| Wed 23 May 2001, 0:00 | | Alexander Forbes Preliminary - Audited Results |
|
Alexander Forbes Limited audited results
for the year ended 31 March 2001
- average headline EPS growth of 33% over five years
- revenue from operations up 33% to R3,1 billion
- headline EPS up 32% to 123,2 cents
- major acquisitions in the United Kingdom
- GBP100 million exchangeable bond issue
Review of operations
overview
Alexander Forbes has maintained its growth path, with revenue from operations
increasing 33% to R3,1 billion and headline profits increasing 33% to R420
million. This builds on an impressive track record since listing in 1996.
Headline earnings per share have increased on average by 33% per annum over the
past five years.
The continued high revenue growth and profitability has been achieved through a
combination of strong organic growth within our established international
businesses, as well as new acquisitions in the United Kingdom.
Excluding acquisitions, the underlying growth in revenues was 21% (2000: 26%).
This represents significant real growth given the current levels of inflation i
our two main markets, the United Kingdom and South Africa.
operational review
Our African (principally South African) operations increased revenue and
segmental profits by 17% and 38% respectively. This resulted from a significant
improvement in the margins of our Risk Services business and strong organic
growth in our Financial Services businesses. Excluding the NBC Consultants &
Actuaries disposal and the Meridian acquisition, revenues grew by an underlying
24%. Investment Solutions again produced excellent results, recording a 60%
growth in headline earnings per share.
Revenue and segmental profits from our European (principally United Kingdom)
operations increased 57% and 45% respectively. On an underlying basis, excludin
the Johnstone Douglas, Bradstock, Martin-Gray and Alfred Blackmore acquisitions
revenue increased by 13%. All the acquired businesses performed well. The Risk
Services business recorded excellent growth in revenue and profits.
While the Asian and Latin American operations are relatively small contributors
to the group's revenue and profits, these regions made a significant
contribution to the income earned by the wholesale brokerage business based in
London.
Following the acquisition drive in the United Kingdom, the group now derives
more than half of its revenue from outside of Africa. There is a good balance
between our Financial Services and Risk Services businesses which make up 54%
and 46% of group revenue respectively.
The 44% increase in operating profit significantly exceeded revenue growth and
was underpinned by a strong recovery in the profitability of our Risk Services
business and tight cost control across all businesses. The operating profit
margin improved from 15% to 16% (1999: 12%). After taking account of net
investment income, including the full effect of financing costs for
acquisitions, trading profit increased 39% to R624 million. The trading profit
margin improved from 19% to 20% (1999: 18%).
The group's share of profits of associated companies increased 5% to R68
million. Thebe Hosken Group achieved its revenue and profit targets.
Medscheme has been awarded the South African non-listed company of the year
award.
Non-trading items
Profits attributable to ordinary shareholders include certain non-trading items
namely:
- A net gain of R1 million in respect of headline adjusting items. This
includes a R66 million profit on disposal of the group's interest in NBC
Consultants & Actuaries offset by goodwill amortisation of R50 million and othe
capital costs of R15 million.
- An unrealised currency gain of R35 million on a loan swap arrangement offset
by a R10 million net interest cost on the unutilised proceeds of the
exchangeable bond.
Earnings per share
Headline earnings per share is the measure used to compare the performance of
companies listed on the JSE Securities Exchange South Africa and is calculated
after eliminating goodwill amortisation and other gains or losses of a capital
nature.
Headline earnings per share increased 32% to 123,2 cents. After taking account
of employee share options and the equity conversion option under the
exchangeable bond issued during the year, headline earnings per share increased
by 30% on a fully diluted basis.
The relatively lower increase in basic earnings per share of 18% is largely
attributable to the introduction of goodwill amortisation in the current year.
Previously goodwill was written off directly against share premium and reserves
Excluding goodwill amortisation, basic earnings per share
increased by 30%.
Dividends
The proposed final dividend of 28,9 cents represents a total dividend of 47,0
cents per share for the year. This is a 27% increase over the 37,0 cents paid i
the previous year. Dividend cover is 2,6 times based on headline earnings per
share.
The final dividend has been declared payable to shareholders registered in the
books of the company at the close of business on Friday, 20 July 2001.
Payment by way of electronic funds transfer will be made on or about 30 July
2001.
The group proposes to move to a single annual dividend in the forthcoming
financial year.
UK acquisitions
A number of important acquisitions were concluded in the United Kingdom during
the year, namely:
- employee benefit and financial planning specialist group, Johnstone Douglas;
- retail and specialist insurance broking operations of Bradstock Group Plc;
- financial and risk services group, Martin-Gray (Channel Islands);
- specialist insurance broker, Alfred Blackmore; and
- a 20% shareholding in the leading safety, health and environmental risk
management consultancy in the United Kingdom, National Britannia Group Limited.
The net initial consideration paid for these acquisitions amounted to GBP80
million. Additional deferred consideration of up to GBP12 million may become
payable in respect of the Johnstone Douglas acquisition dependent upon revenues
achieved for the year ending 31 March 2002.
The acquisitions are in line with the group's stated strategy of acquiring
financial services businesses and retail client base in the United Kingdom.
The acquisition of a stake in National Britannia Group Limited represents the
start of an important strategic alliance both in the United Kingdom and
internationally. As part of this alliance a joint venture has been launched in
South Africa.
Exchangeable bond issue
GBP100 million of offshore funds were secured to finance the group's
international expansion. The funds were raised through the issue of an
exchangeable bond to RFS Holdings Limited, an associated company of VenFin
Limited, on 15 September 2000. The bond bears interest at 6% per annum payable
semi-annually in arrears and may be exchanged at any time for 53,7 million new
Alexander Forbes shares (an approximate 14% equity stake). If not exchanged, th
bond may be redeemed for GBP118 million after five years.
Redemption proceeds may be applied to subscribe for new Alexander Forbes shares
at the then ruling market price.
Increase in authorised share capital
On 13 September 2000, shareholders approved by special resolution an increase i
the group's authorised share capital from 400 000 000 to 600 000 000 ordinary
shares of 1 cent each so as to provide the additional
authorised share capital required for the potential equity conversion of the
exchangeable bond and to have an appropriate number of unissued shares in
reserve. The issued share capital increased to 343 888 232 (2000: 338 656 329)
ordinary shares of 1 cent each.
Financial position and cash flows
The continued high level of profitability has further strengthened the balance
sheet with ordinary shareholders1 funds increasing from R167 million to R471
million. Shareholders1 funds are stated after deducting goodwill amortisation o
R47 million in the current year and goodwill written off
directly against share premium and reserves of R1,6 billion in prior years.
The increased shareholders1 funds and GBP100 million exchangeable bond issue
have resulted in a significant growth in capital employed to R2,4 billion.
Strong cash generation continues to be a feature of our business - cash
generated by operating activities increased 33% to R709 million and cash
balances totaled R2,7 billion at the year-end. Cash balances include R230
million (GBP20 million) of unutilised bond proceeds and R492 million of deposit
held as security for loan note obligations included in current liabilities.
Prospects
Alexander Forbes plans to continue to grow its international profile through a
combination of strong organic growth and the pursuit of selective international
acquisitions. The remaining proceeds of the bond issue and additional Sterling
borrowing facilities will be used to further expand the group1s already
considerable international presence, primarily in the United Kingdom.
The board expects satisfactory real growth in headline earnings per share in th
next financial year.
Strate
Alexander Forbes is scheduled to move to the Strate system during August and
September 2001. Dematerialisation will start on 6 August with electronic tradin
commencing on 27 August and the first electronic settlement taking place on 3
September.
For and on behalf of the board
PL Heinamann GW Kerrigan
Chairman Group chief executive
22 May 2001
Group income statement
2000 200
Audited %
Audited
Notes R million increase R
million
Revenue from operations 3 070 33 2
306
Other revenue 28 16
Total revenue 3 098 2
322
Operating expenses (2 592) (1
970)
Operating profit 506 44 352
Net investment income 2 118 23 96
Trading profit 624 39 448
Share of profits of associates 68 65
Profit before non-trading items 692 35 513
Headline adjusting items 1 41
Other non-trading items 3 25 10
Profit before taxation 718 27 564
Taxation (229)
(161)
Profit after taxation 489 403
Outside shareholders1 interest (65) (46
Attributable to ordinary shareholders 424 19 357
Headline adjusting items:
- Profit on disposal of interests (63) (58
- Goodwill amortisation 47 -
- Other 12 17
Attributable headline profits 420 33 316
Headline earnings per share (cents) 123,2 32 93,
Diluted headline earnings per share
(cents) 118,3 30 90,
Earnings per share (cents) 124,3 18
105,5
Diluted earnings per share (cents) 119,4 16
102,6
Dividends per share (cents) 47,0 27 37,
Number of shares (millions)
- issued 344 339
- weighted average 341 338
- diluted weighted average 355 348
Group balance sheet
2000 200
Audited
Audited
Notes R million R
million
Ordinary shareholders1 funds 471 167
Outside shareholders1 interests 146 85
Total shareholders1 funds 617 252
Long-term liabilities - interest bearing 1 573 386
- non-interest bearing 165 93
Deferred taxation 31 27
Capital employed 2 386 758
Policyholders1 and cell owners1
interests in
insurance subsidiaries
Assets 34 547 29
322
Liabilities (34 547) (29
322)
- -
Fixed assets 201 170
Goodwill 965 7
Associates 4 231 73
Investments and loans receivable 581 550
Current assets
Bank balances 2 686 1 19
Other interest bearing receivables 95 -
Non-interest bearing receivables 1 874 874
4 655 2 07
Current liabilities
Bank overdrafts - 81
Other interest bearing liabilities 507 27
Non-interest bearing liabilities 3 740 874
4 247 2 11
Net current assets 408 (42)
Employment of capital 2 386 758
Group cash flow statement
2000 2001
Audited % Audited
R million increase R million
Cash generated by operating activities 709 33 533
Movement in working capital 243 (44)
Taxation paid (125) (168)
Cash available from operating activities 827 321
Dividends paid (105) (108)
Net cash inflow from operating activities 722 213
Cash utilised in investing activities
Subsidiaries and businesses - acquired (940) (85)
- sold 104 -
Associate acquired (116) (4)
Investments and loans receivable 29 (64)
Net fixed assets acquired (67) (37)
Net cash outflow from investing activities (990) (190)
Cash generated from financing activities
Net proceeds of share issues 25 5
Net proceeds of exchangeable bond 1 038 -
Issues of loan notes secured by
cash deposits 492 -
Net repayment of long-term liabilities (150) 22
Outside shareholder funding (12) 112
Net cash inflow from financing activities 1 393 139
Net increase in cash and cash equivalents 1 125 162
Cash and cash equivalents at beginning
of year 1 118 935
Cash balances of subsidiaries acquired 281 5
Foreign subsidiaries1 translation
adjustment 162 16
Cash and cash equivalents at end of year 2 686 1 118
Segmental analysis
2000 2001
Audited % Audited
R million increase R million
Geographic - Revenue from operations
Africa (principally South Africa) 1 531 17 1 307
Europe (principally United Kingdom) 1 304 57 828
Asia 63 34 47
Latin America 172 39 124
3 070 33 2 306
Geographic - Segment profit
Africa 328 38 237
Europe 250 45 173
Asia 8 - -
Latin America 18 38 13
604 43 423
Unallocated net investment income 20 (20) 25
Trading profit per income statement 624 39 448
Business grouping - Revenue from operations
Financial Services 1 643 32 1 242
Risk Services 1 427 34 1 064
3 070 33 2 306
Statement of changes in equity
Share Share
capital premium Reserves
Total
Rm Rm Rm
Rm
At 31 March 2000 3 5 159
167
Share issues and equity component of
exchangeable bond - 73 -
73
Foreign subsidiaries translation
adjustment - - (32)
(32)
Attributable profit - - 424
424
Dividends - - (161)
(161)
At 31 March 2001 3 78 390
471
NOTES
1 basis of accounting
The financial information has been prepared on the historical cost basis.
The accounting policies used in preparing the financial information are
consistent with those of the previous year, except that:
- Goodwill arising after 31 March 2000 is accounted for as an asset in the
balance sheet and amortised over a maximum period of 20 years. Previously,
goodwill totaling R1,6 billion was written off directly against share premium
and reserves.
- Assets and liabilities attributable to policyholders and cell owners of life
and non-life insurance subsidiaries are included in the balance sheet in
accordance with the new accounting statement on financial instruments.
Previously, the balance sheet included only those assets and liabilities
attributable to ordinary shareholders. The insurance subsidiaries are engaged i
multimanager investment, cell captive management, life and non-life operations.
2000 2001
Audited Audited
R million R
million
2 net investment income
Interest and dividends received
Attributable to insurance operations 98 71
Other interest and dividends received 91 33
Less: Attributable to unutilised bond
proceeds (refer note 3) (18) -
Interest paid
Exchangeable bond (57) -
Other interest paid (24) (8)
Less: Attributable to unutilised
bond proceeds (refer note 3) 28 -
118 96
3 other non-trading items
Unrealised currency gain on loan swap
arrangement 35 10
Net interest cost of unutilised
exchangeable bond proceeds (10) -
25 10
4 associates
The directors1 valuation of associates is R302 million (2000: R224 million).
This exceeds the carrying value reflected in the balance sheet of R231 million
(2000: R73 million).
5 capital expenditure and commitments
Depreciation for the year 71 69
Capital expenditure for the year 77 100
Future capital commitments in respect
of contracts placed - 4
Operating lease commitments
Due within one year 92 84
Thereafter 901 539
993 623
Guarantees and suretyships 6 4
Directors
PL Heinamann+ (Chairman) GW Kerrigan* (Group chief executive) J Percy-Davis*
(Deputy group chief executive) TRT Bohlmann+ QJ Heaney* MG Ilsley LM Mojela
GGH Todd+ PJJ van der Walt+
* British
+ Non-executive
Alexander Forbes Limited registration number 1958/001974/06
Registered office
Alexander Forbes Place 61 Katherine Street Sandown 2196
PO Box 787240 Sandton 2146 Telephone (+27 11) 269 0000 Fax (+27 11)
269 1111
E-mail: info@aforbes.co.za www.alexanderforbes.com www.alexfbs.co.za
Company secretary
RA Venter
Transfer secretaries
Mercantile Registrars Limited 11 Diagonal Street Johannesburg 2001 PO Bo
1053 Johannesburg 2000
www.alexanderforbes.com
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