| Mon 11 Jun 2001, 0:00 | | African Life Assurance - Audited Group Results For |
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AFRICAN LIFE ASSURANCE COMPANY LIMITED
(Registration number 1911/003818/06)
("African Life" or "the Company")
Strategy
- Superior customer service
- Sustainable unit cost reduction
- Innovative product development
- Alternative premium collection methods
- International replication
- Committed and talented people
Highlights
- Persal challenge managed
- New business levels in South Africa maintained
- Recurring premium income up 11%
- International new business up 40%
- Healthcare target of 100 000 lives achieved
Audited Group results for the year ended 31 March 2001
Vision...To be the dominant provider of entry level risk financial services
and health products in our chosen markets.
Environment
The year to 31 March 2001 truly tested the character of the African Life
people. It was a period of tremendous challenge, both internally and
externally. Externally, consumer wallets remained under pressure,
government's decision to halt Persal deductions unified our industry and
negotiations to amend the decision were successful. Internally, we managed
the Real Africa unbundling of its stake in African Life, FirstRand increased
its holding and management structures were further strengthened.
We made good progress in our international expansion strategy with our entry
into Kenya. Domestically, the Ingwe healthcare model further entrenched
itself as the preferred choice in affordable healthcare. Our drive towards
reduced unit costs is gaining momentum as we progress towards our goal of a
new and common technology platform for the group.
Accounting policies, actuarial bases and presentation.
The accounting policies adopted for the financial year comply, in all
material respects, with South African Statements of Generally Accepted
Accounting Practice (GAAP), as well as the South African Companies Act of
1973 and the Long-Term Insurance Act of 1998. These policies are consistent
with those applied at 31 March 2000, except for the following changes which
were mentioned at the interim:
- The consolidation of special purpose entities (SPEs) in terms of AC412.
The impact of this is to reverse on consolidation the exceptional item
relating to the write-down of the share trust loan in the company and to
consolidate the trust (or SPE). Effectively, at group level, the result is
similar to the treatment of a share buyback. As a result, share capital,
share premium and reserves cumulatively reduce at group level by R323,6
million.
- The introduction of second-tier margins.
The environment within which the group operates has changed, thereby
supporting the introduction of second-tier margins. The cumulative effect on
opening retained income at 1 April 1999 is a reduction of R109,4 million.
The restated profit for the year to March 2000 is reduced by R19,4_million
and the effect on the current year to March 2001 is a reduction of R2,8
million. Group embedded value is not impacted in any material way.
- The reporting of group results on the financial soundness valuation (FSV)
basis.
The results of Botswana and Namibia are now consolidated on the FSV basis.
Previously, Botswana and Namibia results were consolidated on the statutory
basis. However, no change will take place in these respective countries for
statutory and financial reporting purposes. _This change resulted in the
opening retained income at 1 April 1999 increasing by R72,7 million and the
profit for the year after minority interests to March 2000 and March 2001
increasing by R31,2 million and R3,3 million respectively.
- The reallocation of investment return on negative rand reserves (NRR's).
Operating surplus included a return on NRR's in the past. It is felt that a
more accurate allocation of this return should be to free assets.
Accordingly, R54,5 million and R60_million has been reallocated for the year
ended 31 March 2000 and 31 March 2001 respectively. This reallocation does
not have an impact on total surplus.
- Comparative figures
Comparative figures, including embedded value figures, have been restated to
reflect the changes in accounting policies and reclassifications.
Results
Recurring premium income of R1,3 billion increased 11% from the previous
year, a commendable achievement in exceptionally challenging trading
conditions. The total surplus before tax and exceptional items is R336,3
million (2000: R451,0 million), and headline earnings are R127,4 million
(2000: R282,3 million) or 114,0_cents per share (2000: 255,6 cents per
share). The dividend for the full year of 57,5_cents per share (2000: 68,5
cents per share) reflects the difficult trading conditions of the Group.
Selling expenses for the period are down from the previous year as a result
of lower new business volumes in South Africa. Operating expenses of R216,2
million are in line with expectations given the high level of once-off costs
incurred. Policy benefits of R985,1_million increased in line with
expectations.
Exceptional items relating to shareholders of R178,8 million (30 September
2000: R96,4 million) for the year comprise:
- The creation of a Persal rationalisation reserve in the light of
restrictions placed by government on existing deductions, totalling R82,4
million.
- The entire writedown to zero of investments in LesuireNet promissory notes
and NRB cash deposits, totalling R24,8 million.
- The alignment of the valuation and administrative processes relating to
the timing and treatment of policy lapses amounting to R67,1 million.
- Costs of R4,5 million relating to the closure of the asset management and
the sale of the employee benefit operations.
Taxation of R62,1 million represents normal tax payable of R8,2_million,
secondary tax on companies of R7,4_million and foreign taxes of R46,5
million.
Embedded value totals R1 788,8 million at 31 March 2001, compared with R2
020,2 million at 31 March 2000. The shareholders' net assets component of
embedded value has been negatively impacted due to the exceptional write-
offs outlined above and the consolidation of the SPE relating to the share
trust. Experience variances of R69,1 million in the main relate to adverse
lapse experience. Changes in basis of R37,1 million relate to lapse, expense
and mortality assumptions. Embedded value calculations were reviewed and
approved by leading independent actuarial consultancy, Tillinghast - Towers
Perrin.
South African operations
Government's announcement on the halting of new non-statutory payroll
deductions of public sector employees was the major focus area during the
past financial year. Our prompt response to this announcement and the
seeking of alternative collection methods ensured that new business levels
were maintained.
Significant progress was made in developing alternative premium collection
methods, notably through innovative debit order solutions with leading
banks. Our customer base was maintained in the review period, a commendable
achievement in the face of external challenges.
During the year, the management of our distribution channels for independent
and tied intermediaries was merged, taking the best of both systems to
create a new distribution network that will offer greater productivity,
better control of costs and further improvements to our quality of service.
With new business levels similar to last year and a static customer base,
unit costs have suffered. However, with our stringent and ongoing focus on
improved processes and the benefits of a common technology platform for the
Group, we are confident that a drop in unit costs will be sustainable in the
long term. Single premium income for the year was satisfactory given the
difficult economic environment.
International
Operations in Botswana continued to contribute strongly to overall results,
recording another good performance for the financial year, despite an
expected mortality deterioration. Results from Namibian operations were
satisfactory and new business growth levels necessitated additional capital.
A new management team in Kenya is expected to deliver significantly improved
results in the next financial year.
Healthcare
Ingwe HPO, the group's healthcare division, met its target of 100_000 lives
and achieved cash flow break even early in the year. Ingwe is now the
acknowledged leader in fourth-generation medical aid products and is the
only organisation in its industry with the capability to manage more than
one primary care network on a capitation basis. During the period, Ingwe
outsourced its distribution to African Life and initial results of using
this proven network are excellent.
Prospects
African Life has weathered a very difficult year, but the experience has
reinforced our resolve. We have questioned our processes and attitudes. We
have emerged stronger and more focused on our core operations.
African Life has many competitive advantages, some of them unique. We will
continue to build on these strengths in developing our strategy to be the
dominant provider of risk financial and healthcare products in our chosen
markets. The cornerstones for future shareholder wealth creation are firmly
in place and we are confident that African Life will resume its aggressive
growth track in the near future.
Dividend
The directors have resolved to award capitalisation shares to shareholders
registered in the books of the company on Friday, 29 June 2001 (the record
date). The ratio will be determined by the ratio that 30,0_cents multiplied
by 1,05 bears to the weighted average traded price of the company's shares
on the JSE Securities Exchange SA during the three-day period ending
Thursday, 26 July 2001. Shareholders may instead elect to receive a final
cash dividend of 30,0 cents per share.
For administrative reasons, it has been decided that shareholders holding
less than 5 000 shares at the record date will receive the final cash
dividend of 30,0 cents per share in respect of their entire shareholdings,
unless they specifically elect to receive capitalisation shares.
Shareholders holding 5_000 or more shares at the record date will be
allotted capitalisation shares in respect of their entire shareholdings,
unless they specifically elect to receive the final cash dividend of 30,0
cents per share.
STRATE
The shares of the company will be transferred to the new STRATE electronic
settlement system and commence dematerialisation on 6 August 2001. Trading
for electronic settlement on STRATE will commence on 27 August 2001 and the
first electronic settlements will take place on 3 September 2001. As of 3
September 2001 no paper scrip will be accepted for settlement. The company
has embarked on a programme, the African Life Assurance Sponsored Nominee
Programme, in order to assist our shareholders with the dematerialisation
process.
By order of the board
D M J Ncube J P Rowse
Chairman Chief Executive
7 June 2001
AUDITED GROUP INCOME STATEMENT
Notes Year to Year to
31 March 31 March
2001 2000
Restated
Rm Rm
Premium income 1 1 912,4 1 823,7
Investment return 933,5 1 001,1
Total income 2 845,9 2 824,8
Selling expenses 298,7 310,5
Operating expenses 216,2 177,1
Policy benefits 985,1 766,5
Change in actuarial value of
policy liabilities 1 009,6 1 119,7
Surplus before tax and exceptional
items 336,3 451,0
Exceptional items 2 178,8
Taxation 62,1 157,1
Surplus after tax 95,4 293,9
Minority interests 63,5 41,4
Surplus attributable to ordinary
shareholders 31,9 252,5
Operating surplus 102,2 216,6
Investment income on free assets 87,3 82,8
Taxation (62,1) (17,1)
Headline earnings 127,4 282,3
Exceptional items (178,8)
Transitional tax (140,0)
Capital appreciation on free assets 83,3 110,2
Headline earnings per share (cents) 114,0 255,6
Earnings per share (cents) 28,5 228,6
Dividends per share (cents) 57,5 68,5
Weighted average number of shares
('000s) 111 812 110 458
Notes:
1. Premium Income 1 912,4 1 823,7
Recurring 1 293,9 1 169,9
Individual life 1 061,3 982,7
Group benefits 232,6 187,2
Single 618,5 653,8
Individual life 578,7 640,3
Group benefits 39,8 13,5
2. Exceptional items 178,8
Persal rationalisation reserve 82,4
Closure and sale of operations 4,5
Alignment of valuation and admin
processes 67,1
Write down of investments 24,8
AUDITED GROUP BALANCE SHEET
As at As at
31 March 31 March
2001 2000
Restated
Rm Rm
ASSETS
Investments 7 454,1 6 702,7
Fixed assets 87,7 81,5
Current assets 661,0 480,1
8 202,8 7 264,3
Capital, reserves and liabilities
Share capital and premium 492,0 681,4
Reserves 959,4 995,2
Excess of assets over liabilities 1 451,4 1 676,6
Minority shareholders' interest 305,9 229,8
Total capital and reserves 1 757,3 1 906,4
Actuarial value of policy liabilities 5 912,9 4 821,6
Long-term liabilities 63,9 88,0
Deferred taxation 105,7 158,2
Current liabilities 363,0 290,1
8 202,8 7 264,3
AUDITED STATEMENT OF CHANGES IN EQUITY
As at As at
31 March 31 March
2001 2000
Restated
Rm Rm
Share capital and share premium
Balance at the beginning of the period 681,4 644,2
Arising on shares issued 33,9 31,3
Issue expenses (0,7) (0,3)
Consolidation of Special Purpose Entity (192,8) (37,6)
Share election reserve (29,8) 43,8
Balance at the end of the period 492,0 681,4
Reserves
Balance at the beginning of the period 995,2 814,0
Income attributable to shareholders 31,9 252,5
Dividends paid and provided (66,1) (79,2)
Other direct transfers (1,6) 7,9
Balance at the end of the period 959,4 995,2
GROUP EMBEDDED VALUE
The embedded value represents an estimate of the value of the group
excluding goodwill attributable to future new business. The embedded value
comprises:
- the value of the shareholders' net assets; and
- the value of the in-force business adjusted for the cost of solvency
capital required to support this business.
The value of in-force business is the present value of future after-tax
profits arising from business in force at the calculation date.
Group operations other than life assurance (African Life Properties and
Ingwe Health Plan Organisation) have been revalued and are reflected at net
asset value.
Embedded value results 31 March 31 March
2001 2000
Restated
Rm Rm
Shareholders' net assets 1 676,6 1 458,4
Value of in-force business 343,6 328,8
Value before cost of capital 385,6 363,0
Cost of capital (42,0) (34,2)
Embedded value at beginning of the year 2 020,2 1 787,2
Analysis of change in embedded value (231,4) 233,0
Roll forward 235,9 251,8
Investment return on free assets 170,6 193,0
Expected return on life business in force 65,3 58,8
Change over the year (467,3) (18,8)
Value of new business 98,3 133,3
Value at point of sale 90,7 123,2
Expected return to end of year 7,6 10,1
Change in assumptions and methodology (37,1)
Experience variations (69,1) 31,7
Consolidation of SPE (192,8) (37,6)
Exceptional items (178,8) (140,0)
Persal rationalisation reserve (82,4)
Other (96,4) (140,0)
Additional adjustments for Persal changes (11,8)
Transactions with shareholders (76,0) (6,2)
Dividends paid (76,0) (6,2)
Embedded value at end of the year 1 788,8 2 020,2
Shareholders' net assets 1 451,4 1 676,6
Value of in-force business 337,4 343,6
Value before cost of capital 373,4 385,6
Cost of capital (36,0) (42,0)
The Capital Adequacy Requirement for the Company is R461,6 million and for
the Group R519,2 million (31 March 2000: Company R503,6 million, Group
R585,9 million). The capital adequacy cover for the Group is 2,8 times (31
March 2000: 2,9 times).
Value of new business 98,3 133,3
Value before cost of capital 109,0 147,5
Cost of capital (10,7) (14,2)
Assumptions
The main assumptions used are as follows:
1. Economic assumptions % %
p.a p.a
Risk discount rate 17,5 19,0
Overall investment return (before tax) 14,7 16,2
Expense inflation rate 10,5 12,0
2. Other assumptions
The assumption for future mortality, persistency and premium escalations
were based on recent experience adjusted for anticipated future trends. In
particular, allowance has been made for deteriorating mortality as a result
of AIDS. Allowance for future taxation has been made on the new taxation
basis for life assurers which came into force on 1 April 2000.
ABRIDGED CASH FLOW STATEMENT
Year to Year to
31 March 31 March
2001 2000
Restated
Rm Rm
Cash flows from operating activities 1 270,1 2 068,3
Cash utilised in investing activities (790,2) (1 955,4)
Cash flows from financing activities (214,1) (201,9)
Net increase in cash resources 265,8 (89,0)
Cash resources at the beginning of the
period 674,9 763,9
Cash resources at the end of the period 940,7 674,9
CHANGES IN ACCOUNTING POLICIES
The effects of the changes mentioned in the commentary are as follows:
Comparative figures have been appropriately restated.
Year to Year to
31 March 31 March
2001 2000
Rm Rm
Consolidation of Special Purpose Entity 5,7 22,1
Consolidation of subsidiaries on FSV basis 3,3 31,2
Introduction of second-tier margins (2,8) (19,4)
Net effect on surplus 6,2 33,9
Restatement of opening share capital and premium:
Previously reported at 31 March 1999 774,8
Consolidation of SPE (130,6)
Restated opening share capital and premium 644,2
Restatement of opening shareholder reserves:
Previously reported at 31 March 1999 841,1
Consolidation of SPE 9,6
Consolidation of subsidiaries on the FSV basis 72,7
Introduction of second tier-margins (109,4)
Restated opening shareholder reserves 814,0
REGISTERED OFFICE AND POSTAL ADDRESS African Life Park, 11-13 West Street,
Houghton, 2198, PO Box 1941, Houghton, 2041, Telephone (+27 11) 359-7700
Telefax (+27 11) 483-2494
DIRECTORS: D M J Ncube (Chairman), J P Rowse (Chief Executive) (British), A
H Arnott, P R Bodasing, J A Burbidge (British), W A Jack, J D Krige, T K S
Letlape, H P Meyer, H B Roberts, A van Heerden
Embedded value Analysis
Experience variations of R 69,1 m are made up as follows:
Lapses -R58,4m
Tax -R14,9m
Expenses -R12,4m
Mortality & Morbidity R5,5m
Other R11,1m
Changes is assumptions and methodology of R37,1m are made up as follows:
Lapses -R53,8m
Expenses -R46,2m
Mortality & Morbidity R45,9m
Economic R14,8m
Other R2,2m
