| Wed 19 Sep 2001, 0:00 | | Metropolitan Life Limited - Group Results For The |
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2001
HIGHLIGHTS
EMBEDDED VALUE INCREASED BY 14%
POSITIVE NET CASH FLOW IN EXCESS OF R2 BILLION
STRONG GROWTH IN EMPLOYEE BENEFITS BUSINESS SUSTAINED
INCREASED PROFITS FROM HEALTH BUSINESS
TOTAL ASSETS UNDER MANAGEMENT OF R39 BILLION
DIRECTORS' STATEMENT
The directors take pleasure in presenting the unaudited interim results of
the Metropolitan group for the six months ended 30 June 2001. This is the
last set of results for Metropolitan Life Limited as the group's new holding
company, New Africa Capital Limited, will be the reporting entity at the
financial year-end. These results comply in all material respects with the
requirements of AC127 of the South African Statements of Generally Accepted
Accounting Practice, as well as with the South African Companies Act of 1973
and the Long-term Insurance Act of 1998.
As a result of the group's change in year-end from 30 September to 31
December, the comparative figures, being the results published for the six
months to 31 March 2000, are not necessarily comparable to the current
interim results. Where applicable, comparative figures for the six months
ended 30 June 2000 have been provided.
The actuarial results published for the interim period to 31 March 2000 have
not been restated to reflect the change in the actuarial valuation basis
that took effect on 31 December 2000. They are therefore not comparable
with the current figures. Comparisons should rather be made with the
figures for the fifteen months to 31 December 2000.
The principal accounting policies are consistent with those applied at 31
December 2000, with the exception of:
The new accounting statement on "events after the balance sheet date"
(AC107) has been adopted. In terms of this statement, dividends proposed or
declared after the balance sheet date, and the related secondary tax on
companies (STC), are not recognised as a liability at the balance sheet
date. This change has not been retrospectively applied and the comparative
figures have therefore not been restated. The interim dividend of R108
million or 15.50 cents per share, declared on 7 September 2001, gave rise to
an STC charge of R5.1 million.
During the previous interim period net rental income of R25 million in
respect of properties owned and occupied by the group was eliminated on
consolidation. The investment return and administration expenses for that
period have been appropriately restated.
The figures for the period under review include the healthcare
administration business of Transmed from 1 January 2001. The comparative
figures for the six months to 31 March 2000 include only three months'
trading in respect of Newmed.
At 30 June 2001 there were no material capital commitments or contingent
liabilities relating to the group. Apart from the volatile investment
markets, no financially significant post balance sheet events have occurred
since 30 June 2001 other than those described in this report.
Where percentages are quoted they have been annualised where applicable.
CORPORATE GOVERNANCE
The directors have satisfied themselves that locally recognised principles
of corporate governance, and in particular the code of corporate practice
and conduct recommended in the first King report, were applied throughout
the period under review. Additional governance recommendations as set out
in the second King report are being addressed.
ACTUARIAL BALANCE SHEET AND SHAREHOLDERS' PROFIT
The groups' excess of assets over liabilities increased by R227 million (8%)
from R5 917 million at 31 December 2000 to R6 144 at 30 June 2001. The
capital adequacy requirement was covered 3.8 times, confirming the financial
strength and stability of the group.
The change in actuarial surplus is analysed into operating profit,
investment income on the excess, capital (depreciation) / appreciation on
the excess and the effect of changes to the valuation basis. The first two
items represent distributable shareholders' profit, except in the case of CU
Life where profits are determined in relation to bonuses paid to
policyholders (the so-called 90:10 rule).
Distributable shareholders' profit for the period under review was R247
million net of R20 million in goodwill written off. Headline earnings for
the group were 5% lower than the earnings recorded for the fifteen-month
period ended 31 December 2000.
EMBEDDED VALUE
The embedded value and the value of new business were calculated in
accordance with the Actuarial Society of South Africa's draft embedded value
guidelines (PGN107). The methodology followed is consistent with that
applied at 31 December 2000, with the exception of changes to the economic
and experience assumptions as a result of which the embedded value increased
by R175 million.
Neither the embedded value nor the value of new business was adjusted for
the impact of capital gains tax (CGT). It is estimated that the embedded
value will reduce by R153 million (2% or 21 cents per share) and the value
of new business by R3 million upon implementation of CGT on 1 October 2001.
The group's embedded value of R7 750 million at 30 June 2001 reflects an
increase of 14% on the embedded value of R7 247 million at 31 December 2000.
This translates into an increase in embedded value per share of 9% from
R10.18 per share to R10.66 per share over the equivalent period. The impact
of the Persal rationalisation exercise, which is currently taking place, is
expected to reduce the group embedded value by not more than R50 million.
The embedded value profit of R386 million (an annualised return on embedded
value of 11%) for the six months to 30 June 2001 was affected by low
investment returns on net worth and other experience variations, reducing
the profit by R72 million and R109 million respectively.
The value of new business is calculated at the point of sale. The value of
life insurance new business, at R37 million, excludes premium increases
during the period under review arising from premium indexation arrangements
in respect of in-force business, but includes the expected value of future
premium increases in respect of new policies written during this period.
This value was impacted by low volumes and higher lapse rates predominately
as a result of Persal.
The value of non-life new business of R138 million includes an amount of R85
million contributed by the healthcare administration business of Transmed.
REVIEW OF OPERATIONS
Despite the negative impact of Persal, total premium income for the group of
R3 601 million was 17% up on the six months to 30 June 2000. Single premium
income, at R1 691 million, was 36% higher.
The group's total assets under management were up 18% to R39.1 billion from
R35.8 billion at 31 December 2000, while off-balance sheet assets, at R7.6
billion, were 41% higher.
The group maintained its robust positive cash flow position with net inflows
of R2.2 billion.
LIFE INSURANCE BUSINESS
Metropolitan Life's contribution to headline earnings for the period under
review was R119 million. Performance was adversely affected by several
factors, with Persal playing a major part. The effects of Persal were
restricted to the last five months of the previous fifteen-month reporting
period but impacted on the full six months of the current period. At R1 536
million, total premium income was up 26% compared to the six month period
ended 30 June 2000. Recurring premium income of R1 055 million and single
premium income of R481 million were 2% and 166% higher respectively.
Metropolitan Employee Benefits recorded a good all-round performance, with
total premium income of R1 550 million increasing by 12% compared to June
2000. Single premium income was the major contributor, rising by 12% to R1
119 million. Recurring premium income grew by 10% to R431 million. The
business unit contributed R52 million to headline earnings, maintaining a
strong upward trend.
Metropolitan Odyssey continued to show steady growth, with total premium
income up 21% to R166 million compared to June 2000. Single premium income
of R43 million was 59% higher while recurring premium income, at R123
million, was 13% up. The company's contribution to headline earnings was R7
million.
Commercial Union Life is closed for new business and the 30% decline in
total premium income to R163 million compared to June 2000 was therefore to
be expected. A contribution of R20 million was made to headline earnings.
Both Metropolitan Namibia and Metropolitan Botswana achieved excellent
growth in total premium income compared to June 2000, up 54% and 91% to R142
million and R44 million respectively. Recurring premium income for the two
companies grew steadily, with Metropolitan Namibia recording a significant
443% increase in single premium income, albeit off a low base.
At R2 447 million, policyholders' benefits paid were 47% higher compared to
June 2000 mainly as a result of increased scheme terminations stemming from
the recent surge in employee benefits business. The fact that Commercial
Union Life is closed to new business was also a major contributory factor.
On exclusion of Commercial Union Life, the increase in benefits paid by the
group reduces to 20%.
Volatile market conditions and lower interest rates exerted heavy downward
pressure on the group's investment return.
ADMINISTRATION BUSINESS
Metropolitan Asset Managers continued to grow its contribution to headline
earnings, adding R8 million to the group's diversified earnings base. Third-
party assets under management increased by some R900 million from 31
December 2000.
The unit trust company was a small contributor to headline earnings after
achieving break-even status at 31 December 2000. Ovation continued to
record a loss. However, the group's new distribution channel, Metropolitan
Advisory & Retail Services (MARS), is expected to have a positive effect on
future business volumes at Ovation.
The Metropolitan Health group is the second largest healthcare administrator
in South Africa with almost 400 000 principal members under administration
now that the Transmed integration has been successfully completed. Despite
turbulent market conditions, the health group's contribution to headline
earnings was a substantial R29 million.
Methealth Namibia Administrators, one of the largest healthcare
administrators in Namibia, contributed R0.5 million to headline earnings in
its first year as part of the group. Metropolitan Namibia acquired a 51%
stake in the company with effect from 1 January 2001.
DIRECTORATE CHANGES
On 1 August 2001, Gloria Tomatoe Serobe assumed the non-executive
chairmanship of Metropolitan, replacing Advocate Dikgang Moseneke who
resigned with effect from 30 July to take up a position in the judiciary.
Abel Sithole was appointed as an executive director with effect from 1 July
while Phuthuma Nhleko resigned from the board on 23 July.
NEW AFRICA CAPITAL
A scheme of arrangement between Metropolitan and its existing shareholders,
creating New Africa Capital (NAC) as the listed holding company for the
Metropolitan group and the owner of all the issued share capital, was
announced on 6 August 2001 and approved by shareholders on 6 September.
Approval by the High Court is pending. In accordance with the scheme,
Metropolitan will be de-listed from the JSE Securities Exchange South Africa
(JSE) and the Namibian Stock Exchange at the close of business on 20
September, with NAC listing on both exchanges on 21 September. The JSE and
STRATE have agreed that the dematerialisation process for Metropolitan need
not take place and that the new shares to be issued in NAC will trade on the
JSE under STRATE from inception. In essence the board of directors of NAC
will reflect the composition of Metropolitan's current directorate. While
NAC will be the listed entity, the Metropolitan brand will be retained at
the operational level.
The directors believe that NAC is well placed to entrench its position as a
leading listed empowerment company in South Africa.
PROSPECTS
The board is optimistic about the value that NAC will unlock for all
stakeholders. Once completed, the separation of the life and non-life
operating entities will reduce the regulatory compliance burden on the
latter, and make it possible for the group to consider alternative financing
options should the need arise. The new legal structure is the first step in
a process aimed at ensuring more pro-active and effective capital management
from both a group and an individual company perspective. It will also help
to achieve greater transparency of capital allocation.
Several strategic initiatives aimed at growing market share through
increased market penetration are currently being implemented on a group-wide
basis. Securing a larger share of government and parastatal business and
making major inroads into the middle income market in Gauteng are specific
areas of focus. In line with its multi-channel approach, the group has
boosted its distribution capacity through the creation of a new, exclusively
broker-based distribution arm, known as Metropolitan Advisory & Retail
Services (MARS).
Efforts to counter the negative impact of Persal are ongoing. In addition,
an agreement has been entered into with PolicyLink that will help to reduce
current high surrender rates and preserve the value of in-force business.
In the light of the group's conviction that genuine empowerment constitutes
a significant competitive advantage, a comprehensive set of empowerment
indicators is being developed for incorporation into an index against which
an empowerment performance will be measured. A reward system has been put
in place based on a balanced scorecard that includes both financial and non-
financial objectives such as empowerment.
The benefits of these initiatives will start flowing through in the second
half of the year.
DIVIDEND DECLARATION
As announced on 7 September 2001, an interim dividend of 15.50 cents per
share has been declared, payable on 5 October 2001 to shareholders who are
registered on 20 September 2001.
The declaration was made ahead of the normal declaration date of 19
September 2001 in order to separate the payment of the dividend from the
scheme of arrangement outlined above.
The dividend policy approved by the directors, and consistent with prior
years, is to provide shareholders with stable dividend growth that reflects
the growth in underlying earnings in the medium term.
Signed on behalf of the board
Gloria Tomatoe Serobe Group chairman
Peter Doyle Group chief executive
Cape Town, 19 September 2001
Registration number : 1949/032491/06
Registered office : 7 Parc du Cap, Mispel Road, Bellville 7535
Transfer secretaries : Computershare
Share code : MET
ISIN : ZAE000012068
Edura 41 Fox Street Johannesburg 2000
P O Box 61051 Marshalltown 2107
The unaudited results for the six months ended 30 June 2001 are as follows:
METROPOLITAN GROUP RESULTS
6 6 mths 15 mths
CONSOLIDATED INCOME STATEMENT mths to to
to 31.03. 31.12.2
30.06 2000 000
.2001 Rm Rm
Rm
Income 4 973 7 129 13 484
Premium income 3 601 2 804 7 106
Recurring premiums 1 910 1 978 4 938
Single premiums 1 691 826 2 168
Investment return 1 372 4 325 6 378
Investment income 1 012 742 2 071
Realised and
unrealised changes
in market value of 360 3 583 4 307
investments
Outgo 3 032 2 204 5 798
Policyholders' 2 447 1 637 4 384
benefits paid
Sales remuneration 208 232 569
Administration 377 335 845
expenses
Income less outgo from
insurance 1 941 4 925 7 686
Income from administration
business 46 10 19
Income before taxation 1 987 4 935 7 705
Taxation (95) (104) (388)
Income after taxation 1 892 4 831 7 317
Headline earnings 267 352 699
Goodwill (20) (17) (46)
Deferred tax - - (95)
Earnings 247 335 558
Earnings per share (cents) 34.02 47.32 78.56
Headline earnings per share
(cents) 36.78 49.72 98.46
Weighted average number of
shares in issue (million) 726 708 710
Dividend per ordinary share
(cents)
Interim 15.50 13.00 13.00
Final 25.50
Total 15.50 13.00 38.50
Life insurance administration
expenses as a percentage of 10.5 11.9 11.9
premium income
CONSOLIDATED BALANCE SHEET 30.06.2001 31.03.2000 31.12.2000
Rm Rm Rm
ASSETS
Non-current assets
Investment assets 29 403 25 314 27 662
Equipment 134 135 131
Intangibles 445 478 458
Deferred tax 4 - -
Current assets 1 487 1 281 1 241
Total assets 31 473 27 208 29 492
EQUITY AND LIABILITIES
Capital and reserves 2 693 2 319 2 335
Outside shareholders' 68 61 62
interest
Non-current liabilities 27 483 23 519 25 858
Current liabilities 1 229 1 309 1 237
Total equity and 31 473 27 208 29 492
liabilities
CONSOLIDATED STATEMENT OF 6 mths to 6 mths to 15 mths to
CHANGES IN EQUITY
30.06.2001 31.03.2000 31.12.2000
Rm Rm Rm
Shareholders' equity at 2 335 1 976 1 976
beginning of period
Changes in share capital 117 97 97
Issue of share capital
to staff schemes 7 6 6
Share premium on new 110 91 91
issue
Changes in distributable 241 246 262
reserves
Profit for period 267 356 598
Goodwill (20) (17) (46)
Outside shareholders'
share of profit (6) (4) 6
Dividend - (89) (296)
Shareholders' equity at
end of period 2 693 2 319 2 335
CONSOLIDATED CASH FLOW 6 mths to 6 mths to 15 mths to
STATEMENT
30.06.200 31.03.2000 31.12.2000
1
Rm Rm Rm
Net cash inflow from operating
activities 1 235 1 204 2 760
Net cash outflow from investing
activities (1 420) (2 373) (3 459)
Net cash inflow from financing
activities 117 97 97
Net cash flow (68) (1 072) (602)
Cash resources and funds on
deposit at beginning of period 2 427 3 029 3 029
Cash resources and funds on
deposit at end of period 2 359 1 957 2 427
STATEMENT OF ACTUARIAL VALUES 30.06.20 31.03.2000 31.12.2000
OF ASSETS AND LIABILITIES 01
Rm Rm Rm
Total assets per balance 31 473 27 208 29 492
sheet
Current liabilities per
balance sheet (1 324) (1 309) (1 332)
Outside shareholders'
interest per balance sheet (68) (61) (62)
Actuarial liabilities under
unmatured policies (23 937) (20 088) (22 181)
Excess of assets over
liabilities 6 144 5 750 5 917
Total surplus arising during
period 110 1 330 1 569
FSV profit 267 396 705
Operating profit 180 274 408
Investment income on group
excess 87 122 297
Effect of change in basis (46) - -
Capital (depreciation) /
appreciation on group excess (111) 934 864
Capital adequacy requirement 1 613 1 190
Capital adequacy multiple
(times) 3.8 5.0
Funds received from Gross Gross Net inflow Net inflow
clients for the six inflow outflow
months ended
30.06.2001 30.06.2000
Rm Rm Rm Rm
Metropolitan 3 086 1 358 1 728 1 450
Life 1 536 854 682 393
Employee benefits 1 550 504 1 046 1 057
Odyssey 166 107 59 38
Commercial Union Life 163 888 (725) (131)
Namibia 142 78 64 46
Botswana 44 16 28 20
Total premiums / claims 3 601 2 447 1 154 1 423
Asset management 1 309 611 698 236
Health 2 198 2 057 141 140
Unit trusts 761 669 92 119
Ovation 250 132 118 183
8 119 5 916 2 203 2 101
ANALYSIS OF HEADLINE EARNINGS 6 mths to 15 mths to
30.06.2001 31.12.2000
Rm Rm
Metropolitan Life 119 291
Metropolitan Employee Benefits 52 97
Odyssey 7 7
Commercial Union Life 20 62
Namibia (10) 3
Botswana (1) 4
Health 29 13
Asset Management 8 11
Unit trusts 1 -
Ovation (4) (22)
CGU - 36
Other subsidiaries (1) (1)
220 501
Investment income 47 198
Headline earnings 267 699
Goodwill (20) (46)
Adjustment for minorities and 90:10 rule 20 52
FSV profit 267 705
EMBEDDED VALUE 30.06.2001 31.12.2000
Rm Rm
Net asset value per actuarial 6 144 5 917
statement
Adjustment for:
Asset management 124 118
Health 184 85
Commercial Union Life and goodwill (1 095) (1 133)
Adjusted net asset value 5 357 4 987
Net value of in-force business 2 393 2 260
Individual life 1 939 1 898
Gross value of in-force business 2 039 2 038
Less: Cost of capital (100) (140)
Employee benefits 454 362
Gross value of in-force business 522 480
Less: Cost of capital (68) (118)
Embedded value 7 750 7 247
Embedded value per share (cents) 1 066 1 018
No adjustment has been made for CGT. The estimated reduction would
be R153 million.
EMBEDDED VALUE PROFIT 6 mths to 15 mths to
30.06.2001 31.12.2000
Rm Rm
Profit from new business 178 197
Point of sale 174 179
Expected return to end of period 4 18
Profit from existing business 105 503
Expected return 214 464
Experience variance (109) 39
Embedded value profit from operations 283 700
Investment return on net worth (72) 941
Transitional tax - (95)
Changes in assumptions 175 182
Total embedded value profit 386 1 728
Plus: Capital raised 117 97
Less: Dividend - (296)
Increase in embedded value 503 1 529
Return on embedded value (%) 10.7 24.2
METROPOLITAN GROUP RESULTS
PRINCIPAL ASSUMPTIONS % %
Pre-tax investment return
Equities 13.3 15.1
Properties 13.3 15.1
Government stock 11.3 13.1
Cash 9.5 9.5
Risk discount rate 14.8 16.6
Investment return (before tax) - smoothed
bonus 12.7 14.4
Expense inflation rate 8.5 8.5
VALUE OF LIFE INSURANCE NEW BUSINESS 6 mths to 15 mths to
30.06.2001 31.12.2000
Rm Rm
Individual life (4) 44
Gross value of new business - 71
Less: Cost of capital (4) (27)
Employee benefits 41 78
Gross value of new business 44 92
Less: Cost of capital (3) (14)
37 122
VALUE OF NON-LIFE NEW BUSINESS 6 mths to 15 mths to
30.06.2001 31.12.2000
Rm Rm
Metropolitan Health 109 49
Metropolitan Asset Managers 29 8
NEW BUSINESS PREMIUMS 6 mths to 15 mths to
30.06.2001 31.12.2000
Rm Rm
Recurring premiums
Individual life 252 705
Employee benefits 71 241
323 946
Single premiums
Individual life 560 453
Employee benefits 1 131 1 715
1 691 2 168
METROPOLITAN GROUP RESULTS
ADDITIONAL INFORMATION ON SENS ONLY
VALUATION OF NON-LIFE SUBSIDIARIES Value as Write-up Embedded
per to fair value
balance value
sheet
Rm Rm Rm
Metropolitan Asset Managers - shares 43 124 167
- loan 30 - 30
Metropolitan Health - share 20 184 204
- loan 252 - 252
ANALYSIS OF ASSETS BACKING SHAREHOLDER 30.06.2001 31.12.2000
FUNDS AS A % OF COMPANY EXCESS
% %
Equities 46 48
Foreign investments 18 18
Properties 9 10
Fixed interest - -
Money market 2 2
Group companies 25 22
100 100
VALUE OF NEW BUSINESS AS A % OF ANNUAL Value of APE * Margin
PREMIUM EQUIVALENTS (APE) new
business
Rm Rm %
Individual life (4) 308 (1.3)
Employee benefits 41 184 22.3
Total 37 492 7.5
* APE represents new recurring premiums plus 10% of single premiums
METROPOLITAN GROUP RESULTS
SENSITIVITY OF THE IN-FORCE VALUE AND Change in base value
THE VALUE OF NEW BUSINESS of:
In-force New
business business
% % Notes
1% increase in risk discount rate (5.5) (8.0) (i)
1% reduction in risk discount 5.8 8.6 (i)
rate
10% reduction in per policy 8.3 20.2 (ii)
expenses
1% reduction in expense and 3.8 7.9 (ii)
salary inflation
10% Reduction in policy 1.8 8.0
discontinuance rates
10% reduction in mortality, 10.8 6.7 (ii)
morbidity and medical rates
1% increase in the assumed 6.5 3.2 (iii)
investment return
10% increase in the premium
indexation take-up rate
(from 80% to 90%) 1.0 0.3
Base value (rand million) 3 045 182 (iv)
(i) The risk discount rate appropriate to an investor depends on
the investor's own requirements, tax position and perception of
the risks associated with the realisation of the future profits
of Metropolitan and its subsidiaries.
(ii) No corresponding changes in variable policy charges are
assumed, although in practice it is likely that variable
charges will be modified according to circumstances.
(iii) Bonus rates are assumed to change commensurately.
(iv) Both life and non-life are included.
METROPOLITAN GROUP RESULTS
STOCK EXCHANGE PERFORMANCE 30.06.2001 30.06.2000 31.12.2000
Value of shares traded (rand
million) 1 050 954 2 392
Volume of shares traded (million) 115 109 280
Shares traded (% of total shares
in issue) 15.8 15.3 39.3
Trade prices (cents per share)
Highest 1 060 1 175 1 175
Lowest 770 690 675
Last sale in period (closing) 956 885 980
Total shares issued (million) 727 712 712
Listed 694 686 690
Public 683 678 685
Share incentive scheme 11 8 5
Unlisted 33 26 22
Share purchase scheme 33 26 22
Market capitalisation (rand
billion) 6.95 6.30 6.98
