insurance contracts;

• divides the contracts into groups that it will recognise and measure;

• recognises and measures groups of insurance contracts at: i. a risk-adjusted present value of the future

cash flows (the fulfilment cash flows) that incorporates all of the available information about the fulfilment cash flows in a way that is consistent with observable market information; plus (if this value is a liability) or minus (if this value is an asset)

ii. an amount representing the unearned profit in the group of contracts (the contractual service margin);

The Group will comply with the standard when the standard becomes effective – the impact of the standard is in the process of being determined.Effective date of the standard is for annual periods beginning on or after 1 January 2021 .


IFRS effective for periods beginning on or after 1 January 2021 (applicable to the annual financial statements for the year ended 30 September 2022)



• recognises the profit from a group of insurance contracts over the period the entity provides insurance cover, and as the entity is released from risk. If a group of contracts is or becomes loss-making, an entity recognises the loss immediately;

• presents separately insurance revenue (that excludes the receipt of any investment component), insurance service expenses (that excludes the repayment of any investment components) and insurance finance income or expenses; and

• discloses information to enable users of financial statements to assess the effect that contracts within the scope of IFRS 17 have on the financial position, financial performance and cash flows of an entity.

3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

The following are the critical judgements and key estimation uncertainties that management have made in the process of applying the Group’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements.

3.1 GOING CONCERNAs stated in the directors’ responsibility section on page 36, the consolidated annual financial statements have been prepared on the going-concern basis which contemplates the continuity of normal business activities and the realisation of assets and the settlement of liabilities in the normal course of business .In performing the going-concern assessment, the directors have considered available information about the future, the possible outcomes of events and the changes in conditions and the realistically possible responses to such events and conditions that would be available to the directors .The directors have also considered the following specific factors in determining whether the Group is a going concern:• The Group has sufficient cash resources to pay its creditors as and when they fall due and

meet its operating costs for the ensuing 12 months.• The Company’s only operating subsidiary, Stangen, is a going concern.• The Group has available cash resources to deploy in developing existing operations or

investing in new opportunities.


IFRS effective for periods beginning on or after 1 January 2021 (applicable to the annual financial statements for the year ended 30 September 2022) continued



3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY continued3.1 GOING CONCERN continued

• The board and management are not aware of any significant pending legislation that will threaten the going-concern status of the Group.

• It is management’s view that sufficient risk mitigants are in place for key financial risks facing the Group in the new financial year.

The going-concern assessment is a matter of judgement. In making this judgement, the directors have considered the uncertainties arising from their assessment, both individually and collectively.Based on the above, the directors consider the preparation of the consolidated annual financial statements on a going-concern basis as appropriate given that the Group is able to realise its assets and settle its commitments in the normal course of business for a period of not less than one year from the date of approval of these annual financial statements.

3.2 THE ULTIMATE LIABILITY ARISING FROM BENEFIT PAYMENTS UNDER INSURANCE CONTRACTSThe determination of the liabilities under long-term insurance contracts is dependent on the estimates made by the Group. Policyholders’ liabilities under long-term insurance contracts are comprised of the claims reported, assessed but not settled at the reporting date, the claims related to the events which might have taken place on or before the reporting date, but were not communicated to the insurer on the reporting date, as well as of the estimates of the net present value of future claims and benefits under existing contracts, offset by probable future premiums to be received or paid (net of expected service costs).The liability for long-term insurance contracts is based on the assumptions reflecting the best estimate at the valuation date increased with a margin for risk and adverse deviation. The main assumptions used relate to mortality, morbidity, lapse rates, expenses, discount rates, and taxes.Herewith a brief overview of the process used to decide on assumptions and changes in assumptions:Mortality and morbidity ratesAssumptions are based on standard industry and national tables, according to the type of contract written and the country/area in which the insured person resides. They reflect recent historical experience and are adjusted when appropriate to reflect the Group’s own experiences. An appropriate, but not excessive prudent allowance is made for expected future improvements. Assumptions are differentiated by sex, underwriting class and contract type.An increase in rates will lead to a larger number of claims (and claims could occur sooner than anticipated), which will reduce profits for shareholders.Investigations into mortality experience are performed annually for all classes of business. The results of the investigation are used to set the valuation assumptions, which are applied as an adjustment to the respective base table.In setting the assumptions, provision is made for the expected increase in AIDS-related claims. Allowance for AIDS-related deaths is made on the base mortality rates at rates consistent with the requirements of APN 105 issued by the Actuarial Society of South Africa (ASSA).Lapse ratesThe lapse rate assumptions are based on the most recent experience as well as on the expected future trends. The actual lapse rates are compared to the previously projected rates annually and the assumptions are adjusted if necessary. The lapse rates are analysed by product type and policy duration .


3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY continued3.2 THE ULTIMATE LIABILITY ARISING FROM BENEFIT PAYMENTS UNDER INSURANCE

CONTRACTS continuedExpensesAn expense analysis is performed on the actual expenses incurred in the financial year preceding the reporting date. The budgets approved by the relevant Boards are also used to determine future per policy expense .Discount ratesThe discount rate reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability in question.TaxIn determining the excesses and shortfall of assets over liabilities in the respective policyholder funds established and maintained for tax purposes, income, expenditure and liabilities have been allocated on the basis of the underlying business activities associated with the policyholder classes. Where applicable the provisions of section 29A of the Income Tax Act No 58 of 1962 which are subject to interpretation were applied in preparing the tax computations of each policyholder fund and the corporate fund using best known practices and guidance provided by the South African Revenue Services such as contained in its Binding General Ruling No 30 on the allocation of expenditure .Future benefit payments are estimated as outlined in note 15. Where future premiums are payable, they have also been valued based on the expected premium to be paid. Future premiums are projected over the lifetime of each policy on a policy-by-policy basis. The value of the premiums takes into account the possibility that the policy may terminate early through lapsing or maturity. The interest rate used to discount the premiums reflect current economic conditions and the asset mix of Stangen.Insurance risks are unpredictable, and the Group recognises that it is not always possible to forecast, with absolute precision, future claims payable under existing insurance contracts. Over time, the Group has developed a methodology that is aimed at establishing insurance provisions that have an above average likelihood of being adequate to settle all its insurance obligations.

3.3 IAR AND IBNR3.3.1 Incurred and reported claims (IAR)

Claims provisions are determined based upon previous claims experience, knowledge of events, the terms and conditions of the relevant policies and on the interpretation of circumstances. Each notified claim is assessed on a separate case-by-case basis with due regard to the specific circumstances, information available from the insured and past experience with similar cases and historical claims payment trends.The approach also includes the consideration of the development of claims payments trends, the levels of unpaid claims, legislative changes, judicial decisions and economic conditions. The Group employs individuals experienced in claims handling and applies standardised policies and procedures to claims assessment.The ultimate cost of reported claims may vary as a result of future developments or better information becoming available about the current circumstances. Therefore, case estimates are reviewed regularly and updated when new information becomes available.The provision for outstanding claims is initially estimated at a gross level. A separate calculation is carried out to estimate reinsurance recoveries.



3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY continued3.3 IAR AND IBNR continued

3.3.2 Incurred but not reported claims (IBNR)The estimation of IBNR is generally subject to a greater degree of uncertainty than the estimation of the cost of settling the claims already notified to the Group, where information about the claim event is available. The appropriate estimation technique is selected, taking into account the characteristics of the various portfolios and the extent of the developments in each reporting period.

3.4 FAIR VALUE ESTIMATION The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at the end of each reporting period. Quoted market prices or dealer quotes for similar instruments are used for long-term debt. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments. The carrying value less impairment provision of other receivables and payables are assumed to approximate their fair values due to their short-term nature. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the company for similar financial instruments. The main assumptions and estimates which management considers when applying valuation techniques are: • the likelihood and expected timing of future cash flows on the instrument. These cash flows

are usually governed by the terms of the instrument, although management judgement may be required when the ability of the counterparty to service the instrument in accordance with the contractual terms, is in doubt. Future cash flows may be sensitive to changes in market rates;

• selecting an appropriate discount rate for the instrument. Management bases the determination of this rate on its assessment of what a market participant would regard as an appropriate risk premium for the instrument over the appropriate risk-free rate; and

• judgement to determine what model to use to calculate fair value in areas where the choice of valuation model is particularly subjective, for example, when valuing complex derivative products .

3.5 GOODWILL IMPAIRMENT TESTINGThe recoverable amounts of cash-generating units and individual assets have been determined based on the higher of value-in-use calculations and fair value less cost to sell. These calculations require the use of estimates and assumptions. It is reasonably possible that certain key assumptions may change, which may then impact our estimations and may then require a material adjustment to the carrying value of assets.The Group reviews and tests the carrying value of assets when events or changes in circumstances suggest that the carrying amount may not be recoverable. Assets are grouped at the lowest level for which identifiable cash flows are largely independent of cash flows of other assets and liabilities. If there are indications that impairment may have occurred, estimates are prepared of expected future cash flows for each class of assets. Expected future cash flows used to determine the value in use of goodwill, tangible and intangible assets are inherently uncertain and could materially change over time.Goodwill is allocated to cash-generating units for purposes of impairment testing.


3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY continued3.5 GOODWILL IMPAIRMENT TESTING continued

The recoverable value of these cash generating units is determined based on value in use calculations with reference to directors’ valuations. These calculations use cash flow projections based on financial budgets approved by the directors. Future cash flows are discounted at the rate of return that makes allowance for the uncertain nature of the future cash flows. These calculations are dependent on the following assumptions disclosed below:• the acquisition costs incurred to write new business;• the relevant strike rates;• the lapse rates on the book;• the claims ratio;• the average monthly premium; and• the number of new policies written per annum.

3.6 CURRENT AND DEFERRED TAXATION Judgement is required in determining the provision for income taxes due to the complexity of legislation. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. Deferred tax is provided for on the fair value adjustments of assets based on the expected manner of recovery, i.e. sale or use. This manner of recovery affects the rate used to determine the deferred tax liability or asset . The Group recognises the net future tax benefit related to deferred tax assets to the extent that it is probable that the deductible temporary differences will reverse in the foreseeable future. Assessing the recoverability of deferred tax assets requires the Group to make significant estimates related to expectations of future taxable income. Estimates of future taxable income are based on forecast from operations and the application of existing tax laws in each jurisdiction. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the Group to realise the deferred tax assets recorded at the end of the reporting period could be impacted.The significant accounting policies set out below have been applied in the preparation and presentation of the Group’s financial statements in dealing with items that are considered material during this reporting period.

4. SIGNIFICANT ACCOUNTING POLICIES4.1 STATEMENT OF COMPLIANCE

The annual financial statements are prepared in accordance with, and comply with, the International Financial Reporting Standards (IFRS) adopted by the International Accounting Standards Board (IASB), Interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) of the IASB and Financial Reporting Pronouncements as issued by the Financial Reporting Standard Council and the requirements of the Companies Act (Act 71 of 2008), as amended.



4. SIGNIFICANT ACCOUNTING POLICIES continued4.2 BASIS OF PREPARATION

The Group’s consolidated financial statements are prepared in accordance with the going-concern principle and using a historical cost basis, except where specifically indicated otherwise in the accounting policies.The Group statement of financial position is presented in order of liquidity with the exception of certain long-term liabilities which reflect the original timeframe and intention of the instrument entered into. Reference to the current maturities of these financial liabilities is disclosed in the notes and in the analysis of financial liabilities.The Group financial statements are presented in South African rand, which is the Group’s functional currency. All monetary information and figures have been rounded to the nearest thousand rand (R thousand), unless otherwise stated. The accounting policies and their application are consistent with the previous year.

4.3 BASIS OF CONSOLIDATIONThe Group’s financial statements incorporate the financials of the company and the entities controlled by the company (its subsidiaries). Control is achieved where the company is exposed, or has the rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.Since the previous year-end, there were no changes in the status of the company’s investments in Residual Debt Services Limited (formerly African Bank Limited) (“RDS”) which is still under curatorship. There was also no change in the status of the company’s investment in Ellerine Holdings Limited, which is still in business rescue. Both investments were impaired in full in previous financial periods. As such, their results are not incorporated into these financial statements.

4.4 INTANGIBLE ASSETS4.4.1 Software

Software consists of purchased software. Software acquired by the Group is measured at cost less accumulated amortisation and any accumulated impairment losses.AmortisationSoftware is amortised on a straight-line basis in profit or loss over its estimated useful life, from the date that it is available for use.Useful lifeThe estimated useful life of software is four years. Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.


4. SIGNIFICANT ACCOUNTING POLICIES continued4.4 INTANGIBLE ASSETS continued

4.4.2 GoodwillInitial recognitionGoodwill is recognised on the statement of financial position when the Group becomes a party to a business combination.Initial measurementGoodwill represents the excess of the cost of a business combination over the interest acquired in the net fair value of the identifiable assets, liabilities and contingent liabilities at the acquisition date. Goodwill on acquisition of an associate is included in the investment in an associate .Subsequent measurementSubsequent to initial measurement, goodwill is carried at cost less accumulated impairment losses.ImpairmentAt the acquisition date, goodwill acquired in a business combination is allocated to a cash-generating unit (CGU), that is expected to benefit from the synergy of the combination in which goodwill will arise. CGUs to which goodwill has been allocated are assessed annually for impairment, or more frequently if events or changes in circumstances indicate a potential impairment. An impairment loss is recognised whenever the carrying amount of the CGU exceeds its recoverable amount, being higher than the value in use and the fair value less costs to sell. Any impairment losses are allocated first to reduce the carrying amount of any goodwill allocated to a CGU and the carrying amount of other assets on a pro rata basis. Impairment losses on goodwill are not reversed.

4.5 EQUIPMENTComputer equipment, office equipment, furniture and fittings and leasehold improvements are stated at cost less accumulated depreciation and impairments.DepreciationDepreciation is charged to profit and loss on a straight-line basis and is calculated to reduce the original costs to the expected residual values over the estimated useful lives. Useful lifeUseful lives and residual values are assessed on an annual basis . Useful lives have been determined to be as follows:

Computer equipment 4 yearsFurniture and fittings 4 yearsOffice equipment 4 yearsLeasehold improvements 5 years



4. SIGNIFICANT ACCOUNTING POLICIES continued4.6 IMPAIRMENT OF NON-FINANCIAL ASSETS

An impairment loss is recognised in profit or loss for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher amount of an asset’s fair value less costs to sell and value in use. Fair value less costs to sell is determined by ascertaining the current market value of an asset and deducting any costs related to the realisation of the asset .In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the assets. For purposes of assessing impairment, assets that cannot be tested individually are grouped at the lowest levels for which there are separately identifiable cash inflows from continuing use. Impairment losses recognised are allocated first to reduce the carrying amount of any goodwill allocated, and then to reduce the carrying amounts of the other assets on a pro rata basis .

4.7 FINANCIAL INSTRUMENTSA financial instrument is defined as a contract that gives rise to a financial asset in one entity and a financial liability or equity instrument in another entity.Financial instruments, as reflected on the statement of financial position, include all financial assets, financial liabilities held for investment, trading or liquidity purposes, but exclude employee benefit plans, equipment, intangible assets, taxation payable, deferred tax assets and liabilities, and assets and liabilities arising from insurance contracts.Financial instruments are accounted for under IAS 32 Financial Instruments: Presentation, IAS 39 Financial Instruments: Recognition and Measurement and IFRS 7 Financial Instruments: Disclosures and IFRS 13 Fair Value Measurement .4.7.1 Classification of financial assets and financial liabilities

Financial assets are classified into the following categories:• loans and receivables; • financial assets held at fair value through profit and loss; and • available for sale held at fair value through other comprehensive income.

Financial liabilities are classified into the following categories:• financial liabilities at amortised cost.

The classification of financial assets and financial liabilities depends on the nature and purpose of the financial instrument and is determined at the time of initial recognition.

4.7.2 Initial recognitionFinancial instruments are recognised on the statement of financial position when the Group becomes a party to the contractual provisions of a financial instrument.

4.7.3 Initial measurementAll financial instruments are initially recognised at fair value plus transaction costs, except those carried at fair value through profit or loss where transaction costs are recognised immediately through profit or loss.


4. SIGNIFICANT ACCOUNTING POLICIES continued4.7 FINANCIAL INSTRUMENTS continued

4.7.4 Subsequent measurementSubsequent to initial measurement, financial instruments are either measured at fair value or amortised cost, depending on their classification:Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than those designated by the Group as at fair value through profit or loss or available for sale.Trade receivables and other receivables that are not held for trading purposes and have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortised cost using the effective interest rate method, less any allowance for impairment losses.Financial assets held at fair value through profit and lossFinancial assets held at fair value through profit and loss consists of an investment in the Stanlib Extra Income unit trust fund. Units in the fund are withdrawable in 24 hours, AA credit rated and priced on a daily basis. It is categorised as Level 2 in terms of the fair value hierarchy. Movements in value consists of interest income as well as mark-to-market fair value gains, both of which are recognised in the statement of profit and loss in the period in which the gains/losses occur.Financial assets at fair value through other comprehensive incomeFinancial assets consist of an investment in an unlisted entity that the Group has elected to account for at the date of initial recognition as at fair value through other comprehensive income. In the current year, Stangen acquired additional shareholding in an unlisted entity (Different Life Proprietary Limited) which resulted in it becoming an associate.Financial liabilities at amortised costAll financial liabilities, are measured at amortised cost.4.7.4.1 Fair value

In estimating the fair value of an asset or a liability the company takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these financial statements is determined on such a basis, except for leasing transactions that are within the scope of IAS 17.In addition, for financial reporting purposes, fair value measurements are categorised into level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:• level 1 inputs are quoted prices (unadjusted) in active markets for identical

assets or liabilities that the entity can access at measurement date;• level 2 inputs are inputs other than quoted prices included within level 1, that

are observable for the asset or liability, either directly or indirectly; and • level 3 inputs are unobservable inputs for the asset or liability .



4. SIGNIFICANT ACCOUNTING POLICIES continued4.7 FINANCIAL INSTRUMENTS continued

4.7.4 Subsequent measurement continued4.7.4.1 Fair value continued

The best evidence of the fair value of a financial instrument on initial recognition is the transaction price, i.e. the fair value of the consideration paid or received. Transaction costs that are directly attributable are included in the initial fair value of financial assets and financial liabilities. Subsequent to initial recognition, the fair values of financial assets and liabilities are based on quoted market prices or dealer price quotations for financial instruments traded in active markets. These include the use of recent arm’s length transactions, discounted cash flow analyses, pricing models and valuation techniques commonly used by market participants. Where discounted cash flow analyses are used, 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 .

4.7.5 Impairment of financial instrumentsThe Group assesses at each reporting date whether there is objective evidence that an asset or Group of assets is impaired.

4.8 INVESTMENT IN ASSOCIATESInvestment in associatesAssociates are entities over which the Group has significant influence but not control. The Group’s investment in associate included goodwill, identified on acquisition, net of any accumulated loss.The consolidated financial statements include the Group’s share of the income and expenses and equity movements of associates on an equity accounted basis, from the date that significant influence commences until the date that significant influence ceases. When the Group’s share of losses exceeds its interest in an associate, the Group’s carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of an associate. Acquisition in stagesThe Group accounts for acquisitions of associates in stages on the fair value deemed cost approach. The cost of the investment is the fair value of the consideration of the stake acquired and the fair value of the pre-existing investment on the date when the investment becomes an associate .Acquisition costs are expensed as incurred.Goodwill is determined as the excess of the fair value of the consideration and the fair value of the pre-existing investment over the fair value of the Group’s share of the net assets. The goodwill is not disclosed separately but forms part of the investment. If the fair value of the Group’s share of the net assets exceed the sum calculated above, the excess amount (gain on bargain purchase) is recognised in profit or loss immediately.

4.9 CASH AND CASH EQUIVALENTSCash and cash equivalents comprise of fixed and notice deposits as well as call and current accounts with financial institutions.


4. SIGNIFICANT ACCOUNTING POLICIES continued4.10 INSURANCE CONTRACTS

Classification of contractsContracts under which the Group accepts significant insurance risks from the policyholder, by agreeing to compensate the policyholder or other beneficiary if a specified uncertain future event affects the policyholder or other beneficiary are classified as insurance contracts.Recognition and measurementFuneral contracts are offered on a whole of life basis covering death. The amount paid upon a claim is set at the outset of the contract and remains constant throughout the term of the contract.Crime injury products provides cover in the event of the murder of an assured life or upon the occurrence of a crime event which results in the temporary or permanent disability of an assured life; and the personal accident product provided cover and benefits in the event of the accidental death or accidental disability which results in the permanent and temporary disability of a policyholder . The policy provides term cover in respect of the assured lives meaning that the cover will cease at the end of a specified term. Fully underwritten contracts are offered on a whole life basis covering death and/or disability. The amount paid upon a claim is set at the outset of the contract and remains constant throughout the term of the contract.Group schemes business vary in term depending on the specific contract. The amounts paid upon a claim is set at the outset of the contract and remains constant throughout the term of the contract for each member in the scheme.Policyholder liabilities under insurance contractsAll policyholder contracts that transfer significant insurance risk are classified as insurance contracts . These contracts are computed annually at the statement of financial position date by Stangen’s statutory actuary, in accordance with the provisions of the Long-term Insurance Act, 1998 and valued in terms of the Financial Soundness Valuation (FSV) basis contained in SAP 104 issued by the Actuarial Society of South Africa and represents the Group’s total policyholder liabilities. Claims incurred prior to the end of the financial year, but not reported until after that date, are brought into account in the valuation of policyholder liabilities .The transfer to policyholder liabilities under insurance contracts reflected in the statement of comprehensive income is a result of the changes in actuarial liabilities.Policyholder’s benefitsProvision is made for the estimated cost of claims notified, but not settled, at the end of the financial year, using the best information available at the time. Claims payable include related internal and external claims handling costs. Claims are stated net of reinsurance recoveries.Liability adequacy testAt each end of the reporting period, liability adequacy tests are performed to ensure the adequacy of the insurance contracts liabilities. Long-term insurance liability is valued in terms of the Financial Soundness Valuation (FSV) basis. Under the FSV basis, a liability is determined as the sum of the current estimate of the expected discounted value of all the benefit payments and the future administration expenses that are directly related to the contract, less the current estimate of the expected discounted value of the contractual premiums.



4. SIGNIFICANT ACCOUNTING POLICIES continued4.10 INSURANCE CONTRACTS continued

The liability is based on assumptions as to mortality, morbidity, persistency and maintenance expenses that are established at the time of valuing the contract at each reporting date. Margins for adverse deviations are included in the assumptions.Assumptions used for valuing policyholder liabilities are based on best estimates of future experiences, guided by recent past experience and increased by margins prescribed by the Actuarial Society of South Africa for prudence.If the liability adequacy test shows that the carrying amount of the insurance liabilities is inadequate in the light of the estimated future cash flows, the entire deficiency is recognised in profit or loss.

4.11 BUSINESS COMBINATIONThe Group accounts for business combination using the acquisition method when control is transferred to the Group. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired.Any goodwill that arises is tested annually for impairment. Any gain or loss on a bargain purchase is recognised in the statement of profit or loss and other comprehensive income. The consideration transferred does not include amounts related to the settlement of pre-existing relationships, these amounts are recognised in the statement of profit or loss and other comprehensive income.

4.12 REVENUE RECOGNITIONPremium incomeThe Group reflects premium income relating to insurance business gross of reinsurance and is accounted for when the premiums become due.

4.13 INVESTMENT INCOMEInterest income is accrued on a yield to maturity basis by reference to the principal outstanding and the interest rate applicable .

4.14 OTHER FEE INCOMEAdministration fees received are recognised as the service is rendered.

4.15 REINSURANCE PREMIUMS AND REINSURANCE REBATESReinsurance premiums and reinsurance rebates are recognised when due for payment.

4.16 REINSURANCE RECOVERIESReinsurance recoveries are accounted for in the same period as the related claim.

4.17 BINDER FEESBinder fees to binder holders are expensed as incurred.


4. SIGNIFICANT ACCOUNTING POLICIES continued4.18 TAXATION

4.18.1 Direct taxationDirect taxation in profit or loss consists of South African corporate income tax (currently payable, prior year adjustments and deferred).Current taxation is the expected taxation payable based on the taxable income, inclusive of capital gains, for the year, using taxation rates enacted or substantially enacted at the statement of financial position date, and any adjustment to taxation payable in respect of previous years. Taxable income is determined by adjusting the profit before taxation for items which are non-taxable or disallowed in terms of tax legislation.Taxation in respect of the Group is determined using the five-fund method applicable to life insurance companies in terms of the Income Tax Act.Current tax is charged or credited to profit or loss, except to the extent that it relates to items charged or credited directly to the statement of changes in equity, in which case the tax is also dealt with in equity.

4.18.2 Deferred taxationDeferred income taxation is provided on temporary differences using the balance sheet liability method. Temporary differences are differences between the carrying amounts of assets and liabilities for financial reporting purposes and their taxation base. However, deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting profit or loss nor taxable income.Deferred tax related to fair value remeasurement of available-for-sale investments, which are charged or credited to other comprehensive income and accumulated in equity, is also credited or charged to other comprehensive income and is subsequently recognised in profit or loss together with the deferred gain or loss.Deferred tax assets are recognised on the tax effects of income tax losses available for carry-forward, if the Group considers it probable that future taxable income will be available against which the unused tax losses can be utilised. The carrying amount of deferred tax assets is reviewed at each statement of financial position date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be recovered. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.Deferred tax liabilities are recognised for all taxable temporary differences. Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current income tax assets against current income tax liabilities and the deferred income taxes relate to the taxable entity and the same taxation authority.

4.19 DEFINED CONTRIBUTION PLANSDefined contribution plans have been established for eligible employees of the Group, with the assets held in separate trustee administered funds. The Group pays contributions on a contractual basis as determined in terms of the rules of each benefit fund. The Group has no further legal or constructive obligations to pay any further contributions or benefits once the fixed contributions have been paid to the funds .Contributions in respect of defined contribution plans are recognised as an expense in profit or loss as they are incurred .



4. SIGNIFICANT ACCOUNTING POLICIES continued4.20 SHORT-TERM BENEFITS

Short-term benefits consist of salaries, compensated balances (such as annual leave), bonuses and non-monetary benefits such as medical aid contributions.Short-term benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided .A liability is recognised for the amount expected to be paid under short-term cash bonus plans or accumulated leave if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

4.21 DISCONTINUED OPERATIONSClassification as discontinued operation occurs on disposal or when the operation meets the criteria to be classified as held for sale. When an operation is classified as a discontinued operation, the comparative statement of comprehensive income is re-presented as if the operation had been discontinued from the start of the comparative year.

4.22 SEGMENT REPORTINGAn operating segment is a component of an entity which engages in business activities from which it earns revenue and incurs expenses, for which separate financial information is available and whose operating results are regularly reported internally and evaluated by the chief operating decision-maker in deciding how to allocate resources and assessing its performance. The operating segments of the Group are the insurance which has been separated between credit life (discontinued operation) and funeral and other products (continued operation) and Corporate.

5. CASH AND CASH EQUIVALENTSR thousand 2018 2017

Current accounts 90 202 83 988Call accounts 31 606 25 134Fixed and notice deposit accounts 1 534 639 1 772 211

Cash and cash equivalents 1 656 447 1 881 333

Current accounts are assets with interest rates generally linked to prime.Call deposits are all with SA Banks and bear interest at market related rates. Money on call constitute amounts withdrawable on demand.Fixed and notice deposits are all with SA Banks bearing market related rates.


6. FINANCIAL ASSETSR thousand 2018 2017

Investment in Different Life Proprietary Limited (Different Life “DL”) – 20 000

Balance at the beginning of the year 20 000 –Acquisition of shares in the current year 1 422 20 000Deemed loss on stepped acquisition (4 789) –Deemed disposal of investment at fair value at 1 September 2018 (16 633) –

Stanlib Extra Income Fund (EIF) 300 127 –

300 127 20 000

During the financial year, Stangen first diluted its investment in Different Life (“DL”) and then increased it back to 15% through a R1.42 million capital injection. Stangen subsequently increased its investment holding from 15% (FY17) to 25% plus 1 share on 1 September 2018. The equity dilution was due to a deferred compensation settlement with the management staff of DL. The later acquisition was the outcome of a negotiated settlement with Different Group, the majority shareholder of DL, whereby Stangen on 1 September 2018 took over the operations of DL, the bulk of its insurance staff and some of its fixed assets and the rental agreement in exchange for the additional 10% of shares in DL. A loss of R4.8 million was incurred on the deemed disposal of the DL Investment as part of the stepped acquisition of DL as an associate of Stangen (due to Different Life no longer primarily pursuing its life insurance business plan but having restructured as a technology services provider with a revised business plan and operating model). The investment in Different Life was categorised as available for sale held at the fair value through other comprehensive income until 31 August 2018, whereafter it is equity accounted for as an associate. The fair value of the investment for the period up to 31 August 2018 has been determined by inputs that are not based on observable market data (level 3 in terms of the fair value hierarchy). The budgeted future expected cash flows from the underlying entity had been discounted at the company’s expected rate of return over a three-year period, taking inflationary growth into account. Other unobservable inputs noted in the calculation related to lead costs, average premium, not taken – up (NTU) rates, strike factors and various cost assumptions. There were no transfers to or from level 3 in the current or prior year.The Stanlib Extra Income Fund (EIF) represents units held in unit trusts withdrawable in 24 hours. This investment of R300 million was made to enhance the yield earned by Phoenix. The EIF is AA credit rated and priced on a daily basis. It is categorised as level 2 in terms of the fair value hierarchy.

7. OTHER ASSETSR thousand 2018 2017

Amounts due from African Bank Limited (“ABL”) – 51 407Residual Debt Services Limited (‘’RDS’’) – senior stub instrument 50 080 48 103Prepaid expenses – 509Reinsurance share of policyholders liabilities under insurance contracts 1 056 –Rental deposits 762 –Sundry debtors 3 307 511

55 205 100 530



7. OTHER ASSETS continuedRDS restructuringOn 10 August 2014, the South African Reserve Bank (SARB) announced that it is placing African Bank Limited (“ABL” now Residual Debt Services Limited) under curatorship with effect from that day. The announcement contained a proposal for the restructuring of the liabilities of African Bank Limited. As per the proposal, senior debt instruments and wholesale deposits (excluding subordinated debt holders) would be transferred at 90% of the face value following the restructuring. Thus, in 2016, the amounts receivable from African Bank Limited were recorded in the manner reflecting the measures proposed by SARB (the wholesale deposits were recorded at 90% of face value).The Offering Information Memorandum (“OIM”) was issued on 4 February 2016 and implemented on 4 April 2016. The OIM provided that 80% of the debt was to be transferred to “New African Bank Limited”, 10% was to be paid out in cash in April 2016 and senior stub notes in RDS issued for the remaining 10%.Amounts due from African Bank LimitedPhoenix negotiated an early settlement agreement with New African Bank in terms of which most of the 80% transferred to New African Bank was also paid out in cash. The remaining amount of R51 million due from ABL, was non-interest bearing and payable in April 2018. The R51 million was received on 4 May 2018 which accrued interest for a month as a result of it not being settled when due in April 2018.Residual Debt Services Limited (‘’RDS’’) – senior stub instrumentThe senior stub instrument issued for the remaining 10% per the RDS structuring paragraph above was initially fully impaired as the recoverability was indeterminate. The carrying value was reviewed following an update released by the curator of Residual Debt Services Limited on 8 June 2017 which indicated that a partial settlement of the senior stub instrument was anticipated, albeit within a framework of uncertain timing and quantum. Two distributions for interest accrued from 10 August 2014 to 30 July 2018 for R19.1 million was received from RDS. Phoenix has recorded the senior stub at its recoverable amount at a value of 76 cents in the rand (2017: 73 cents in the rand), representative of open market trading prices at 30 September 2018 and at 30 September 2017 respectively. This resulted in a R1.977 million impairment reversal in the current year. The stub instrument is classified as loans and receivables in terms of IAS 39 and measured at amortised cost.

8. REINSURANCE ASSETSR thousand 2018 2017

Reinsurance asset relating to Hannover Reinsurance 637 326

The Group has a reinsurance treaty with Hannover Reinsurance of Africa Limited, for its fully underwritten individual life business. This receivable represents the premium rebate portion due by Hannover Reinsurance as part of the arrangement.


9. INVESTMENT IN ASSOCIATER thousand 2018 2017

Cost of associate at 1 September 2018 16 667 –

Deemed acquisition of associate at fair value at 1 September 2018 (refer to note 6) 16 633 –Acquisition of additional shares 34 –

Equity share of losses for September 2018 (205) –

Carrying amount at the end of the year 16 462 –

Cost of associate is represented by:

Fair value of total share of net assets (NAV as at 1 September 2018* 25%) (4 675) –Goodwill 21 342 –

Cost of associate at 1 September 2018 16 667 –

Effective 1 September 2018, Stangen invested in a further 10%, equity stake in Different Life for a cash consideration of R34 thousand. This resulted in Stangen having a total of 25% shareholding in Different Life thus effecting significant influence. Analysis of interest in associate

R thousand %Carrying

value Assets Liabilities Revenue Earnings

Investment in associateDifferent Life 25 16 462 23 415 42 115 1 626 (821)

10. DEFERRED TAX

R thousandOpeningbalance

Recognisedin profitor loss

Closingbalance

Temporary differences2018

Deferred tax asset (1 170) (17 438) (18 608)

2017

Bonus accrual 25 (1 195) (1 170)



10. DEFERRED TAX continued R thousand 2018 2017

Details of timing difference on deferred taxDeferred tax on Corporate Fund timing difference 76 –Deferred tax on Risk Policyholder Fund timing difference (3) –Deferred tax in return transfer credit in Risk Policyholder Fund 17 340 –Deferred tax on release of statutory margin 24 –Expenses disallowed in Individual and Corporate Policyholder Funds 16 –Deferred tax on accruals 1 155 1 170

18 608 1 170

The deferred tax asset arising in Stangen is assessed as recoverable as the company will have future taxable profits available against which the tax losses carried forward can be utilised.

11. EQUIPMENTR thousand 2018 2017

Cost 8 796 4 006

Computer equipment 3 498 2 136Furniture and fittings 414 –Office equipment 3 727 1 870Leasehold improvements 1 157 –

Accumulated depreciation 3 589 2 859

Computer equipment 2 057 1 850Furniture and fittings 9 –Office equipment 1 503 1 009Leasehold improvements 20 –

Closing carrying value 5 207 1 147

Computer equipment 1 441 286Furniture and fittings 405 –Office equipment 2 224 861Leasehold improvements 1 137 –


R thousand 2018 2017

Reconciliation of carrying valueComputer equipment

Balance at beginning of the year 286 233Additions 814 189Additions from business combination 548 –Depreciation (207) (136)

Carrying value at end of the year 1 441 286

Furniture and fittings

Balance at beginning of the year – –Additions 414 –Depreciation (9) –

Carrying value at end of the year 405 –


Office equipment

Balance at beginning of the year 861 1 190Additions 637 50Additions from business combination 1 220 –Depreciation (494) (379)

Carrying value at end of the year 2 224 861

Leasehold improvements

Balance at beginning of the year – –Additions 1 157 –Depreciation (20) –

Carrying value at end of the year 1 137 –

11. EQUIPMENT continued



12. INTANGIBLE ASSETS


Software

Cost 24 445 16 798Accumulated amortisation (8 068) (4 213)

Carrying value at end of the year 16 377 12 585

Reconciliation of carrying valueSoftware

Balance at beginning of the year 12 585 325Additions 7 535 13 791Additions from business combination 112 –Amortisation (3 855) (1 531)

Carrying value at end of the year 16 377 12 585

Computer software is written off over a four-year period on a straight-line basis. The remaining useful life of computer software is considered to be three years.Stangen has added R7.4 million in additions to its software. Of this amount R6.9 million was for further licensing fees and customisation of the new Different Life platform used to sell primarily the individual life insurance business. Stangen owns the full rights, intellectual property and usage of its instance of the Different Life system.


Goodwill

Cost 2 555 –Accumulated impairment (2 555) –

Carrying value at end of the year – –

Reconciliation of carrying valueGoodwill

Additions from business combination 2 555 –Impairment (2 555) –

Carrying value at end of the year – –

Stangen recognised goodwill on acquisition of the operations of Joshua Trust (“JT”) call centre on 1 July 2018. On 30 September 2018, the goodwill was fully impaired due to new business written on the funeral campaign being estimated to be marginal.


13. OTHER LIABILITIES


Accrual for leave pay and bonuses 4 589 4 891Sundry creditors and accruals 9 417 6 111Shareholders for odd-lot offer 12 556 12 564Shareholders for unclaimed dividends 13 829 13 829

40 391 37 395

14. REINSURANCE CREDITOR


Amount due to reinsurance 272 72

Stangen implemented a reinsurance agreement for its fully underwritten life business with Hannover Re. The amount reflects reinsurance premium due to Hannover Re. (refer to note 8).

15. POLICYHOLDERS’ LIABILITIES UNDER INSURANCE CONTRACTS


Balance at end of the year (liabilities) 117 639 128 182

Opening balance 128 182 190 373Release from the statement of comprehensive income (10 543) (62 191)

Comprising liabilities and assets:Policyholders’ liabilities under insurance contracts 117 639 128 182Reinsurance share of policyholders’ liabilities under insurance contracts (refer note 7) (1 056) –

Total policyholders’ liabilities and reinsurance share of asset 116 583 128 182

Policyholders’ liabilities per claim category:Death IBNR 627 786Permanent disability IAR 956 –Expense reserve 115 000 127 396

Total 116 583 128 182



15. POLICYHOLDERS’ LIABILITIES UNDER INSURANCE CONTRACTS continuedProcess used to decide on assumptionsBest estimate assumptions were derived based on the experience investigations. Once the best estimate assumptions were arrived at, statutory margins were added as required in terms of the local actuarial guidance notes.The statutory margins are summarised as follows:

Assumption Compulsory margin

Investment earnings 0.25% increase/decrease in rate whichever produces the higher liability.

Expense inflation 10% loading i.e. 1.1 times the expense inflation assumption used.

Mortality Assumption increased by 7.5% i.e. 1.075 times the relevant mortality rate.

Morbidity Assumption increased by 10% i.e. 1.1 times the relevant disability rate.

Lapses 25% increase/decrease in lapse rate whichever produces the higher liability i.e. multiply by 1.25 or 0.75 times the lapse rate used.

Expenses 10% loading i.e. 1.1 times the expense assumption used.

In addition to the above compulsory margins the following discretionary margins were incorporated:

Assumptions Discretionary margin

Expenses on closed portfolio

A second-tier margin has been added to recognise the potential liability that the business would face if the company were to be closed to new business. Different scenarios were considered and, in each case, the minimum reserve that would be required was calculated in accordance with the above assumptions together with those assumptions behind each of the different scenarios. The reserve in each case was determined by projecting the resultant cash flows and discounting them to the valuation date using the valuation rate of interest. This resulted in a range of minimum reserves from R73 million to R119 million. A total reserve of R115 million was considered appropriate, and the excess of this amount over the total actuarial reserve as calculated, was raised as an additional discretionary reserve. This amounted to R36,2 million.


15. POLICYHOLDERS’ LIABILITIES UNDER INSURANCE CONTRACTS continuedThe assumptions used for insurance contracts are as follows:a . Mortality

Standard assured lives mortality tables were used as a base to reflect the Group’s recent claims experience. Allowance was also included for AIDS related claims based on the most recent local actuarial guidance notes and the tables were modified in the light of the Group’s overall mortality experience .

b . MorbidityThe morbidity tables that were used were derived from the mortality rates. These tables reflect the Group’s most recent claims experience.

c . PersistencyHistorical lapse experience was analysed to determine the future rates of policies.

d . Investment returnsThe valuation rate of interest is based on the expected return on the assets backing the life fund. The expected return is determined with reference to the available rates in the market and actual returns earned in the past .

e . Renewal expenses and inflationTotal expenses budgeted by Stangen for the four years following the valuation date were split between acquisition and maintenance expenses. Maintenance expenses were determined on a per policy basis using Stangen’s budget. These figures were extended by inflation for the remaining period of the valuation projection and the results adopted in the calculation of the policyholder liabilities. An additional reserve was determined as the present value of the amount by which the total budgeted expenses of Stangen exceeded the margins which were anticipated to be released each year over the future lifetime of the policies included in the actuarial valuation, including the allowance for expenses determined above. To the extent that some of these expenses would be absorbed by the writing of new business in the future, this total was proportionately reduced.

IBNR reserves were determined using the Bornheutter-Ferguson method. Loss ratios were found by comparing present value of claims against the present value of premiums according to the valuation assumptions.

16. BORROWINGSR thousand 2018 2017

Loan from African Bank Limited 23 377 23 377

The loan to Gilt Edged Management Services Proprietary Limited (“GEMS”) from African Bank Limited has been subordinated in favour of those customers who have a claim against GEMS as a result of a court order issued in 2004. The loan is unsecured, interest free and has no fixed repayment terms.



17. ORDINARY SHARE CAPITAL AND PREMIUM2018 2017

Number ofshares R thousand


Authorised

Ordinary shares of 2 .5 cents each 2 000 000 000 50 000 2 000 000 000 50 000

IssuedOrdinary shares at par value of 2 .5 cents each

1 427 005 272 35 675 1 427 005 272 35 675

Ordinary share premium n/a 14 614 254 n/a 14 614 254

Total share capital and premium 14 649 929 14 649 929

Unissued sharesThe directors have no authority to issue any of the unissued share capital .Shares in issueSave for the return of the shares to the company of 74 087 960 that were cancelled in April 2017, there has been no other movement in the issued shares during the 2017 and 2018 financial years.


18. PREFERENCE SHAREHOLDERS’ EQUITY2018 2017



Authorised

Preference shares of 1 cent each 20 000 000 200 20 000 000 200

IssuedPreference shares at par value of 1 cent each 13 523 029 135 13 523 029 135

Preference share premium 1 129 668 1 129 668

Total share capital and share premium 1 129 803 1 129 803

A total of 13 523 029 non-redeemable, non-cumulative, non-participating preference shares with a par value of R0.01 are in issue. Five million shares were issued on 23 March 2005 at a premium of R99.99 per share and share issue expenses of R23 million were set-off against the preference share premium. A further 3 042 251 shares were issued during the 2011 financial year and 5 480 778 shares were issued in the 2012 financial year. The shares were issued at a premium of R76.13 per share and share expenses of R6 million were set off against the preference share premium. These shares rank pari passu with the 8 042 251 preference shares already in issue.Phoenix cannot declare an ordinary dividend unless a preference dividend has been declared . If a dividend is declared, the preference share dividends will be calculated at 69% of the daily average prime overdraft rate which prevailed in respect of the period for which the dividend is calculated.

19. RESERVESR thousand 2018 2017

Reserves comprise the following:Accumulated loss at beginning of the year (13 953 483) (14 139 605)Comprehensive income for the year 45 578 186 122

Total reserves (13 907 905) (13 953 483)

20. INSURANCE PREMIUMS AND REINSURANCE INCOMER thousand 2018 2017

Insurance premiums 64 446 63 584Reinsurance income 2 265 254

66 711 63 838



21. INVESTMENT INCOMER thousand 2018 2017

Fixed deposit and call interest received 155 847 139 852Accrued interest income from STANLIB (EIF) 130 –

155 977 139 852

22. OTHER INCOMER thousand 2018 2017

Recovery of fully impaired claims against EF and EHL 15 803 45 422Management fees received 1 798 1 656Fair value through profit and loss – Stanlib EIF (3) –

17 598 47 078

Phoenix had provided for guarantees to various banks in respect of loan facilities provided to Ellerine Holdings Limited (in business rescue) (“EHL”) and Ellerine Furnishers Proprietary Limited (in business rescue) (“EF”) in June and July 2014 to the total value of R550 million. These guarantees were called by the funders and hence provided for. The provisions were equal to the guarantee value less payments made by EF plus interest accrued on the unpaid amount.The guarantees were settled in full as part of the Phoenix business rescue process. Phoenix now has the right to participate in distributions made by the principle debtors, EHL and EF to their respective creditors. In the current financial year R16 million was recovered from EF (2017: R45 million).

23. NET INSURANCE CLAIMS


Individual benefits:Benefit claims (including IAR and IBNR) 21 820 23 553Movement in expense reserve (release) (12 396) (61 794)

9 424 (38 241)


24. OPERATING AND ADMINISTRATION EXPENSES Split of operating costs between continued and discontinued operations


Operating and administration expenses attributable to continuing operations

151 143 92 933

Operating and administration expenses attributable to discontinued operations (also refer to note 26) – 11 893

151 143 104 826

Operating and administration expense detailsActuarial fees 4 444 4 390Amortisation of software 3 855 1 531Auditor’s remuneration 3 727 1 989

Audit fees – current and prior year 3 410 1 989Fees for other services 317 –

Binder fees and outsourcing fees 23 634 13 914Business rescue fees 881 1 138Commissions 4 430 –Consulting fees 11 260 6 185Debit order expenses 4 537 4 954Depreciation 730 515Legal fees 8 725 5 306Lead costs 9 392 3 522Marketing and advertising 17 953 11 824Non-executive directors’ remuneration – fees 8 537 5 231Other costs 10 628 7 785Secretarial fees 1 166 852Staff costs 32 422 32 279

Basic remuneration 24 167 19 008Bonuses and incentives 6 451 11 773Contributions to provident fund 1 804 1 498

Software maintenance costs 4 822 3 411

151 143 104 826

Stangen 116 241 82 462Phoenix Group excluding Stangen1 34 902 22 364

1 In the current year, R34.9 million includes R7.2 million incurred in Phoenix related to the Proposed Transaction referred to in note 42.



25. TAXATIONR thousand 2018 2017

Normal taxation – continued operations 45 699 48 605Deferred taxation – continued operations (17 438) (1 195)

Total taxation – continued operations 28 261 47 410

Normal taxation – discontinued operations – (3 330)

Total taxation 28 261 44 080

2018%

2017%

Tax rate reconciliationStatutory tax rate 28.00 28 .00Non-taxable income (recovery of fully impaired claim from EHL) (5.99) (5.21)Capital items (reversal of impairment of RDS stub note) (0.75) (5.55)Capital item (deemed loss on stepped acquisition of associate) 1.82 –Capital expenditure (legal fees, consulting fees and impairment of goodwill) 5.0 –Other (SARS interest and equity accounted loss) 0.16 0 .16Non-deductible expenses1 10.03 2 .18

Effective tax rate 38.27 19 .581 Approximately 95% of deductible operating expenses in Phoenix is disallowed for deduction in calculating the

taxable income of Phoenix due to the proportion of exempt income to total income. This is primarily driven by the R900 million dividend paid from Stangen to Phoenix in September 2018.

26. DISCONTINUED OPERATION (DISPOSAL GROUP)Stangen initiated a formal process to transfer the remaining credit life business to Guardrisk during the 2016 financial year, which was 100% reinsured to Guardrisk. On 31 October 2016, a transfer agreement between Stangen and Guardrisk was signed which resulted in Guardrisk becoming the primary insurer of the credit life business sold via Residual Debt Services Limited and (the new) African Bank Limited. It was also agreed that the reinsurance agreement between Stangen and Guardrisk would be terminated once the transfer was approved by the FSB. The transfer was finally approved by the FSB on 8 June 2017, with an operative date of 30 June 2017. The reinsurance agreement with Guardrisk was terminated on the same day.


26. DISCONTINUED OPERATION (DISPOSAL GROUP) continuedResults of discontinued operation


Operating and administration expenses – (11 893)

Loss before taxation – (11 893)Taxation – 3 330

Loss for the year – (8 563)Other comprehensive income – –

Total comprehensive loss for the year – (8 563)

Cash flows used in discontinued operations:Net cash used in operating activities – (11 893)

Net cash flows – (11 893)

27. RECONCILIATION BETWEEN BASIC EARNINGS AND HEADLINE EARNINGSR thousand 2018 2017

Profit for the year from continuing operations 45 578 194 685Loss for the year from discontinuing operations – (8 563)

Profit for the year 45 578 186 122

Basic earnings/diluted earnings attributable to ordinary shareholders 45 578 186 122Adjusted for: Impairment of goodwill 2 555 –Deemed loss on stepped acquisition of associate 4 789 –

Headline earnings/diluted headline earnings 52 922 186 122

Total number of shares in issue (thousand) 1 427 005 1 427 005Weighted number of shares in issue (thousand) 1 427 005 1 427 005Basic earnings per ordinary share (cents)Basic earnings per ordinary share – continued operations 3.2 13 .7Basic loss per ordinary share – discontinued operations – (0.6)

Basic earnings/diluted earnings per ordinary share – total 3.2 13 .0

Headline earnings per ordinary share (cents)Headline earnings per ordinary share – continued operations 3.7 13 .7Headline loss per ordinary share – discontinued operations – (0.6)

Headline earnings/diluted headline earnings per ordinary share – total 3.7 13 .0



28. ORDINARY AND PREFERENCE DIVIDENDSOrdinary dividendsNo ordinary dividends were declared during the year (2017: Nil cents).Preference dividendsNo preference dividends were declared during the year (2017: Nil cents).

29. CASH FLOWS FROM OPERATING ACTIVITIES


Profit before taxation 73 839 242 095Adjustment for:

Amortisation of intangible assets 3 855 1 531Depreciation 730 515Impairment of goodwill 2 555 –Movement in working capital (164) (4 397)Movement in IAR and IBNR 797 (397)Movement in expense reserve (12 396) (61 794)Reversal of impairment on RDS stub instrument (1 977) (46 115)Deemed loss on disposal in associate (Different Life) 4 789 –Accrued net interest income from STANLIB (EIF) (127) –

Adjustment for items disclosed separately:Interest paid to SARS 308 96Share of equity accounted loss (investment in Different Life) 205 –

Cash generated by operations 72 414 131 534

30. CASH RECEIPTS FROM POLICYHOLDERS AND INVESTMENTSInvestment income received 155 977 139 852Accrued net interest income from STANLIB (EIF) (127) –Insurance premium received 66 711 63 838Other income received 17 598 47 078

Cash receipts from policyholders and investments 240 159 250 768

31. CASH PAID TO POLICYHOLDERS, SUPPLIERS AND EMPLOYEESRemuneration, bonuses and incentives paid to employees and directors

(40 959) (37 510)

Other operating expenses paid (105 599) (53 378)Insurance benefits and claims paid (21 023) (23 949)Movement in working capital (164) (4 397)

Cash paid to policyholders, suppliers and employees (167 745) (119 234)


32. DIRECT TAXATION PAID


Increase in tax liability 14 140 1 836Increase in prepaid tax (392) (93)Taxation charged to the income statement (note 25)1 (28 261) (44 080)Deferred tax portion of amount charged to the income statement (note 10) (17 438) (1 195)

Taxation paid (31 951) (43 532)1 The taxation charged to the income statement (direct as well as deferred tax) above consists of the tax

attributable to both continued and discontinued operations .

33. OTHER INVESTING ACTIVITIESR thousand 2018 2017

Investment in Stanlib Extra Income Fund (300 000) –

Other investing activities (300 000) –

34. RELATED PARTY BALANCES AND TRANSACTIONSThe holding company has entered into financial services transactions with its subsidiaries. Transactions between the holding company and The Standard General Insurance Company Limited (“Stangen”), Customer Protection Insurance Company Limited (“CPI”) which company is now dissolved and Gilt Edged Management Services Proprietary Limited (“GEMS”) were in the ordinary course of business on market related terms and conditions similar to those arranged with third parties. Different Life Proprietary Limited (“Different Life”) is an associate company of Stangen.

Balances Transaction types2018

R thousand2017

R thousand

Stangen Payable – (235)Gilt Edged Management Services

Receivable – 5

Different Life Proprietary Limited Receivable 561 –

Total 561 (230)

The payables and receivables have no specific repayment terms and carry no interest.



34. RELATED PARTY BALANCES AND TRANSACTIONS continued

Transactions Transaction types2018

R thousand2017

R thousand

Stangen Dividends 900 000 –Stangen Administration fees (2 370) (1 725)Customer Protection Insurance Company (in liquidation) Dividends 118 8 767Business rescue fees Fees (261) (1 329)Different Life Outsource fees paid (6 723) –Different Life Capital expenditure (8 280) –Different Life Subscription shares (1 456) –Different Life Other expenses (1 134) –

Total 879 894 5 713


35. SEGMENT INFORMATIONIFRS 8 requires operating segments to be identified on the basis of internal reports about components of the group that are regularly reviewed by the chief operating decision-maker in order to allocate resources to the segments and to assess their performance.Information reported to the Group’s chief operating decision-maker for the purpose of resources allocation and assessment of segment performance is more specifically focused on the category of each type of service provided .Segment revenue and results

R thousand

Insurance

Corporate TotalCredit Life

Funeraland otherinsurance Total

2018Net income – 176 785 176 785 63 501 240 286

EBITDA – (57 997) (57 997) (19 556) (77 553)

Interest received – 108 276 108 276 47 701 155 977

(Loss on deemed disposal of stepped acquisition)/ reversal of impairment – (4 789) (4 789) 1 977 (2 812)

Impairment of goodwill – (2 555) (2 555) – (2 555)

Profit before taxation attributable to shareholders from continuing operations – 45 759 45 759 28 080 73 839

Total assets – 685 632 685 632 1 385 060 2 070 692

Total liabilities – 146 619 146 619 52 246 198 865



35. SEGMENT INFORMATION continued

R thousand

Insurance

Corporate TotalCredit Life

Funeraland otherinsurance Total

2017

Net income – 181 646 181 646 69 122 250 768

EBITDA (11 893) 36 940 25 047 67 351 92 398

Interest received – 116 152 116 152 23 700 139 852

Reversal of impairment – – – 46 115 46 115

Profit before taxation attributable to shareholders from continuing operations – 151 044 151 044 91 051 242 095

Profit before taxation attributable to shareholders from discontinuing operations (11 893) – (11 893) – (11 893)

Total assets – 1 548 273 1 548 273 470 048 2 018 321

Total liabilities – 139 737 139 737 52 335 192 072


36. COMMITMENTS, CONTINGENT LIABILITIES AND CONTINGENT ASSETSCommitments


Rental commitments due within one year 2 760 –Rental commitments due two to five years 5 924 –

Total commitments 8 684 –

Contingent liabilitiesA number of Ellerine Furnishers employees claimed R42.6 million from Ellerine Furnishers Proprietary Limited (“EF” – in business rescue) and Ellerine Holdings Limited (“EHL” – in business rescue) and the claim was later extended to Phoenix as ultimate shareholder of EF and EHL. At the time Phoenix obtained senior counsel opinion indicating that the Group was not liable for the amounts claimed and hence no provision for this contingent liability was previously raised.In the current year, final judgements were received, and Phoenix was found not liable for any claims made.Contingent assetsAs creditor to EF and EHL prior to the commencement of their business rescue processes, Phoenix along with other creditors, has the right to participate in distributions made from the business rescue process. In the current financial year, R16 million (2017: R45 million) was recovered from EF.



37. FINANCIAL RISK37.1 INTEREST RATE RISK

The Group is exposed to interest rate risk associated with the effects of fluctuations in the prevailing levels of market rates on its financial positions and cash flows. The table below summarises the exposure to interest rate risk through grouping assets and liabilities into repricing categories, determined to be the earlier of the contractual repricing or maturity date. Please refer to note 39 for interest rate sensitivity analysis .

37.2 LIQUIDITY RISK

R thousandUp to 1month

1 to 3months

4 to 12months

12 to 24months

Beyond24

months

Non-financial

instru-ments Total

2018AssetsCash and cash equivalents

1 029 989 525 759 100 699 – – – 1 656 447

Financial assets 300 127 – – – – – 300 127Other assets 4 363 – – – 50 842 – 55 205Reinsurance assets 637 – – – – – 637Investment in associate – – – – – 16 462 16 462Taxation – – – – – 1 622 1 622Deferred tax asset – – – – – 18 608 18 608Equipment – – – – – 5 207 5 207Intangible assets – – – – – 16 377 16 377

Total assets 1 335 116 525 759 100 699 – 50 842 58 276 2 070 692

Liabilities and equityOther liabilities 40 391 – – – – – 40 391Reinsurance creditor 272 – – – – – 272Taxation – – – – – 17 186 17 186Policyholder liabilities – – – – – 117 639 117 639Borrowings 23 377 – – – – – 23 377

Total liabilities 64 040 – – – – 134 825 198 865

Total shareholders’ equity – – – – – 1 871 827 1 871 827

Total liabilities and equity 64 040 – – – – 2 006 652 2 070 692

Net liquidity gap 1 271 076 525 759 100 699 – 50 842 (1 948 376) –


37. FINANCIAL RISK continued37.2 LIQUIDITY RISK continued

R thousandUp to 1month

1 to 3months

4 to 12months

12 to 24months

Beyond24

months

Non-financial

instru-ments Total


109 122 285 640 1 486 571 – – – 1 881 333

Financial asset – – – – 20 000 – 20 000Other assets 1 020 2 636 51 407 – 45 467 – 100 530Reinsurance assets 326 – – – – – 326Taxation – – – – – 1 230 1 230Deferred taxation – – – – – 1 170 1 170Equipment – – – – – 1 147 1 147Intangible assets – – – – – 12 585 12 585

Total assets 110 468 288 276 1 537 978 – 65 467 16 132 2 018 321

Liabilities and equityOther liabilities 37 395 – – – – – 37 395Reinsurance creditor 72 – – – – – 72Taxation – – – – – 3 046 3 046Policyholder liabilities – – – – – 128 182 128 182Borrowings 23 377 – – – – – 23 377

Total liabilities 60 844 – – – – 131 228 192 072

Total shareholders’ equity – – – – – 1 826 249 1 826 249

Total liabilities and equity 60 844 – – – – 1 957 477 2 018 321

Net liquidity gap 49 624 288 276 1 537 978 – 65 467 (1 941 345) –

The table above analyses the Group’s assets and liabilities into relevant maturity groupings based on the remaining period at statement of financial position date to contractual maturity date.



38. ANALYSIS OF FINANCIAL ASSETS AND LIABILITIES38.1 ANALYSIS OF FINANCIAL ASSETS

R thousand

Loans andreceivables

at amortised

cost

Financial assets held at fair value

through profit and

loss

Availablefor sale

at fair value

through OCI

Non-financial

instruments Total


1 656 447 – – – 1 656 447

Financial asset – 300 127 – – 300 127Other assets 55 205 – – – 55 205Reinsurance assets 637 – – – 637Investment in associate – – – 16 462 16 462Taxation – – – 1 622 1 622Deferred tax asset – – – 18 608 18 608Equipment – – – 5 207 5 207Intangible assets – – – 16 377 16 377

1 712 289 300 127 – 58 276 2 070 692


1 881 333 – – – 1 881 333

Financial assets – – 20 000 – 20 000Other assets 100 530 – – – 100 530Reinsurance assets 326 – – – 326Taxation – – – 1 230 1 230Deferred tax asset – – – 1 170 1 170Equipment – – – 1 147 1 147Intangible assets – – – 12 585 12 585

1 982 189 – 20 000 16 132 2 018 321

Income statement effect of financial instruments by category


Interest income recognised – loans and receivables 155 977 139 852

The carrying amount of the financial assets carried at amortised cost approximates their fair value. The carrying amount reflected above represents the Group’s maximum exposure to credit life for such loans and receivables .


38. ANALYSIS OF FINANCIAL ASSETS AND LIABILITIES continued38.2 ANALYSIS OF FINANCIAL LIABILITIES

R thousand

Liabilitiesheld at

amortisedcost

Non-financialinstruments Total

2018Other liabilities 40 391 – 40 391Reinsurance creditor 272 – 272Taxation – 17 186 17 186Policyholders’ liability – 117 639 117 639Borrowings 23 377 – 23 377

64 040 134 825 198 865

2017Other liabilities 37 395 – 37 395Reinsurance creditor 72 – 72Taxation – 3 046 3 046Policyholders’ liability – 128 182 128 182Borrowings 23 377 – 23 377

60 844 131 228 192 072

The carrying amount of financial liabilities measured at amortised cost approximates their fair value .

39. RISK MANAGEMENTFinancial assets and liabilities are measured either at fair value or amortised cost in the statement of financial position. Assets include bank balances stated at cost. Policyholder liabilities are valued in accordance with the long-term assumptions set out in the statement of actuarial values in these annual financial statements.39.1 INTEREST RATE RISK MANAGEMENT

The more important financial risks to which the Group is exposed and the manner in which they are managed are described below:Changes in market interest rates have a direct effect on the contractually determined cash flows associated with floating rate financial assets and liabilities. The Group follows a conservative investment policy as can be seen from the significant cash and cash equivalent holdings. Fixed and call deposit investments not exceeding six months make up the majority of the Group’s investments to minimise the Group’s interest rate risk exposure.The table below summarises the Group’s exposure to interest rate risk through grouping assets into repricing categories, determined to be the earlier of the contractual repricing date or maturity. A possible change of one percent was used based on historic changes in the relevant categories within a 12-month period.



39. RISK MANAGEMENT continued39.1 INTEREST RATE RISK MANAGEMENT continued

Statement of comprehensive income impact

Sensitivity analysis

Carryingvalue at

year-endR

thousand

Carryingvalue

exposedto market

riskR

thousand

Indexto whichinterest

rate islinked

Reason-able

possiblechange

Pre-taxR

thousand

Post-taxR

thousand

2018Financial assetsCash and cash equivalents

1 656 447 1 656 447 Prime 1.00% 16 564 11 926

Financial asset (Stanlib EIF)

300 127 300 127 Prime 1.00% 3 001 2 161

Other assets 55 205 50 0803-month

JIBAR 1.00% 501 361

2 011 779 2 006 654 20 066 14 448

Net effect on income statement and equity 20 066 14 448

2017Financial assetsCash and cash equivalents

1 881 333 1 881 333 Prime 1 .00% 18 813 13 546

Other assets 100 530 48 1033-month

JIBAR 1 .00% 481 346

1 981 863 1 929 436 19 294 13 892


39.2 CREDIT RISKFair values of financial assets may be affected by the credit worthiness of the issuer. All domestic large exposures are with South African banks licensed under the Banks Act No. 94 of 1990. The limitation of assets as regulated by the Long-term Insurance Act of 1998 is used as guidance for large exposures. The Group has no foreign credit risk.

39.3 CURRENCY RISKThe Group has no currency risk exposure.


39. RISK MANAGEMENT continued39.4 INSURANCE RISK

The risk under any one insurance contract is the probability that the insured event occurs and the uncertainty of the amount of the resulting claim. By the very nature of an insurance contract, this risk is stochastic and individually unpredictable, but in aggregate subject to statistical evaluation.For a portfolio of insurance contracts where the theory of probability is applied to pricing and provisioning, the principal risk that the Group faces under its insurance contracts is that the actual claims and benefit payments exceed the determined insurance liabilities. This could occur because the frequency or severity of claims and benefits are greater than estimated. Insurance estimates are stochastic and the actual number and amount of claims and benefits will vary from year to year. For this reason, the actual amount could be very different from the estimate which was calculated using statistical techniques.Stangen is a wholly-owned subsidiary within the African Phoenix Investments Limited (”Phoenix”) Group. Frequency and severity of claimsFor contracts where death is the insured risk, the most significant factors that could increase the overall frequency of claims are epidemics such as AIDS. The Group manages these risks through its underwriting strategy, appropriate pricing models and additional provisioning.The table below represents the distribution of insured benefits across three bands for the non-credit life benefits:

Before reinsurance

2018 2017

Number ofpolicies

Sum assuredR thousand

Number ofpolicies

Sum assuredR thousand

R5 001 – R10 000 20 455 445 261 30 133 301 294R10 001 – R50 000 25 644 1 052 461 27 177 656 385> R50 001 1 708 1 680 837 142 109 298

Total 47 807 3 178 559 57 452 1 066 977

Reinsurance> R50 001 1 708 840 419 120 48 228

Total 1 708 840 419 120 48 228

The table below presents an analysis of the policyholders’ liability across the claim categories (gross of reinsurance):


Policyholders’ liabilities per claim category:Death IBNR 726 786Permanent disability IAR 1 913 –Expense reserve 115 000 127 396

Total 117 639 128 182



39. RISK MANAGEMENT continued39.4 INSURANCE RISK continued

Sensitivity of the policyholders’ liability to changes in assumptions:


Policyholder liability Change in variable Change in liability

Death 10% 78 807 4 217Expense reserve 10% 96 908 18 644

Total 10% 175 715 22 861

Claims developmentsClaims development is a function of the period when the earliest material claim event arose and for which there remains uncertainty about the amount and timing of the claim payments. It is unnecessary for an insurer to disclose information on claims for which uncertainty about the amount and timing of claims payment is typically resolved within one year.Based on the Groups experience, claims are typically paid within a period of 12 months from the date of the claim event, with the majority of claims being settled within six months. As at year-end, no uncertainty exists regarding the amount and timing of claims payments that would not be resolved within the following twelve months.Sources of uncertainty in the estimation of the future benefit payments and premium receiptsUncertainty in the estimation of future benefit payments and premium receipts for long-term insurance contracts arises from the unpredictability of long-term changes in overall levels of mortality and the variability in policyholder behaviour.Where the number of deaths in future years differ by 10% from the statutory actuary’s estimate, the liability would change by R4.2 million.Estimates are also made as to the future investment income arising from assets backing long-term insurance contracts. These estimates are based on current market returns as well as expectations about future economic and financial developments. The average estimated rate of investment return is 7.75% per annum. Were the average future investment returns to differ by 1% from the statutory actuary’s estimates, the insurance liability would change by approximately R2.8 million.The Group uses appropriate base tables of standard mortality according to the type of contract being written. An investigation into the actual experience of the Group over the past year is carried out, and statistical methods are used to adjust mortality rates to produce a best estimate of expected mortality.


39. RISK MANAGEMENT continued39.4 INSURANCE RISK continued

Underwriting riskThe statutory actuary reports annually on the actuarial soundness of the premium rates in use and the profitability of the business taking into consideration the reasonable benefit expectation of policyholders .All new rate tables are approved and authorised by the statutory actuary prior to being issued. Regular investigations into mortality experience are conducted.Legal riskDuring the development stage of any new product and for material transactions entered into by the company, Group resources, internally and externally, monitor the drafting of contract documents to ensure that rights and obligations of all parties are clearly set out.Capital adequacy and capital risk managementThe Group manages capital in order to comply with capital adequacy requirements as determined by generally accepted actuarial principles in terms of the guidelines issued by the Actuarial Society of South Africa. It is an estimate of the minimum capital that will be required to meet fairly substantial deviations from the main assumptions affecting the Group’s business. At 30 September 2018, the solvency capital requirement was R64.3 million (2017: Solvency capital requirement: R81.2 million, 2017: Capital adequacy requirement: R49 million).The Group further manages its capital to ensure that it complies with the solvency criteria as determined by the Long-term Insurance Act. The management of the Group’s solvency will enable the Group to continue as a going concern. The Group’s capital structure consists of the items listed under capital and reserves on the statement of financial position.

40. REINSURANCE ARRANGEMENTSThe Group entered into a 100 percent proportional reinsurance agreement with Guardrisk effective from 1 April 2016 on the remaining credit life portfolio. This was terminated effective 30 June 2017. Stangen entered into a new insurance treaty with Hannover Reinsurance of Africa Limited effective July 2017 in respect of its individual fully underwritten life business.



41. BUSINESS COMBINATIONSThe following business combinations were entered into by Stangen during the year under review:• Joshua Trust “(JT call centre”)• Acquisition of the business of Different Life Proprietary LimitedThe disclosure for the business combination has been set out below:JT call centreWith effect from 1 July 2018, the Standard General Insurance Company Limited acquired the trading assets, of the Joshua Trust (“JT call centre”) a niche outsourced call centre service that provides unique alternatives to in-house sales, retention and customer service initiatives. The purchase consideration was R3.1 million and was settled in cash.


Acquisition of JT effective 1 July 2018Computer equipment (refer note 11) 388 –Intangible assets (refer note 12) 112 –

Net operating assets acquired 500 –Goodwill 2 555 –

Purchase consideration 3 055 –

Different Life Proprietary Limited (Different Life)The Standard General Insurance Company Limited acquired the call centre and infrastructure assets of Different Life and also took over operational agreements and transferred a number of the employees, which qualifies as a business combination, effective 1 September 2018. The purchase consideration was R1.4 million and was settled in cash.


Office and computer equipment (refer note 11) 1 380 –

Purchase consideration 1 380 –

42. SUBSEQUENT EVENTSThe directors are not aware of any matter arising since the end of the financial year, not otherwise dealt with in the Group’s consolidated annual financial statements, which significantly affects the financial position at 30 September 2018. As disclosed in the market announcement on 7 September 2018, the company intends to issue a circular to its shareholders with details regarding the Proposed Transaction as detailed in the announcement. The directors expect that the circular will be issued within two months following the release of this financial statements.


43. DIRECTORS’ REMUNERATION43.1 EXECUTIVE DIRECTORS’ REMUNERATION

SalaryR000

Retire-ment,

medicalcontri-

butionsand

otherpayments

R000

Otherfees2

R000

Totalcost to

companypackage

R000

AnnualbonusR000

Total cost to company

package R000

2018E Banda1 417 – – 417 – 417J Evans2 1 463 – 261 1 724 – 1 724S Nhlumayo3 1 371 – – 1 371 – 1 371S Rawoot4 500 – – 500 – 500

3 751 – 261 4 012 – 4 012

2017E Banda1 2 483 – – 2 483 – 2 483J Evans2 3 196 – 1 329 4 525 – 4 525

5 679 – 1 329 7 008 – 7 0081 Enos Banda was appointed as non-executive chairman on 6 September 2016, Executive Chairman on

1 October 2016 and subsequently Chief Executive Officer on 14 December 2016. Enos’ term as Chief Executive Officer ended on 30 November 2017. Enos remained on the board as a non-executive director, until his resignation on 15 January 2018.

2 John Evans was appointed as Financial Director on 1 October 2016. Prior to his appointment as Financial Director he was the business rescue practitioner of Phoenix from 5 June 2015 to 19 May 2016. The other fees incurred and paid to John for the 2017 and 2018 financial year were in respect of his contract as business rescue practitioner of Phoenix. These fees relate to assets established and preserved during business rescue, as well as proceeds received by Phoenix after business rescue. John’s tenure as Financial Director ended on 28 February 2018 and the basic salary relates to employment to this date. In addition to the above amounts, John received R881 thousand, while not a director but in accordance with his contract as business rescue practitioner.

3 Siyabonga Nhlumayo was appointed as Chief Executive Officer on 1 March 2018. 4 Shafiek Rawoot was appointed as Financial Director on 1 July 2018.



43. DIRECTORS’ REMUNERATION continued43.2 NON-EXECUTIVE DIRECTORS’ REMUNERATION

2018 2017

Servicesto the

companyR000

Servicesto other

Group companies

R000TotalR000

Servicesto the

companyR000

Servicesto other

Groupcompanies

R000TotalR000

E Banda 9 – 9 – – –A Conrad 935 – 935 714 – 714C Le Grange 696 211 907 263 – 263M Kabi 77 342 419 – – –O Mabandla 1 118 – 1 118 – – –R Mathura 82 – 82 – – –P Mountford – – – 173 – 173M Mthombeni 1 358 438 1 796 916 391 1 307I Shongwe – – – 612 – 612S Sithole 817 – 817 – – –N Siyotula 831 222 1 053 – – –D Vlok 469 – 469 693 – 693

6 392 1 213 7 605 3 371 391 3 762

The non-executive directors are paid based on a fixed retainer for their responsibilities and duties as board members plus a per meeting fee for board and committee meetings attended. They do not participate in any of the company’s bonus and incentive schemes and neither do they receive any other benefits from the company. The increase in fees in 2018 primarily relate to the increased meeting requirements. These were primarily driven by:• The review of the business strategy after the July 2017 AGM;• The increase in the number of non-executives on the Board to execute the required strategy;• Resignations and appointments of CEO and FD positions and the resultant benchmarking of

remuneration and incentive structure;• Consideration of multiple strategies to simplify the current capital structure and reinvigorate the

listed investment company; and• Developing the framework for the current proposed transaction.


INDEPENDENT AUDITOR’S REPORTTO THE SHAREHOLDERS OF AFRICAN PHOENIX INVESTMENTS LIMITED REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS

OPINION We have audited the financial statements of African Phoenix Investments Limited set out on pages 106 to 122, which comprise the statement of financial position as at 30 September 2018 and the statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies . In our opinion, the financial statements present fairly, in all material respects, the financial position of African Phoenix Investments Limited as at 30 September 2018, and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa.

BASIS FOR OPINIONWe conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the company in accordance with the Independent Regulatory Board for Auditors Code of Professional Conduct for Registered Auditors (IRBA Code) and other independence requirements applicable to performing audits of financial statements in South Africa. We have fulfilled our other ethical responsibilities in accordance with the IRBA Code and in accordance with other ethical requirements applicable to performing audits in South Africa. The IRBA Code is consistent with the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (Parts A and B). We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion .

KEY AUDIT MATTERSKey audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period. There were no Key audit matters which were identified for the current financial year.

OTHER INFORMATIONThe directors are responsible for the other information. The other information comprises the Directors’ Report as required by the Companies Act of South Africa. The other information does not include the financial statements and our auditor’s report thereon.Our opinion on the financial statements does not cover the other information and we do not express an audit opinion or any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.


RESPONSIBILITIES OF THE DIRECTORS FOR THE FINANCIAL STATEMENTS The directors are responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa, and for such internal control as the directors determine is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements the directors are responsible for assessing the company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.

AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud

or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit 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 company’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.

• Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

INDEPENDENT AUDITOR’S REPORT continuedto the Shareholders of African Phoenix Investments Limited


REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTSIn terms of the IRBA Rule published in Government Gazette Number 39475 dated 4 December 2015, we report that Grant Thornton Johannesburg has been the auditor of African Phoenix Investments Limited for four years .

Grant ThorntonRegistered AuditorsPractice number: 903485ES KockPartnerRegistered AuditorChartered Accountant (SA)23 November 2018@Grant ThorntonWanderers Office Park52 Corlett DriveIllovo2196



ASSETSCash and cash equivalents 5 969 462 361 926Financial assets 6 300 127 –Other assets 7 45 382 44 008Taxation 1 622 1 223Equipment 8 2 125 –Intangible assets 9 234 –Investments in subsidiaries 10 554 929 554 929

Total assets 1 873 881 962 086

LIABILITIES AND EQUITYLIABILITIESOther liabilities 11 28 869 29 151

Total liabilities 28 869 29 151

EQUITYOrdinary share capital 12 35 675 35 675Ordinary share premium 12 14 614 254 14 614 254Reserves 14 (13 934 720) (14 846 797)

Ordinary shareholders’ equity 715 209 (196 868)Preference shareholders’ equity 13 1 129 803 1 129 803

Total equity (capital and reserves) 1 845 012 932 935

Total equity and liabilities 1 873 881 962 086

COMPANY STATEMENT OF FINANCIAL POSITION as at 30 September 2018


COMPANY STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME for the year ended 30 September 2018


Dividends received 900 118 8 767Interest income 15 43 393 23 082Other income 16 15 800 45 422

Income from operations 959 311 77 271Operating expenses 17 (37 085) (24 049)Reversal of impairment of financial instruments 1 784 43 412Impairment of subsidiaries 10 – (10 500)Interest expense (119) (96)

Profit before taxation 923 891 86 038Taxation 18 (11 814) (4 952)

Profit for the year 912 077 81 086Other comprehensive income – –

Total comprehensive income for the year 912 077 81 086


COMPANY STATEMENT OF CHANGES IN EQUITYfor the year ended 30 September 2018

R thousand

Ordinary share

capital and premium

Accumulated loss

Preference share capital and premium Total

Balance at 30 September 2016 14 649 929 (14 927 883) 1 129 803 851 849Total comprehensive income for the year – 81 086 – 81 086

Balance at 30 September 2017 14 649 929 (14 846 797) 1 129 803 932 935Total comprehensive income for the year – 912 077 – 912 077

Balance at 30 September 2018 14 649 929 (13 934 720) 1 129 803 1 845 012

Notes 12 14 13


COMPANY STATEMENT OF CASH FLOWSfor the year ended 30 September 2018


Cash inflow from operating activities 20 922 173 50 985

Cash receipts 959 184 77 271Cash payments (37 011) (26 286)

Direct taxation paid 21 (12 213) (5 043)

Net cash inflow from operating activities 909 960 45 942Cash flow from investing activitiesFinancial asset 6 (300 000) –Equipment purchases 8 (2 183) –Intangible purchases 9 (241) –

Net cash outflow from investing activities (302 424) –

Increase in cash and cash equivalents 607 536 45 942Cash and cash equivalents at the beginning of the year 361 926 315 984

Cash and cash equivalents at the end of the year 5 969 462 361 926


1. GENERAL INFORMATIONAfrican Phoenix Investments Limited (“Phoenix”) is a listed company incorporated in the Republic of South Africa. The company is the ultimate holding company of The Standard General Insurance Company Limited (“Stangen”) and the principal activities of the company are disclosed in the directors’ report .

2. ADOPTION OF NEW STANDARDS AND INTERPRETATIONSFor details on the new and revised IFRSs in issue please refer to pages 52 to 57 of this report.

3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY In addition to the note below, please refer to pages 60 to 61 of this report for further critical accounting judgements and key sources of estimation uncertainty.

3.1. GOING CONCERNThe directors have considered the following factors in deciding whether the company is a going concern:

• The company has sufficient cash resources to pay its creditors as and when they fall due and meet its operating costs for the foreseeable future;

• The company’s only operating subsidiary, Stangen, is a going concern;

• The company has available cash resources to deploy in developing existing operations or investing in new opportunities;

• The board and management are not aware of any significant pending legislation that will threaten the going concern status of the company; and

• It is management’s view that sufficient risk mitigants are in place for key financial risks facing the company.

The going concern assessment is a matter of judgement. In making this judgement, the directors have considered the uncertainties arising from their assessment, both individually and collectively.Based on the above, the directors consider the preparation of the annual financial statements on a going concern basis as appropriate given that the company has sufficient assets and cash to settle its commitments in the normal course of business for a period of not less than one year from the date of approval of these annual financial statements.

4. SIGNIFICANT ACCOUNTING POLICIESThe annual financial statements of African Phoenix Investments Limited are prepared according to the same principles used in preparing the consolidated annual financial statements of the Phoenix group.

For detailed accounting policies please refer to pages 61 to 70 of this report.

5. CASH AND CASH EQUIVALENTS


Current accounts 83 128 73 086Call accounts 74 3 200Notice deposits and cash equivalents 886 260 285 640

Cash and cash equivalents 969 462 361 926

NOTES TO THE COMPANY ANNUAL FINANCIAL STATEMENTSfor the year ended 30 September 2018


5. CASH AND CASH EQUIVALENTS CONTINUEDCurrent and call accounts are all with SA Banks, bear interest at market related rates and are withdrawable on demand.Notice deposits are placed with SA Banks withdrawable in 32 days and bears interest at market related rates for such deposits. Cash equivalents represents units held in the Stanlib Money Market Fund withdrawable in 24 hours.

6. FINANCIAL ASSETSPlease refer to page 71 of this report

7. OTHER ASSETS


Residual Debt Services Limited (“RDS”) – senior stub instrument 45 196 43 412Prepaid expenses – 509Rental deposit 176 –Sundry debtors 10 87

Total other assets 45 382 44 008

RDS restructuringOn 10 August 2014, the South African Reserve Bank (SARB) announced that it is placing African Bank Limited (now Residual Debt Services Limited) under curatorship with effect from that day. The announcement contained a proposal for the restructuring of the liabilities of African Bank. As per the proposal, senior debt instruments and wholesale deposits (excluding subordinated debt holders) would be transferred at 90% of the face value following the restructuring. Thus, in 2016, the amounts receivable from ABL were recorded in the manner reflecting the measures proposed by SARB (the wholesale deposits were recorded at 90% of face value).The Offering Information Memorandum (“OIM”) was issued on 4 February 2016 and implemented on 4 April 2016. The OIM provided that 80% of the debt was to be transferred to “New African Bank Limited”, 10% was to be paid out in cash in April 2016 and senior stub notes in RDS issued for the remaining 10%.Phoenix negotiated an early settlement agreement with New African Bank in terms of which most of the 80% transferred to New African Bank was also paid out in cash.Residual Debt Services Limited (‘’RDS’’) – senior stub instrumentPhoenix had previously impaired its deposit with RDS by the initial 10% “haircut”, which 10% was subsequently issued as the senior stub instrument in terms of the OIM (number of units: 59.5 million), as the recoverability was indeterminate.The carrying value was reviewed following an update released by the curator of Residual Debt Services Limited on 8 June 2017 which indicated that a partial settlement of the senior stub instrument was anticipated. Two distributions for interest accrued from 10 August 2014 to 30 July 2018 for R17.2 million was received from RDS. Phoenix has now recorded the senior stub at a value of 76 cents (2017: 73 cents) in the rand, representative of the over the counter trading price at 30 September 2018 and 30 September 2017 respectively. The stub instrument is classified as loans and receivables in terms of IAS 39 and measured at amortised cost.


8. EQUIPMENTR thousand 2018 2017

Costs 2 183 –Computer equipment 295 –Furniture and fittings 414 –Office equipment 317 –Leasehold improvements 1 157 –Accumulated depreciation (58) –Computer equipment (21) –Furniture and fittings (9) –Office equipment (8) –Leasehold improvements (20) –Closing carrying value 2 125 –Computer equipment 274 –Furniture and fittings 405 –Office equipment 309 –Leasehold improvements 1 137 –Reconciliation of carrying valuesComputer equipment 274 –Balance at beginning of the year – –Additions 295 –Depreciation (21) –

Carrying value at the end of the year 274 –Furniture and fittings 405 –Balance at beginning of the year – –Additions 414 –Depreciation (9) –

Carrying value at the end of the year 405 –Office equipment 309 –Balance at beginning of the year – –Additions 317 –Depreciation (8) –

Carrying value at the end of the year 309 –Leasehold improvements 1 137 –Balance at beginning of the year – –Additions 1 157 –Depreciation (20) –

Carrying value at the end of the year 1 137 –

NOTES TO THE COMPANY ANNUAL FINANCIAL STATEMENTS continuedfor the year ended 30 September 2018


9. INTANGIBLE ASSETS


Software 234 –

Cost 241 –Accumulated amortisation (7) –

Carrying value at the end of the year 234 –

Reconciliation of carrying valueSoftware 234 –

Balance at beginning of the year – –Additions 241 –Amortisation (7) –

Carrying value at the end of the year 234 –

The remaining useful life of the software is three years

10. INVESTMENTS IN SUBSIDIARIES


Unlisted sharesShares at cost less impairments 554 929 554 929

Total carrying value 554 929 554 929

Reconciliation of carrying valueOpening balance 554 929 565 429Impairment of investment in CPI Limited – (10 500)

Carrying value at the end of the year 554 929 554 929

11. OTHER LIABILITIES


Sundry creditors and accruals 2 484 2 758Shareholders for odd-lot offer 12 556 12 564Shareholders for unclaimed dividends 13 829 13 829

28 869 29 151

12. ORDINARY SHARE CAPITAL AND PREMIUMPlease refer to page 80 of this report

13. PREFERENCE SHAREHOLDERS’ EQUITYPlease refer to page 81 of this report


14. RESERVES


Reserves comprise the followingAccumulated loss (13 934 720) (14 846 797)

Total reserves (13 934 720) (14 846 797)

15. INTEREST INCOME


Fixed deposit and call interest received 43 263 23 082Accrued Interest on Stanlib EIF 130 –

43 393 23 082

Interest income is attributable to:Loans and receivable (including cash and cash equivalents) 43 393 23 082

16. OTHER INCOME


Recovery of fully impaired claims against EF and EHL 15 803 45 422Fair value through profit and loss (Stanlib EIF) (3) –

15 800 45 422

During 2015 Ellerine Furnishers Proprietary Limited (“EF”) (in business rescue) and Ellerine Holdings Limited (“EHL”) (in business rescue) defaulted on their guaranteed debts and Phoenix was called upon to settle the balances of the guaranteed debts not otherwise settled by EF and EHL. Phoenix settled the outstanding amounts to the relevant Banks in terms of its obligations under the guarantee agreements.After making the guarantee payments Phoenix entered into deeds of cession with the Banks whereby the Banks ceded to Phoenix all of their rights, against EF and EHL the right to receive any monies and the proceeds of any payments made by EF and EHL to the Banks. The recoveries of R45 million and R15.8 million made in the prior and current financial year were in effect payments that EF and EHL would have made to the Banks but as Phoenix had honoured its guarantee obligations became payable to Phoenix.



17. OPERATING EXPENSESR37.1 million operating expenses includes R7.2 million related to the Proposed Transaction per note 27.


Operating expenses include:Staff costs – Basic remuneration (note 28) 5 083 7 021Non-executive directors’ remuneration – fees (note 28) 6 392 3 371Consulting fees 5 572 2 191Business rescue fees (note 23) 881 1 138Legal expenses 8 617 4 090Depreciation and amortisation costs 65 –Other costs 10 475 6 238

37 085 24 049

18. TAXATION


Total taxation 11 814 4 953

Current taxation: current year 11 814 4 953

% 2018 2017

Tax rate reconciliationStatutory tax rate 28.00 28 .00Non-taxable dividend income1 (27.28) (2.85)Non-taxable income (recovery of fully impaired claim) (0.48) (14.78)Capital items (reversal of impairment of financial instrument) (0.05) (8.76)S23(f) limitation – –Non-deductible expenses1 1.09 4 .15

Effective tax rate 1.28 5 .76

1 Approximately 95% of deductible operating expenses in Phoenix is disallowed for deduction in calculating the taxable income of Phoenix due to the proportion of exempt income to total income. This is primarily driven by the R900 million dividend paid from Stangen to Phoenix in September 2018.

19. ORDINARY AND PREFERENCE DIVIDENDSPlease refer to page 86 of this report


20. CASH INFLOW FROM OPERATING ACTIVITIES


Profit before taxation 923 891 86 039Adjustment for:

Depreciation 58 –Amortisation of software 7 –Movement in working capital 128 (2 142)Accrued Interest on Stanlib EIF (127) -Reversal of impairment of financial asset and subsidiaries (1 784) (32 912)

Cash generated from operations 922 173 50 985

21. DIRECT TAXATION PAID


Decrease in tax debtor (399) (90)Direct taxation charged to the income statement (note 18) (11 814) (4 953)

Taxation paid (12 213) (5 043)

22. RELATED PARTY BALANCES AND TRANSACTIONSAfrican Phoenix Investments Limited holds 100% (one hundred percent) of inter alia Gilt Edged Management Services Proprietary Limited (GEMS), Customer Protection Insurance Company Limited (CPI) (dissolved) and The Standard General Insurance Company Limited (Stangen). Details of investments in subsidiaries are disclosed in annexure A. Transactions between the company and its subsidiaries were in the ordinary course of business on market related terms and conditions similar to those arranged with third parties. Remuneration and other fees paid to directors are disclosed in note 28.

R thousand Transaction types 2018 2017

BalancesStangen Payable – (235)Gilt Edged Management Services Receivable – 5

Total – (230)

TransactionsStangen Dividends 900 000 –Stangen Administration fees (2 370) (1 725)Customer Protection Insurance Company (in liquidation) Dividends 118 8 767Business rescue fees Fees (261) (1 329)

Total 897 487 5 713

The receivables and payables have no specific repayment terms and carry no interest.



23. COMMITMENTS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS


Commitments Rental commitments due within one year 864 –Rental commitments due two to five years 3 791 –

Total commitments 4 655 –

Contingent liabilities Please refer to page 91 of this report

Contingent assets Please refer to page 91 of this report

24. FINANCIAL RISK 24.1 INTEREST RATE RISK

The company is exposed to interest rate risk associated with the effects of fluctuations in the prevailing levels of market rates on its financial positions and cash flows. Please refer to note 26 for interest rate sensitivity analysis .

24.2 LIQUIDITY RISK

R thousand Up to one

month

One to three

months

Four to 12

months

12 to 36

months

Beyond 36

months

Non-financial

instru-ments Total


767 359 202 103 – – – – 969 462

Financial assets 300 127 – – – – – 300 127Other assets – – – 45 196 186 – 45 382Taxation – – – – – 1 622 1 622Equipment – – – – – 2 125 2 125Intangible assets – – – – – 234 234Investment in subsidiaries

– – – – – 554 929 554 929

Total assets 1 067 486 202 103 – 45 196 186 558 910 1 873 881

Liabilities and equityOther liabilities 28 869 – – – – – 28 869

Total liabilities 28 869 – – – – – 28 869Total equity – – – – – 1 845 012 1 845 012

Liabilities and equity 28 869 – – – – 1 845 012 1 873 881

On balance sheet interest sensitivity 1 038 617 202 103 – 45 196 186 (1 286 102) –


24. FINANCIAL RISK CONTINUED24.2 LIQUIDITY RISK CONTINUED

R thousand Up to one

month

One to three

months

Four to 12

months

12 to 36

months

Beyond 36

months

Non-financial

instru-ments Total


76 286 285 640 – – – – 361 926

Other assets 596 2 000 – 41 412 – – 44 008Taxation – – – – – 1 223 1 223Investments in subsidiaries

– – – – – 554 929 554 929

Total assets 76 882 287 640 – 41 412 – 556 152 962 086

Liabilities and equityOther liabilities 29 151 – – – – – 29 151

Total liabilities 29 151 – – – – – 29 151Total equity – – – – – 932 935 932 935

Liabilities and equity

29 151 – – – – 932 935 962 086

On balance sheet interest sensitivity 47 731 287 640 – 41 412 – (376 783) –

The table above analyses the company’s assets and liabilities into relevant maturity groupings based on the remaining period at statement of financial position date to contractual maturity date.



25. ANALYSIS OF FINANCIAL ASSETS AND LIABILITIES 25.1 ANALYSIS OF FINANCIAL ASSETS

R thousand

Loans and receivables at amortised

cost

Financial assets held

at fair value through

profitand loss

Non-financial

instruments Total

2018AssetsCash and cash equivalents 969 462 – – 969 462Financial assets – 300 127 – 300 127Other assets 45 382 – – 45 382Taxation – – 1 622 1 622Equipment – – 2 125 2 125Intangible assets – – 234 234Investments in subsidiaries – – 554 929 554 929

1 014 844 300 127 558 910 1 873 881

R thousand

Loans and receivables at amortised

cost

Financial assets held

at fair value through profit

and lossNon-financial instruments Total

2017AssetsCash and cash equivalents 361 926 – – 361 926Other assets 44 008 – – 44 008Taxation – – 1 223 1 223Investment in subsidiaries – – 554 929 554 929

405 934 – 556 152 962 086


Income statement effect of financial instruments by categoryInterest income recognised – loans and receivables 43 393 23 082

The carrying amount of the financial assets carried at amortised cost approximates their fair value. The carrying amount reflected above represents the company’s maximum exposure to credit risk for such loans and receivables .


25. ANALYSIS OF FINANCIAL ASSETS AND LIABILITIES CONTINUED 25.2 ANALYSIS OF FINANCIAL LIABILITIES

R thousand

Liabilities held at

amortised cost

Non-financial

instruments Total

2018Other liabilities 28 869 – 28 869Shareholders’ equity – 1 845 012 1 845 012

28 869 1 845 012 1 873 881

2017Other liabilities 29 151 – 29 151Shareholders’ equity – 932 935 932 935

29 151 932 935 962 086

The carrying amount of financial liabilities measured either at fair value or at amortised cost approximates their fair value.

26. RISK MANAGEMENTFinancial assets and liabilities are measured either at fair value or amortised cost in the statement of financial position. Assets include bank balances stated at cost.

26.1 INTEREST RATE RISK MANAGEMENTThe more important financial risks to which the company is exposed and the manner in which they are managed are described below:Changes in market interest rates have a direct effect on the contractually determined cash flows associated with floating rate financial assets and liabilities. The company follows a conservative investment policy as can be seen from the significant cash and cash equivalent holdings. Fixed and call deposit investments not exceeding six months make up the majority of the company’s investments to minimise the company’s interest rate risk exposure.The table below summarises the company’s exposure to interest rate risk through grouping assets into repricing categories, determined to be the earlier of the contractual repricing date or maturity. A possible change of one percent was used based on historic changes in the relevant categories within a twelve-month period.



26. RISK MANAGEMENT CONTINUED26.1 INTEREST RATE RISK MANAGEMENT CONTINUED

R thousand

Carrying value at year end

Carrying value

exposed to

market risk

Index to which

interest rate

is linked

Reason-able

possible change

Statement of comprehensive

income

Pre-tax Post-tax

Sensitivity analysis2018Financial assetsCash and cash equivalents 969 462 969 462 Prime 1.00% 9 695 6 980Financial asset 300 127 300 127 Prime 1.00% 3 001 2 161

Other assets 45 382 45 1963 month

JIBAR 1.00% 454 327

1 314 971 1 314 785 13 150 9 468


2017Financial assetsCash and cash equivalents 361 926 361 926 Prime 1 .00% 3 619 2 606

Other assets 44 008 43 4123 month

JIBAR 1 .00% 440 317

405 934 405 338 4 059 2 923


26.2 CREDIT RISKFair values of financial assets may be affected by the credit worthiness of the issuer. All domestic large exposures are with South African banks licensed under the Banks Act No 94 of 1990. The limitation of assets as regulated by the Long-term Insurance Act of 1998 is used as guidance for large exposures. The company has no foreign credit risk.

26.3. CURRENCY RISKThe company has no currency risk exposure.

27. SUBSEQUENT EVENTS Please refer to page 100 of this report

28. DIRECTORS’ REMUNERATIONPlease refer to page 101 of this report


Type of business

Issuedshare capital

R million

Effectivepercentage

held%

Investment(cost less

impairment)R thousand

2018Direct investment by Phoenix Residual Debt Services Limited (RDS)1 Under 121 100 14 419 745RDS – impairment curatorship – 100 (14 419 745)The Standard General Insurance Company Limited – cost

Long-term Insurer

5 100 539 135

Gilt Edged Management Services Proprietary Limited

Dormant * 100 15 794

Ellerine Holdings Limited (EHL)1 In business 6 100 9 664 508EHL – impairment rescue – 100 (9 664 508)

132 554 929

2017Direct investment by PhoenixResidual Debt Services Limited (RDS)1 Under 121 100 14 419 745RDS – impairment curatorship – 100 (14 419 745)Theta Investments Proprietary Limited2 Dormant * 100 63 781Theta Investments Proprietary Limited – impairment

Dormant – 100 (63 781)

The Standard General Insurance Company Limited – cost

Long-term Insurer

5 100 539 135

Customer Protection Insurance Company Limited2

Dormant 10 100 10 500

Customer Protection Insurance Company Limited – impairment

In liquidation – 100 (10 500)

Gilt Edged Management Services Proprietary Limited

Dormant * 100 15 794

Creditsave Proprietary Limited2 Dormant * 100 8 000Creditsave Proprietary Limited – impairment

Dormant – 100 (8 000)

Ellerine Holdings Limited (EHL)1 In business 6 100 9 664 508EHL – impairment rescue – 100 (9 664 508)

142 554 929

All subsidiaries are incorporated in the Republic of South Africa.1 Residual Debt Services Limited and Ellerine Holdings Limited are under the control of the curator and business rescue

practitioners, respectively. 2 Theta Investments Proprietary Limited and Creditsave Proprietary Limited was deregistered in the current financial year.

The liquidation of Customer Protection Insurance Company Limited was also finalised in the current financial year.* Amounts below R0.5 million.

ANNEXURE A – INVESTMENT IN SUBSIDIARIES


COMPANY INFORMATION

SPONSORMerchantec Capital

BOARD OF DIRECTORSIndependent non-executives: M Mthombeni (Chairman); A Conrad; M Kabi; O Mabandla; R Mathura; N SiyotulaNon-executive: S SitholeExecutives: S Nhlumayo (CEO); S Rawoot (FD)

AFRICAN PHOENIX INVESTMENTS LIMITED(Incorporated in the Republic of South Africa) (Registration number: 1946/021193/06) (Ordinary share code: AXL) (ISIN: ZAE000221370)(Hybrid instrument code: AXLP) (ISIN: ZAE000221388)

REGISTERED OFFICE3rd Floor, Global House28 Sturdee AvenueRosebankSouth Africa, 2196

COMPANY SECRETARYAcorim Proprietary Limited

SHARE TRANSFER SECRETARIESLink Market Services South Africa Proprietary Limited 13th Floor, Rennie House19 Ameshoff Street, Braamfontein, South AfricaPO Box 4844Johannesburg South Africa 2000Telephone: +27 11 713 0800Telefax: +27 86 67 4 4381

WEBSITEwww.phoenixinvestments.co.za


NOTES

integrated report 2018 · shafiek rawoot as financial director on 1 march 2018 and 1 july 2018...

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