| Wed 20 Jun 2001, 0:00 | | Investment Solutions Looking For Offshore Opportun |
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INVESTMENT SOLUTIONS HOLDINGS LIMITED
Wednesday June 20, 2001
Investment Solutions, the country's leading multi-manager aims to expand its
reach beyond South Africa's borders, with an initial focus on the United
Kingdom.
Making this comment in the latest Investment Solutions annual report
chairman Peet van der Walt adds that Investment Solutions has to decide
whether to establish a grassroots operation off-shore or to acquire a
business which could accelerate the company's growth aspirations. "We hope
that this time next year we will have satisfactory progress to report to
shareholders," he wrote in the annual report.
Investment Solutions, which operates a multi-manager investment business
targeting both institutional and private investors, creates portfolios and
products specifically for its clients' requirements. At the end of March,
Investment Solutions had R34,2-billion in assets under management, over R5-
billion more than the previous year.
Mr van der Walt notes that the past year was one of the most challenging
periods for many years for those in the investment markets. "Analysts had
to contend with a global economic slowdown, declining corporate profits, and
volatile markets while asset managers had the unenviable task of guiding
their clients through these turbulent waters."
He points to the group's performance and reports that Investment Solutions'
new specialist product range was launched successfully and most products are
beating benchmark. "A strategic alliance was established with the world's
leading multi-management company, the Frank Russell Company, a relationship
which has added a global dimension to our portfolios. A Jersey-based fund
management company was acquired extending our off-shore capabilities.
Investment Solutions was favoured as the multi-manager of choice for
Lodestone Investments, the new joint venture initiative between Liberty
Group and the Standard Bank Investment Corporation. These are considerable
achievements."
At the bottom line this resulted in headline earnings for the 12 months to
March 31 of 29,2 cents a share, 60% ahead of last year's figure of 18,2
cents a share which comfortably exceeded analysts' forecasts.
For the first time this year Investment Solutions has included an embedded
value calculation for its business. This gives an embedded value for
Investment Solutions as at March 31, 2001 of 479 cents a share.
At March 31 the embedded value reflected the net value of in force business
of R1 189-million which, when combined with shareholder assets from the
financial statements of R168-million, gives a total embedded value of R1 357-
million. The calculation does not take account of the value of future new
business. According to the report, the value at point of sale of new
business written over the financial year under review, which is included in
the in force business, is
R318-million.
Managing director Rael Gordon said: "The year ahead offers great
opportunities for our business. On the institutional side, given our track
record of innovation as well as our combination of great staff and systems,
we have a solid platform from which to advance.
"Similarly, we anticipate that for private investors in the year ahead we
will devote further energies to building the multi-manager concept as well
as adding clients and assets. Maintaining a high level of client service
and offering an attractive product with a clear focus on both risk and
return remain key objectives."
He added that Investment Solutions aims to expand its local as well as
international assets through the institutional and private investor channels
and the company remains confident that the infrastructure, assets and
expertise that it has developed over the past few years form a strong base
from which to expand the business. "Increasingly we are turning our
attention offshore with the aim of developing an international business, a
search that may include acquisitions in key markets."
This is Investment Solutions second year as a listed company, being listed
in the financial services sector in September 1999. The company's annual
general meeting will be held on Friday, August 3.
Please note:
Investment Solutions was listed on September 30, 1999 at an issue price of
220 cents a share. It closed at 260 cents on its first day of trading and
has traded up to 600 cents during the financial year, closing at 410 cents
on March 31.
Investment Solutions through its wholly owned subsidiary, Investment
Solutions Limited, operates a multi-manager business targeting institutional
funds and the private investor.
It is the largest provider of multi-manager investment portfolios in the
South African market, with total assets under management of R34,2-billion at
March 31, 2001.
A comprehensive and defined investment process, utilising a skilled and
committed investment team and experienced investment committee, leads to the
creation of portfolios designed to optimise the risk return profile of
clients. Institutional funds access the multi-manager portfolios through
linked investment policies written by the group's life company.
The private investor can access the multi-manager portfolios and a range of
unit trusts through a wide range of savings products and investment
portfolios, including retirement savings investment products, such as living
annuities, preservation funds, retirement annuities and umbrella pension
finds as well as discretionary savings products, such as endowment polices,
unit trusts and wrap funds.
Investment Solutions uses its proven expertise to research, select, monitor
and review the asset managers it appoints to manage its portfolios.
Investment Solutions operates independently and has no ties to any of the
asset managers.
Investment Solutions has established a strategic alliance with the Frank
Russell Company, the world's leading multi-manager company, which enables
Investment Solutions to accelerate the development of its global business
and international product offerings to South African clients.
ends
ISSUED BY: PENELOPE GRACIE INVESTOR RELATIONS
ON BEHALF OF: INVESTMENT SOLUTIONS HOLDINGS
FURTHER INFORMATION: PENELOPE GRACIE
CONTACT: OFFICE +27 (11) 447-3301
HOME +27 (11) 442-6674
MOBILE 082-55-77-444
INVESTMENT SOLUTIONS HOLDINGS LIMITED
Embedded value at 31 March 2001
Investment Solutions Holdings calculated an embedded value of the group's
business as at 31 March 2001. This is the first such valuation performed on
the group, and details the economic value of the company with no allowance
for future new business.
The embedded value is part of the appraisal value of a company and is made
up of the present value of the future profit stream (after an allowance for
tax) of current in force business together with any assets separately
attributable to shareholders.
The future profit stream has been derived by projecting forward anticipated
future premiums, charges, claims, expenditure and tax. Claims and expenses
have been based on recent experience.
Premium levels have been based on recent premium income adjusted to remove
apparent one-off premiums. The approach of classifying certain premiums as
recurring has been adopted after analysis of the experience has demonstrated
that the client base is paying regular premiums. It results in a higher
embedded value than if all premiums were treated as single premiums. A
sensitivity in respect of premium changes is shown below.
The value of new business written is the additional embedded value (after an
allowance for tax) created by the new business written during the previous
12 month period.
Embedded value and value of new business written
The embedded value of Investment Solutions Holdings as at 31 March 2001 is
as follows:
Rm
Net value of in force business 1 189
Shareholder assets as per financial statements 168
Total embedded value 1 357
The value at point of sale of new business written over the last 12 months
included above is R318 million.
Notes :
This value of new business excludes any one-off payments by existing
clients, which are treated as alterations to existing business.
As this is the first year of calculating the embedded value no comparative
figures are shown for the previous year.
Cost of capital: The cost of capital under the Capital Adequacy Requirements
in PGN104 (1998) is of minimal effect.
4. No account has been taken of the company share option scheme as this will
be of minimal effect.
Assumptions
The main assumptions in the embedded value of Investment Solutions Holdings
as at 31 March 2001 are as follows:
Risk discount rate 16,57%
Investment returns Equities 15,57%
Fixed interest securities 12,57%
Cash and short dated gilts 10,00%
Expense inflation 8,00%
Contribution/withdrawal Inflation 10,00%
Projection period 30 Years
Note : No allowance has been made for capital gains tax
Sensitivities of value of in force business and to key assumptions
To indicate the sensitivity of the results to various key assumptions, a
range of values was produced altering the particular assumption in question.
The results are as follows:
Rm % Change
Base value 1 189
Reduce the risk discount rate by 1% 1 306 9,9%
Increase investment returns by 1% 1 287 8,2%
Decrease withdrawals by 10% 1 223 2,9%
Increase investment Margins by 0,01% 1 226 3,1%
Decrease expenses by 10% 1 233 3,7%
Increase premiums by 10% 1 279 7,5%
These values are illustrative of the positive change in the assumptions. A
negative change of the same magnitude would be expected to reduce the
embedded values by a similar proportion. Sensitivity testing on the value of
new business written during the year would be expected to produce similar
percentage increases in the value.
Independent Review
The methodology and assumptions have been independently reviewed by Southern
Africa Actuarial Consultants, who have confirmed that these are reasonable.
