$2.47 Magic Figure For Nrma Voters

Sydney Morning Herald

Monday November 15, 1999

By ANNE LAMPE

The expert accountants evaluating NRMA's partial demutualisation value the insurance group at between $3.2 billion and $4 billion putting a minimum net asset backing of $2.47 a share.

The valuation, by accountant PricewaterhouseCoopers, is in the fifth draft of the documents that are to go to members to vote on the proposal to demutualise the insurance arm and list its shares on the Australian Stock Exchange.

The minimum value of $2.47 a share will form the basis of the cost price for capital gains tax calculation purposes.

The market price, once the shares list, could be considerably higher judging by other assessments of NRMA, particularly a $5 billion valuation made by stockbroker Macquarie Equities several months ago.

It was Macquarie that calculated each member would get an average of $3,000 worth of shares if the company pursued its demutualisation.

Discussion of the demutualisation proposal is not on the agenda for tomorrow's NRMA annual meeting, although it may attract questions from the floor.

PWC has advised that NRMA Ltd, the road service association, should receive 10 per cent of the total shares being issued by NRMA Insurance.

This would give the association a capital base of between $320 million and $400 million and a dividend stream.

The share issue would compensate the organisation for giving up special rights over Insurance, for the financial impact of business relationship agreements between the two groups and for assigning licence rights over various trademarks to Insurance.

The remaining shares would be split between the association members, who would receive 40 per cent, and Insurance members 50 per cent. There are 1.26 million Insurance members, most of whom also belong to the motoring organisation.

No shares would be allocated to NRMA Life policy holders, most compulsory third party policy holders or members of NRMA Building Society. PWC says NRMA Life is worth $160 million.

For NRMA members who receive aged, or other, pensions, being allocated shares in a demutualised NRMA could have a negative impact on pension entitlements, as the shares will be taken into account for assets and income test purposes.

Critical to the success of the proposed demutualisation are the arrangements between the two groups over joint services and sharing the brand.

Under trademark, licensing and shared service agreements, Insurance will have the right to use the NRMA name for any of its products and services. The road service association will acquire and pay for services from Insurance, including marketing and distribution. The pair will share databases that cannot be used by third parties.

Other facets of the agreements include:

Insurance will provide all services including branch activities, handling of membership or member services, sale of road memberships and other products, travel services, call centre activities, country centres, Internet and assistance services. The fees will recover the full cost plus a 5 per cent margin.

The general fee payable by the road service association during the first, second and third years will be the lesser of 10 per cent, 12 per cent and 15 per cent respectively of the association's revenue and the full costs plus 5 per cent, on the other hand.

The Open Road magazine will continue to be published by the association with Insurance taking five pages per issue of advertising space.

IT services will be outsourced and Insurance will provide technology services to the association. Fees for this service will be variable and based on services provided, plus a profit margin.

These agreements will see the association's costs rise from a forecast $10.1 million next year to $22.6 million in 2004. Projected revenues are tipped to rise at a much slower rate, from $6.18 million next year to $6.95 million in 2004. After tax this will mean that the road service association will incur forecast losses ranging from $5.9 million next year to $17.7 million in 2004. Despite these forecast losses the board undertakes to freeze association membership fees until June 2001, other than for the impact of the GST.

The explanatory memorandum to be sent to policy holders contains both a ``yes" and a ``no" case.

It will include each of the 16 directors' view on the pros and cons of the proposed float.

The proposal will be put to the Supreme Court as a scheme of arrangement before being sent to voting members.

Individual share allocations have yet to be decided in detail, but the broad principle is that allocations will be a factor of the number of years of membership and the number of general insurance policies held.

Directors and senior executives of NIGL will receive shares or options, but not until after the float.

However, dissident director Mr Ian Yates has been specifically excluded from receiving any entitlement to shares other than what he is entitled to as a member of the NRMA and any insurance policies he holds.

Mr Yates is still on the board but has taken leave of absence until March 2001 due to cancer treatment.

One area where savings will emerge will be from the $270 million surplus in the staff super fund.

This surplus will enable the group to take an eight-year contributions holiday meaning that no employer contributions need be made into the super fund for that period.

Sharing the spoils

NRMA INSURANCE

Associated (Road service association) 10 pc

Association Members 1.77m: Per year 20pc

Per year of memebership 20pc

Insurance Members 1.26m

Per Memebr 25pc

Per Insurance Policy 25pc

Allocation of share recommended by Pricwaterhousecoopers

© 1999 Sydney Morning Herald

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