| Mon 12 Nov 2001, 0:00 | | Alexander Forbes Limited - Interim Results For The |
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Interim results for the six months ended 30 september 2001
- revenue +35%
- operating profit +44%
- headline eps +33%
Review of operations
overview
The group again produced good results, recording a 33% increase in headline
earnings per share for the six months under review. Both revenue from
operations and attributable headline profits increased 35% to R1,9 billion
and R315 million respectively.
Increased segmental disclosures have been provided in presenting the group's
results. In particular, separate disclosure is now made of the segment
revenue and profits of each of our main lines of business in South Africa
and the United Kingdom.
operational review
Our African (principally South African) operations increased revenue and
segment profits by 14% and 28% respectively. The organic growth in revenue
was 13%. The results of the Financial Services business were impacted by
difficult trading conditions and the sale of NBC Consultants & Actuaries in
the previous financial year. The Risk Services business built on its strong
performance in the previous year and Investment Solutions again produced
excellent results.
Revenue and segment profits from our European (principally United Kingdom)
operations increased 66% and 67% respectively. Excluding acquisitions made
in the previous financial year, the organic growth in revenue was 26%. The
excellent results recorded by the Risk Services business were underpinned by
strong growth in the wholesale and specialist insurance broking operations
and the depreciation of the Rand. The Financial Services business recorded
strong revenue growth despite the slower than expected development of the UK
stakeholder pensions market. The results of the Direct Marketing business
were affected by the anticipated continuation of depressed advertising
response rates ahead of the UK general election. Advertising response rates
are showing signs of improvement.
While the Asian and Latin American operations are relatively small
contributors to the group's revenue and profits, these regions make a
significant contribution to the income earned by the wholesale brokerage
business based in London. The results of the Latin American region were
adversely impacted by losses in our direct marketing, consumer business in
Argentina, following the severe economic downturn in that country.
The group derived 54% (September 2000: 46%) of its revenue and 48%
(September 2000: 42%) of its segment profits from non-African operations.
These proportions are expected to further increase in the second half of the
year.
The group's track record of continuously improving margins continued with
the operating profit margin increasing from 20% to 21% (March 2001: 16%).
This resulted in a 44% increase in operating profits to R398 million, which
significantly exceeded revenue growth.
Net investment income decreased 52% to R29 million primarily as a result of
the issue of the 100 million exchangeable bonds in September 2000.
Excluding finance costs on the exchangeable bonds, there was a 20% increase
in net investment income. This is most satisfying given the lower interest
rates prevailing in the current period.
associates
The group's share of profits of associates decreased 6% to R29 million. The
group's share of start-up losses incurred by National Britannia amounted to
R1 million. In September 2001 the group subscribed for a 7 million
exchangeable bond issued by this associate. The interest, redemption and
exchange conditions are essentially the same as those of the 100 million
exchangeable bonds issued by the group. The equity conversion option under
the exchangeable bond equates to a 60 million valuation for the entire
business of National Britannia.
non-trading items
Attributable profits include certain non-trading items, namely:
- Net loss of R35 million in respect of headline adjusting items. This
comprises goodwill amortisation of R32 million (2000: R14 million) and other
capital items totalling R3 million (2000: R66 million profit on disposal of
NBC Consultants & Actuaries offset by other capital items totalling R4
million).
Net gain of R51 million in respect of other non-trading items. This
comprises an unrealised currency gain of R57 million (2000: R12 million)
offset by a net interest cost on the unutilised proceeds of the 100 million
exchangeable bonds of R6 million (2000: R1 million).
earnings per share
Headline earnings per share increased 33% to 91,3 cents. Excluding all non-
trading items, the increase is 22%. After taking account of employee share
options and the equity conversion option under the exchangeable bonds,
headline earnings per share increased by 30% on a fully diluted basis.
Diluted headline earnings per share is determined by adjusting the headline
earnings per share calculation as follows:
- Increasing attributable headline profits by R44 million in respect of the
interest paid on the exchangeable bonds net of taxation; and
- Increasing the weighted average number of shares by 53,7 million in
respect of the equity conversion option under the exchangeable bonds and by
16 million in respect of the dilutory impact of employee share options.
Basic earnings per share decreased 1% to 81,7 cents. The decrease is
attributable to the R66 million profit on disposal of NBC Consultants &
Actuaries recorded in the previous reporting period and the phasing in of
goodwill amortisation. Prior to 1 April 2000 all goodwill balances were
written off directly against share premium and reserves.
dividends
As announced in the 2001 Annual Report, the group has moved to a single
annual dividend declared at the end of each financial year.
financial position and cash flows
There have been no significant changes in the capital structure during the
period under review and movements in balance sheet items are largely
attributable to translation adjustments on consolidation of foreign
subsidiaries and growth in operations. Strong cash generation continues to
be a feature of our business - cash generated by operating activities
increased 21% to R470 million. Cash balances increased to R2,9 billion,
including the following:
- Unutilised proceeds of exchangeable bonds of R172 million (March 2001:
R230 million).
- Deposits held as security for loan note obligations (included in interest-
bearing current liabilities) of R571 million (March 2001: R492 million).
- Insurance balances of approximately R1,6 billion (March 2001: R1,4
billion).
prospects
The six months under review has been a period of consolidation of
acquisitions made in the previous financial year. All acquisitions have now
been fully integrated and the group is well positioned to continue its
international expansion strategy. The board expects satisfactory real growth
in headline earnings per share for the full financial year.
succession planning
The Board of Alexander Forbes Limited is pleased to announce changes in the
management structure that will take place during the course of 2002.
- Graeme Kerrigan, the current Group Chief Executive, will continue in that
capacity until 31 December 2002. At that date, he will retire from service
and will succeed Paul Heinamann, the current Group Chairman, as the non-
executive Chairman of Alexander Forbes Limited. Paul Heinamann will continue
to serve on the Board of Alexander Forbes Limited.
- Rael Gordon, the current Chief Executive of Alexander Forbes' subsidiary,
Investment Solutions, will transfer to Alexander Forbes on 1 July 2002 and
with effect from that date will be responsible for the Africa operations of
Alexander Forbes, reporting to Graeme Kerrigan. With effect from 1 January
2003, Rael Gordon will become the Group Chief Executive of Alexander Forbes
Limited.
- John Percy-Davis, the current Deputy Group Chief Executive of Alexander
Forbes Limited, will continue as Deputy Group Chief Executive and will also
continue to be responsible for Alexander Forbes operations outside of
Africa, reporting to the Group Chief Executive.
- Leon Lewis, who is currently employed by Alexander Forbes in an executive
capacity, will retire on 31 March 2002 and will then join the Alexander
Forbes Limited Board as a non-executive Director.
Although none of the above changes are imminent, the Board feels it is
appropriate to communicate the changes to reassure our clients, our
shareholders and our own employees that the future of Alexander Forbes has
been well planned to ensure that the successes of the past are continued
into the future.
For and on behalf of the Board
PL Heinamann GW Kerrigan
Chairman Group chief executive
9 November 2001
Income
Statement
Six months Six months Year ended
ended ended 31 March
30 Sept 30 Sept 2001
2001 2000
Unaudited % Unaudited Audited
Notes Rm increase Rm Rm
Revenue from
Operations 1 855 35 1 376 3 070
Other revenue 12 15 28
Total revenue 1 867 1 391 3 098
Operating
expenses (1 469) (1 114) (2 592)
Operating profit 398 44 277 506
Net investment
Income 2 29 60 118
Profit before
Associates 427 27 337 624
Share of profits
of associates 29 31 68
Profit before
non-trading items 456 24 368 692
Headline adjusting
Items (35) 48 1
Other non-
trading items 3 51 11 25
Profit before
Taxation 472 427 718
Taxation (156) (118) (229)
Profit after
Taxation 316 309 489
Outside
shareholders'
interest (34) (28) (65)
Attributable
Profits 282 281 424
Headline adjusting
items:
- Profit on disposal
of interests - (66) (63)
- Goodwill amortisation
(net of outside
shareholders' interests) 30 14 47
- Other 3 4 12
Attributable headline
Profits 315 35 233 420
Headline earnings
per share (cents) 91,3 33 68,5 123,2
Diluted headline
earnings per
share (cents) 86,0 30 66,2 118,3
Earnings per share
(cents) 81,7 82,6 124,3
Diluted earnings
per share (cents) 78,1 79,8 119,4
Number of shares
(millions)
- issued 346 341 344
- weighted average 345 340 341
Balance
Sheet
Ordinary shareholder
funds
- Before goodwill effects 2 197 1 904 2 024
- Goodwill written off
and amortised (1 623) (1 560) (1 593)
574 344 431
Outside shareholders'
Interests 151 101 146
Total shareholders' funds 725 445 577
Long-term liabilities -
interest bearing 1 786 1 433 1 573
- non-interest bearing 227 337 322
Deferred taxation (23) (22) (29)
Capital employed 2 715 2 193 2 443
Policyholders' and
cell owners' interests
in insurance subsidiaries
Assets 39 157 32 581 34 547
Liabilities (39 157) (32 581) (34 547)
- - -
Fixed assets 228 185 201
Goodwill 1 113 552 965
Associates 4 355 86 231
Investments and loans
Receivable 680 571 581
Current assets
Bank balances 2 996 2 149 2 686
Other interest bearing
Receivables 102 30 95
Non-interest bearing
Receivables 2 647 1 045 1 874
5 745 3 224 4 655
Current liabilities
Interest bearing
Liabilities 586 246 507
Non-interest bearing
Liabilities 4 820 2 179 3 683
5 406 2 425 4 190
Net current assets 339 799 465
Employment of capital 2 715 2 193 2 443
Cash flow
Statement
Cash generated by
operating activities 470 387 709
Movement in working
capital and insurance
balances (65) 35 243
Taxation paid (104) (57) (125)
Dividends paid (99) (43) (105)
Net cash inflow from
operating activities 202 322 722
Cash utilised in
investing activities
Subsidiaries and
businesses - acquired (57) (486) (940)
- sold - 104 104
Investments in
associates (92) - (116)
Investments and loans
Receivable (96) 58 29
Net fixed assets acquired (57) (41) (67)
Net outflow from investing
Activities (302) (365) (990)
Cash generated from
financing activities
Net proceeds of share
and bond issues 18 1 044 1 063
Issue of loan notes
secured by cash deposits - - 492
Movement in long-term
Liabilities 36 - (150)
Outside shareholder
Funding (14) (10) (12)
Net cash inflow from
financing activities 40 1 034 1 393
Net increase in cash and
cash equivalents (60) 991 1 125
Cash and cash equivalents
at beginning of period 2 686 1 118 1 118
Cash balances of
subsidiaries acquired 9 1 281
Foreign subsidiaries'
translation adjustment 361 39 162
Cash and cash equivalents
at end of period 2 996 2 149 2 686
Statement of changes in equity
Share Share
Capital premium Reserves Total
Rm Rm Rm Rm
At 31 March 2000
As previously reported 3 5 159 167
Application of new
accounting statements
(refer note 1)
- AC107 - - 77 77
- AC116 - - (139) (139)
As restated 3 5 97 105
Share issues and equity
component of exchangeable bond - 53 - 53
Foreign subsidiaries translation
Adjustment - - (18) (18)
Attributable profits - - 281 281
Final dividend for 2000
financial year - - (77) (77)
At 30 September 2000 3 58 283 344
Share issues - 20 - 20
Foreign subsidiaries
translation adjustment - - (14) (14)
Attributable profits - - 143 143
Interim dividend for 2001
financial year - - (62) (62)
At 31 March 2001 3 78 350 431
Share issues - 18 - 18
Foreign subsidiaries
translation adjustment - - (58) (58)
Attributable profits - - 282 282
Final dividend for 2001
financial year - - (99) (99)
At 30 September 2001 3 96 475 574
Segmental
Analysis
Six months ended Six months ended Year ended
30 September 30 September 31 March
2001 2000 2001
Unaudited % Unaudited Audited
R million increase R million R million
Revenue from
Operations 1 855 35 1 376 3 070
Africa 850 14 743 1 531
- Financial
Services 332 2 0327 682
- Investment
Solutions 177 27 139 311
- Risk Services 341 23 277 538
Europe 868 66 523 1 304
- Financial Services 198 65 120 313
- Direct Marketing 145 8 134 337
- Risk Services 525 95 269 654
Asia 38 19 32 63
Latin America 99 27 78 172
Segment profit 444 40 317 604
Africa 233 28 182 328
- Financial
Services 82 4 79 150
- Investment
Solutions 61 49 41 97
- Risk Services 90 45 62 81
Europe 209 67 125 250
- Financial
Services 25 257 7 17
- Direct Marketing 67 (13) 77 111
- Risk Services 117 185 41 122
Asia 7 17 6 8
Latin America (5) (225) 4 18
Unallocated net
investment income (17) 20 20
Profit before
associates per
income statement 427 337 624
Segment profit comprises operating profit plus interest income attributable
to the insurance operations of Risk Services businesses.
Notes
1 basis of accounting
The consolidated 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 for
changes resulting from the mandatory application of two new accounting
statements. These are as follows:
- AC107 "Events after the balance sheet date", which requires dividend
payments to be recognised only when declared. Previously dividend payments
were recognised in the period to which the distribution related. The effects
of this change are reflected in the Statement of Changes in Equity.
- AC116 "Employee benefits", which prescribes the valuation basis to be
adopted when measuring the actuarial liabilities of defined benefit
retirement funds for accounting purposes. The prescribed basis of valuation
results in a 10 million deficit in the valuation of the closed UK pension
fund. AC116 also requires provision for all other unfunded pre- and post-
retirement employee benefits, primarily leave pay, previously accounted for
on a pay-as-you-go basis. The aggregate prior year adjustment to reserves is
R139 million as reflected in the restatement of opening reserves in the
Statement of Changes in Equity.
The above changes have resulted in a restatement of comparative figures in
the balance sheet. There has been no restatement of comparative figures in
the income statement as the changes did not materially affect the results
for the previous financial year..
Six months ended Six months ended Year ended
30 September 30 September 31 March
2001 2000 2001
Unaudited Unaudited Audited
R million R million R million
2 net investment
income
Interest and
dividends received 64 42 91
Less: Attributable
to unutilised bond
proceeds (7) (1) (18)
Interest paid
Exchangeable bonds (63) (4) (57)
Other interest paid (24) (19) (24)
Less: Attributable
to unutilised bond
proceeds 13 2 28
Unallocated net
investment income (17) 20 20
Interest income
attributable to
insurance operations
included in segment
profit 46 40 98
29 60 118
3 other non-trading
items
Unrealised currency
Gain 57 12 35
Net interest cost of
unutilised
exchangeable
bond proceeds (6) (1) (10)
51 11 25
4 associates
The directors'
valuation ofassociates is R394 million (2000: R267 million).
5 capital
expenditure
and commitments
Depreciation for
the period 43 36 71
Capital expenditure
for the period 57 41 77
Future capital
commitments in respect
of contracts placed 1 1 -
Operating lease
commitments
Due within one year 95 93 92
Thereafter 947 785 901
1 042 878 993
Guarantees and
Suretyships 2 3 6
directors
PL Heinamann+ (Chairman) GW Kerrigan* (Group chief executive) J Percy-
Davis* (Deputy group chief executive) TRT Bohlmann+ QJ Heaney* MG Ilsley
GGH Todd+ PJJ van der Walt+
* British + Non-executive
Alexander Forbes Limited
Registration number 1958/001974/06
Share code AFB ISIN code ZAE 000018230
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 Box 1053 Johannesburg 2000
sponsor
Investec Securities Limited
(Registration number 1972/0008905/06)
100 Grayston Drive Sandown
Sandton 2196
PO Box 78055 Sandton 2146
Tel +27 (11) 286 4700
Fax +27 (11) 286 9595
nis07
