| Thu 15 Mar 2001, 0:00 | | Fedsure Holdings Limited - Financial Results |
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FEDSURE HOLDINGS LIMITED
(reg. No 1969/012384/06)
AUDITED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2000
SUMMARISED CONSOLIDATED INCOME STATEMENT
YEAR ENDED 31 DECEMBER
2000 1999
Rm Rm
OPERATING PROFIT 467 617
Continuing operations (29) 79
Healthcare (note 1) 12 79
Provision for guarantees (note 2) (41) -
Discontinued operations 496 538
Life insurance (note 3) 421 435
Financial services and
international (note 4) 75 103
EXCEPTIONAL ITEMS 2286 -
Net adjustment to shareholders'
assets of Fedsure
Life in respect of immediate
annuities and non
unitised business and market
movements on
shareholders'
assets (note 5.1) (1310) -
Write off of goodwill relating
to Healthcare business
(note 5.2) (397) -
Adjustment to the fair value of
Norwich Life at
acquisition (note 5.3) 152 -
Rebate of administration
fees charged to the
Fedsure Health open medical
scheme (note 5.4) (231) -
Profit on disposal of
subsidiaries (note 5.5) 4072 -
EARNINGS ATTRIBUTABLE TO ORDINARY
SHAREHOLDERS 2753 617
Weighted average number of
ordinary shares in
issue (millions) 172,7 170,7
ATTRIBUTABLE EARNINGS
PER SHARE (Cents) 1594,1 361,5
DIVIDENDS PER SHARE (Cents)
Interim 80 80
Final - 120
Total 80 200
NOTES
1. Continuing operations
Healthcare
Revenue 829 599
Net investment income 27 11
Operating, marketing and
administration
Expenditure (869) (584)
Finance costs (16) -
Share of results of associates 41 53
Operating profit 12 79
2. Continuing operations
Provision for guarantees
A provision of R41 million has
been made for guarantees for
which Fedsure will retain
responsibility. This includes
any shortfalls which may
result from TMA's activities.
3. Discontinued operations
Life Insurance
Premium income 8289 9858
Net investment income 2285 1962
Policyholder benefits (8120) (5986)
Commissions (543) (408)
Operating, marketing
administration expenditure (655) (512)
Policyholder taxation (78) (110)
Net transfer to life fund (757) (4369)
Operating profit 421 435
Comprising:-
Life business margins 390 315
Income on free assets 31 120
421 435
4. Discontinued operations
Financial Services and
International
Revenue 1570 1356
Net investment income 126 70
Operating, marketing and
administration expenditure (1568) (1325)
Finance costs (67) -
Share of results of associates 14 2
Operating profit 75 103
5. Exceptional Items
5.1 The accounting policy adopted by Fedsure Life is to transfer movements on
assets relating to non unitised liabilities and realised/unrealised movements
on the market value of shareholders' assets direct to the life funds. Fedsure
Life experienced negative investment returns during the year. Excess assets
existing at 31 December 1999 were insufficient to meet the adverse experience
in 2000 in respect of annuity and non unitised business and market movements
relating to the shareholders' portion of excess assets. The deficit has been
charged to the income statement.
5.2 In view of the financial support required for the medical schemes
business (see 5.4 below) of the Healthcare group and evaluation of the fair
value of underlying assets and liabilities, the carrying value of the goodwill
has been permanently impaired and consequently has been written off.
5.3 In previous years shareholders' profits on certain classes of business in
Norwich Life were not recognised in the income statement.
These profits are now recognised. An amount of R152 million relates o periods
prior to acquisition of Norwich. At the interim stage, in accordance with the
Group's accounting policies, this was set off against goodwill. Consequent to
the write off of goodwill set out in note 5.2, this amount has been released to
the income statement.
5.4 As a result of the poor underwriting performance of the Fedsure Health
open medical aid scheme, Fedsure Healthcare has provided support in the form
of a rebate to the scheme of R231 million of its administration fees charged.
5.5 Profit on disposal of the financial services businesses and insurance
businesses of the Fedsure Group to Investec Group Limited.
SUMMARISED CONSOLIDATED BALANCE SHEET
2000 1999
Rm Rm
Assets
Investment assets 98 41439
Other non-current assets 328 801
Current assets 5156 2377
Sale proceeds 4592 -
Receivables 418 2155
Cash and cash equivalents 146 222
Total assets 5582 44617
Equity and liabilities
Capital and reserves 4480 1813
Outside shareholders' interest - 106
Non-current liabilities 251 39771
Insurance funds 1 39219
Other 250 552
Current liabilities 851 2927
Total equity and liabilities 5582 44617
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
2000 1999
Rm Rm
Share capital and share premium 1048 923
Balance at beginning of year 923 923
Arising from issue of shares 125 -
Non-distributable reserves 1 73
Balance at beginning of year 73 69
Unrealised exchange gains - (2)
Short-term contingency reserves - 6
Elimination of reserves on disposal
of subsidiaries (73) -
General 1 -
Retained earnings 3431 817
Balance at beginning of year 817 555
Change in accounting policy - (14)
817 541
Earnings attributable to ordinary
shareholders 2753 617
Dividends (139) (341)
4480 1813
ACCOUNTING POLICIES
General
The accounting policies adopted for the purpose of this report comply, in all
material respects, with South African Statements of Generally Accepted
Accounting Practice, as well as with applicable legislation. These accounting
policies are, with the exception the revised policy to provide for leave pay,
consistent with those of the previous year.
Comparative figures
Where necessary, comparative figures have been restated to conform with the
change in the accounting policy for leave pay.
SALE OF BUSINESSES TO INVESTEC GROUP LIMITED ("Investec")
As previously announced the Fedsure Group has sold all of its financial
services businesses and insurance businesses to Investec with effect from 31
December 2000. The purchase consideration has been finalised at 19212204
Investec shares, and R250 million in cash. Based on the Investec share price
of R226 per share prevailing at the time of the initial negotiations, the total
consideration amounts to R4 592 million. The exceptional profit on the
disposal of these subsidiaries of R4 072 million is reflected in the summarised
consolidated income statement. The transaction is subject to the approval of
various regulatory authorities and shareholders which we and our professional
advisors believe will be forthcoming.
The summarised consolidated balance sheet at 31 December 2000 includes the
assets and liabilities applicable to Fedsure Holdings and the Fedsure
Healthcare group which were not included in the sale, together with the sale
proceeds receivable from Investec.
COMMENTARY ON RESULTS
Group results
The Group operating profit for the year decreased by 24% to R467 million,
comprising a loss of R29 million (1999: R79 million profit) from continuing
operations and a profit of R496 million (1999: R538 million) from discontinued
operations.
In arriving at the earnings attributable to ordinary shareholders of R2 753
million, credit has been taken for the profit on disposal of subsidiaries (R4
072 million) and a net charge of R1 786 million relating to material
exceptional items.
The loss attributable to ordinary shareholders excluding the profit on disposal
of subsidiaries was R1 319 million. No final dividend has been declared.
Continuing Businesses
* Healthcare
Fedsure Healthcare had an extremely difficult year and experienced a reduction
in operating profit from R79million to R12million. As reported at the interim,
the reduction in earnings in the funding and administration business, was
largely due to administration problems, poor customer service and a reduction
in the membership levels.
A major campaign was carried out in mid year which largely eliminated
administration backlogs and resulted in an improvement in customer service. As
claims were brought up to date it became apparent that the Fedsure Health Open
Scheme had experienced poor underwriting performance. To maintain the strength
of the scheme, Fedsure Health Limited provided support in the form of a rebate
of R231 million in the administration fees it charged to the scheme.
The senior management at Fedsure Health has been replaced, and the new
management has implemented a rigorous campaign of cost cutting and staff
rationalisation to streamline the business and improve operating efficiencies.
The cash element of the Investec consideration for the sale of businesses of
R250 million is to be injected into Fedsure Healthcare to replenish
shareholders' funds. These funds will be utilised to reduce gearing.
A decision has been taken to dispose of the non-core businesses within
Healthcare including Medicross, GP Net and Ampath. Negotiations with potential
purchasers are already well advanced and we are confident that agreements will
be concluded within the next 3 to 4 weeks. The proceeds of these sales will be
used to reduce the borrowings of the Healthcare division. The future of the
business is being reviewed and various strategic options are being considered,
taking into account the best interests of shareholders and members.
Discontinued businesses
The results of the life insurance businesses and financial services businesses
were included in the Fedsure Group's earnings until their disposal to Investec
on 31 December 2000. Their performance for the year is reviewed below:
* Life insurance
There has been a weakening of the actuarial position of the Group's life
insurance businesses, which has resulted in an exceptional transfer from
shareholders to policyholders of R1 310 million. This transfer was
necessitated by many factors, the most material of which were:-
* Increase in policyholder liabilities not covered by investment returns of
R0,8 billion. A material factor has been the overexposure of the Fedsure Life
insurance funds to the financial sector and to property. After many years of
out-performance of the financial sector, the last three years were very
disappointing.
* Loss on immediate annuity business of R0,3 billion. There was a large drop in
bond rates in the latter part of the year and due to the duration of
liabilities exceeding that of the assets this caused a valuation loss of R0,2
billion. The balance of the loss resulted from changes in actuarial
assumptions and an adverse mortality experience. Since the year end action has
been taken to protect the portfolio from future losses.
* Actuarial balance sheet
During the year R700 million of additional capital was injected into Fedsure
Life. Despite this injection, the consolidated excess of assets over
liabilities dropped by R732 million, as shown in the table below:-
2000 1999
Rm Rm
Excess assets
- Fedsure Life 1 358 1 815
- Norwich Life 1 430 1 705
2 788 3 520
Consolidation adjustment (800) (800)
Total 1 988 2 720
The full actuarial balance sheet and analysis of movements in the excess assets
will be
published in the circular being posted to shareholders on or about 22 March.
* Embedded value
Details of the Group's embedded value will be included in the circular being
posted to shareholders on or about 22 March.
* Transfer of assets and liabilities from Norwich Life to Fedsure Life ("The
Norwich merger")
In our interim report we announced our intention to proceed with the legal
merger of the Norwich and Fedsure life funds. Details of the merger were
circulated to all affected Norwich Life policyholders and no objections have
been received. Emerging from the finalisation of the year-end actuarial
valuation, there has been a reduction in the free assets position of Fedsure
Life which, while adequately in excess of statutory requirements, may impede
the proposed transfer of the assets and liabilities of Norwich Life into
Fedsure Life. Accordingly, Investec has agreed to inject additional capital
into Fedsure Life to facilitate completion of the Norwich merger. The merger
is subject to final approval by the Financial Services Board and the High Court
* Financial services and international
The financial services and international businesses produced an operating
profit of R75 million compared to R103 million in 1999 in very competitive and
volatile markets with poor overall investment returns.
UNBUNDLING OF INVESTEC SHARES
It is Fedsure's intention to unbundle the Investec consideration shares
received to its shareholders. The unbundling will be in more than one tranche.
The record date on which Fedsure shareholders must be registered in order to
participate in the initial tranche will be the close of business on the first
Friday following the fulfilment of all conditions precedent. The timing of any
later tranche will be dependent on the sale of businesses by Fedsure
Healthcare, the proceeds from which will be used to repay bank facilities and
release Investec shares used as security. Dependent on the values realised for
the healthcare businesses and the quantification of any other contingent
liabilities which occurred prior to 31 December 2000 and for which Fedsure is
responsible, there is a possibility that Fedsure will retain or sell a portion
of these shares. Full details will be included in the circular being posted to
shareholders on or about 22 March.
For and on behalf of the Board
J A BARROW A I BASSERABIE
Chairman Group Chief Executive
Johannesburg
15 March 2001
Registered Office: Fedsure House, 1 de Villiers Street, Johannesburg, 2001
Transfer Secretaries: Mercantile Registrars Limited, 11 Diagonal Street,
Johannesburg, 2001
Directors: J A Barrow (Chairman), D H Mitchell (Deputy Chairman), A I
Basserabie (Group Chief Executive), D G Barrow, A Hart, H S Herman, Dr A P H
Jammine, V P Khanyile, M E King, S Koseff,
D M Nurek, M I Sacks
Group Secretary: R A Krabbenhvft
Fedsure Holdings Limited Reg No. 1969/012384/06
Visit the Fedsure website for more information
www.fedsure.co.za
