| Thu 22 Nov 2001, 0:00 | | Sage Group Limited - Interim Report 2001/2002 |
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Salient features
- Rapid development of international activities
- Continued organic growth in South Africa
- Record new business achievements
- Group earnings improvement
- Strong growth in embedded values
- Significant growth in Sage Life embedded value earnings
- Interim dividend cover review
- Continued volatility in equity markets
Overview
Despite the impact on already weak global and domestic equity markets in the
aftermath of the events of September 11 in the United States, the Group has
shown improved results as the positive earnings trend of the second half of
the March 2001 financial year has continued. The Group's inherent strength
is particularly reflected in further growth in embedded values.
Internationally, the pace of development has continued to gather momentum,
with rapid strides in the marketing of innovative offshore investment
products and significant domestic sales progress in the United States. At
the same time, South African business operations have continued to make very
satisfactory progress in the face of intense competition and muted economic
growth.
Group results
On the consistent primary financial soundness accounting basis, Group
headline earnings for the review period amounted to R98,9 million compared
to R61,2 million in the first half of the previous year, an increase of
61,6%. This reflects improved earnings from South African and international
operations during the review period.
Headline earnings per share amounted to 67,4 cents (previous interim: 43,4
cents), an increase of 55,3% off a low base at September 2000. Foreign
exchange translation deficits of R59 million have been offset against
foreign exchange translation gains of R75,3 million during the period. The
net gain of R16,3 million has not been brought to account in view of the
uncertainty regarding exchange rate fluctuations.
Earnings for the full year are not expected to increase at the same rate as
at the interim stage and will inevitably be heavily influenced by market
conditions during the remainder of the year.
The Group relinquished its right of first refusal over Independent Financial
Marketing Group in the USA, for a payment of R108 million ($12 million)
which was partially utilised to make precautionary provisions of R73,8
million against the value of unlisted investments, predominantly Sage Unit
Trusts Limited, in view of prevailing market conditions.
During the review period, the foreign convertible preference share capital
of $55 million was redeemed out of the proceeds of a $65 million Equity
Linked Note issue to European institutional investors and additional
cashflow is therefore required to service foreign borrowings. As a result,
and in recognition of the uncertain investment outlook, the directors have
reviewed the company's dividend payments. Accordingly, a cash interim
dividend of 30 cents per share has been declared compared to 45 cents per
share at the interim stage last year, increasing dividend cover to 2,2 from
1,0.
On the AC132 GAAP basis of accounting, which consolidates all subsidiaries
based predominantly on net asset values, and is reported in addition to the
primary financial soundness basis. Group headline earnings for the half year
amount to R27,1 million (previous interim: R15,4 million) equivalent to
headline earnings of 18,4 cents per share (2000: 10,9 cents).
The interim results are reported in compliance with AC 127 (Interim
financial reporting) on a basis consistent with the previous financial year.
Embedded value statements
Sage Group Limited
The embedded value of the Group increased by 6% to R1,8 billion at 30
September 2001 equivalent to 1 167 cents per share (31 March 2001: 1 123
cents). This basis measures the current value of the Group's net assets on
its primary basis of accounting together with the present value of future
profits from business already written by the life assurance subsidiaries
(net of cost of capital).
Group embedded value earnings for the review period amounted to R198,8
million compared with R166,1 million in the first half of last year.
Sage Life Limited
The life group's embedded values, based on actuarial estimates at the
interim stage, exhibit the increasing financial strength and inherent
stability of Sage Life Limited despite volatile investment markets. This is
reflected in the 12,7% increase in embedded value to R2,3 billion over the
past year, and in particular in the increase of 156% in embedded value
earnings to R217,8 million. In addition, the excess of assets over
liabilities increased by 10,9% to R1,6 billion at 30 September 2001 while
the capital adequacy multiple remained strong at 3,7. The capital adequacy
requirement, which provides a buffer against fluctuations in the underlying
valuation assumptions, amounted to R437,3 million at 30 September (March
2001: R405,4 million).
Group new business
Buoyant new business results have been achieved by the life assurance
divisions in the first half of the current financial year. Total life new
business of the Group for the half year increased by 118,8%, almost
equalling total production in the previous full year. Individual single
premium new business rose by 198,1% to exceed R1 billion for the six months
while South African annualised individual recurring new business increased
modestly to R157,1 million, a competitive performance given the difficult
conditions in this category throughout the industry.
Total employee benefits new business increased by 15,1% in the review period
to R104,4 million while South African unit trust sales totalled R932,4
million, one third below the comparable period in the previous year in line
with the difficult conditions throughout the unit trust industry.
A key feature of the Group's new business progress has been the impact of
the rapidly growing international initiatives where sales of R757 million
have been achieved in the six months from the United States and Bermuda
divisions, incorporating international business marketed in South Africa.
A further notable feature has been the sustained improvement in investment
performance achieved for clients through the Group's multi-manager approach.
The outstanding examples are the performance of the Group's Resources and
Global unit trusts which have featured as the top-performing fund in South
Africa and the leading international fund respectively for the 12 months to
30 September 2001. In addition, Sage Life's employee benefits global multi-
manager portfolios have continued to consistently achieve the number one
ranking over a 12-month period. Other Sage life and unit trust portfolios
have also significantly improved their rankings in their relevant sectors.
South African operating features
The continuing expansion of Sage Life in South Africa is reflected in the
17,7% growth in net premiums received, to R783,5 million in the review
period. The company's total investment result increased by 83,7% to R580,7
million despite the equity market setback in September. Policyholder
benefits of R516,9 million for the half year were marginally lower than in
the corresponding period of the previous year.
In regard to Sage Life's property trust activities, shareholders are
referred to the joint cautionary announcement published on 29 October 2001
by CBD Property Fund and Pioneer Property Fund (managed by Sage Property
Trust Managers Limited), and Pangbourne Properties Limited, which advised
that CBD, Pioneer and Pangbourne were currently involved in discussions
which may have an effect on the prices at which CBD and Pioneer units and
Pangbourne combined units trade on the JSE Securities Exchange SA.
Unitholders in CBD, Pioneer and Pangbourne were accordingly advised to
exercise caution when dealing in their respective units until a further
announcement is made.
International activities
The Group's international businesses, namely Sage Life Assurance of America
Inc and Sage Life (Bermuda) Limited have made excellent progress during the
review period, completing the development of their operating infrastructures
and successfully broadening distribution in the United States and
internationally.
The distribution network in the US currently includes 36 active selling
agreements with leading financial planning organisations and banking groups,
providing access to 18 000 brokers of whom approximately 2 400 have already
been licensed with Sage Life of America.
Distribution contracts concluded by Sage Life (Bermuda) Limited with several
major United States banking institutions are currently being implemented and
will further reinforce the expansion of marketing initiatives in the
offshore market.
International product sales for the review period increased to R757 million
($87 million) reflecting the rapid progress made compared to the initial
sales of R121 million ($16 million) at the interim stage last year. Current
production is in line with budget and the pace of activity has been
sustained despite the recent disruption in global financial markets
following the events of September 11 in the United States.
The growth potential of our international businesses remains exceptionally
attractive and their achievements form a meaningful part of the Group's
results based on growth in embedded value. The international activities in
vast new markets continue to provide an important means of diversification
and a currency hedge and should their expansion continue at the anticipated
pace, the international component of the Group's business is soon expected
to be the dominant source of premiums, assets and embedded values. The Group
is currently investigating funding alternatives to deal with the increased
capital requirements of the burgeoning international business.
The premium "A" (Excellent) rating level by AM Best, a leading global
insurance rating agency, was renewed in October 2001, endorsing the
successful establishment of Sage Life in the vast United States market. The
company also has a second premium rating of "AA-" (very strong) from Fitch,
another prominent international rating agency.
ABSA investment
The Group continues to hold its strategic investment in ABSA Group Limited
in a consortium with Sanlam, Remgro Limited and The Mines Pension Funds. The
consortium currently controls approximately 47% of ABSA. The interim results
of ABSA for the six months ended 30 September have recently been announced
and disclose an increase in headline earnings per share of 22,8% from 164,4
cents to 201,8 cents. ABSA is performing well in all its divisions.
Financial soundness results
(Primary basis of accounting)
Group income statement
Unaudited
Six months ended 30 September
2001 2000
% change R000 R000
Earnings of South
African operations 83 686 26 584
- Life assurance 74 906 14 674
- Unit trusts 8 780 11 910
Operating value added
by International
assurance operations 23 526 46 000
Surplus on disposal of
free assets less
provisions (note 1) 34 277 -
Financing costs of
dollar-denominated notes (14 213) -
Sage Life Limited financial
soundness
headline earnings 75,4 127 276 72 584
Group net financing
costs, overheads and
secondary tax on companies
(refer analysis) (28 340) (11 343)
Group financial soundness
headline earnings 61,6 98 936 61 241
Group financial soundness
headline
earnings per share (cents)
(basic and fully diluted) 55,3 67,4 43,4
Group attributable earnings
per share (cents)
(basic and fully diluted) 63,6 67,4 41,2
Interim dividend (note 4)
- per ordinary share (cents) 30,0 45,0
Dividend cover 2,2 1,0
Ordinary shares
- in issue (000) 147 730 141 468
- weighted average number
in issue (000) 146 739 141 240
Compulsorily convertible debentures
- in issue (000) 2 371 2 449
Group balance sheet
Unaudited Audited
30 September 31 March
2001 2001
R000 R000
Assets
Tangible, fixed and other
non-current assets 55 707 65 898
Intangible assets 57 081 57 310
Investments of life
assurance subsidiaries 7 890 504 7 412 352
Current assets 484 331 363 344
8 487 623 7 898 904
Shareholders' funds and liabilities
Total shareholders' interest 1 062 284 1 053 419
Redeemable preference shares issued
by subsidiaries 98 500 108 500
Long-term liabilities (note 3) 585 455 440 166
Long-term assurance funds 6 412 332 5 950 586
Current liabilities 329 052 346 233
- interest bearing 12 187 11 244
- other 316 865 334 989
8 487 623 7 898 904
Separate account assets of
USA subsidiary 1 069 005 579 000
Notes
1 The surplus on disposal of free assets is after provisions of R73,8
million which have been made against the value of unlisted investments,
predominantly Sage Unit Trusts Limited, in view of prevailing market
conditions.
2 Foreign exchange translation deficits of R59 million have been offset
against Group exchange translation gains of R75,3 million during the period.
The net gain of
R16,3 million has not been brought to account in view of the uncertainty
regarding exchange rate fluctuations.
3 The 4,5% cumulative convertible redeemable preference shares were
redeemed on
30 June 2001 out of the proceeds of a $65 million 8% unsecured Equity Linked
Note issue, redeemable between 1 August 2003 and 31 July 2005.
4 Following the redemption of the foreign redeemable preference shares
additional
cash flow is required to service foreign borrowings. As a result, and in
recognition
of the uncertain investment outlook the directors have reviewed the
company's dividend payments. Accordingly, an interim cash dividend of 30
cents per ordinary share in respect of the six months ended 30 September
2001 (2000: 45 cents) has been declared.
Unaudited
Six months ended 30 September
Analysis of Group net financing costs, 2001 2000
overheads and secondary tax on companies R000 R000
Financing of redeemed 2001 preference shares (8 142) (7 110)
Other net financing (costs)/income (3 015) 1 630
Net Group overheads (5 407) (5 599)
Secondary tax on companies (11 776) (12 627)
(28 340) (23 706)
Income from subsidiaries now held directly
by Sage Life Limited - 12 363
(28 340) (11 343)
Statement of changes in equity
Unaudited
Six months ended 30 September
2001 2000
R000 R000
Balance at beginning of period 1 053 419 959 343
Proceeds from shares/debentures issued - 1 889
Share issue costs (156) (321)
Final appropriation for full redemption of
2001 preference shares (2 211) -
Revaluation of investments 3 606 85 278
Attributable earnings 98 936 61 241
Dividends paid - prior accounting period (91 310) (97 667)
Balance at end of period 1 062 284 1 009 763
Summarised group cash flow statement
Unaudited
Six months ended 30 September
2001 2000
R000 R000
Cash flows from operating activities 79 991 (37 066)
Cash flows of life assurance subsidiaries
including investing activities (229 920) (51 823)
Cash flows from financing activities 136 232 (475)
Net decrease in cash equivalents (13 697) (89 364)
Cash and cash equivalents at
beginning of period 165 007 173 858
Cash and cash equivalents at
end of period 151 310 84 494
Embedded value statements
30 September 31 March
2001 2001
Sage Group Limited % change R000 R000
Group embedded value
Shareholders' funds 1 062 284 1 053 419
Present value of future profits of
Sage Life (net of cost of capital) 689 640 599 149
Embedded value 6,0 1 751 924 1 652 568
Group embedded value per share
Shares in issue
- ordinary shares 147 730 144 758
- compulsorily convertible debentures 2 371 2 371
150 101 147 129
Group embedded value per
share (cents) 3,9 1 167 1 123
Group capital adequacy
multiple (times) 2,4 2,6
Six months ended 30 September
2001 2000
R000 R000
Group embedded value earnings
Embedded value - at end of period 1 751 924 1 597 615
Embedded value - at beginning of period 1 652 568 1 534 723
99 356 62 892
Dividends paid 99 452 104 777
Increase in capital - (1 568)
Embedded value earnings 198 808 166 101
Dividend cover on embedded value
basis (times) 4,5 2,6
30 September 31 March
2001 2001
Sage Life Limited % change R000 R000
Embedded value
Shareholder's funds 1 618 171 1 565 895
Present value of future profit
(net of cost of capital) 689 640 599 149
Embedded value 6,6 2 307 811 2 165 044
Risk discount rate (%) 12,80 14,50
Financial soundness valuation
- capital adequacy requirement 437 256 405 411
- capital adequacy multiple (times) 3,7 3,9
Six months ended 30 September
2001 2000
R000 R000
Analysis of embedded value earnings
Embedded value at end of period 2 307 811 2 047 510
Dividend declared 75 000 75 000
Embedded value at beginning of period (2 165 044) (2 037 482)
Embedded value earnings 217 767 85 028
Components of embedded value earnings 69 893 (1 947)
New business 32 634 30 267
Expected return 43 145 48 441
Operating experience variations (5 886) (80 655)
147 874 86 975
Investment return on shareholder's funds 136 189 96 104
Economic assumption changes 26 014 (9 129)
Capital gains tax (14 329) -
Embedded value earnings 217 767 85 028
Principal assumptions % %
Risk discount rate 12,80 16,25
Pre tax investment returns
- equities 12,80 16,25
- property 11,80 15,25
- fixed interest securities 10,80 14,25
- cash 8,80 12,25
Expense inflation 9,50 9,50
Group new business
Six months ended 30 September
2001 2000
% change R000 R000
Life assurance
premiums (gross)Individual 138,2 1 157 880 486 127
- annualised recurring
- South African 4,4 157 103 150 414
- single 198,1 1 000 777 335 713
- South African local 243 707 215 058
- Sage International
(including R450 million
(R121 million),
underwritten by Sage Life
Assurance of
America Inc & Sage Life
of Bermuda Limited) 757 070 120 655
Employee
benefits - South African 15,1 104 434 90 751
- annualised recurring (23,3) 29 373 38 307
- single 43,1 75 061 52 444
Total new business 118,8 1 262 314 576 878
South African unit
trust sales (33,7) 932 421 1 405 811
South African
operating results
Net premiums received 17,7 783 515 665 410
- recurring 464 747 402 433
- single 318 768 262 977
Investment result 83,7 580 722 316 050
- investment income 183 404 169 427
- net realised and
unrealised capital
gains 397 318 146 623
1 364 237 981 460
Outgo (775 215) (739 746)
Policyholder benefits (516 828) (524 771)
Commissions, expenses
and tax (258 387) (214 975)
589 022 241 714
Increase in
policyholder reserves (461 746) (169 130)
Financial soundness
headline earnings 127 276 72 584
Group income statement (GAAP)
Unaudited
Six months ended 30 September
2001 2000
% change R000 R000
Profit before taxation and
exceptional items 54,2 96 579 62 639
Exceptional items (844) (3 940)
Profit before taxation 95 735 58 699
Taxation 56 744 40 139
Profit after taxation 110,1 38 991 18 560
Foreign preference dividends 12 770 7 110
Earnings attributable to
ordinary shareholders 26 221 11 450
Adjustment for exceptional items 844 3 940
Headline earnings 75,9 27 065 15 390
Headline earnings per share (cents)
(basic and fully diluted) 18,4 10,9
Attributable earnings per share fully
diluted (cents)
(basic and fully diluted) 17,9 8,1
Reconciliation between GAAP and
financial soundness results
GAAP headline earnings 27 065 15 390
Add/(deduct) adjustments in respect
of consolidation of life insurance
company's subsidiaries 71 871 45 851
- reversal of investment surpluses
on free assets 82 395 46 000
- operating results of subsidiaries (15 524) (149)
- dividends from subsidiaries 5 000 -
Group financial soundness headline earnings 98 936 61 241
Group balance sheet (GAAP)
Unaudited Audited
30 September 31 March
2001 2001
R000 R000
Assets
Tangible fixed and other non-current assets 95 761 106 550
Intangible assets 74 219 61 563
Investments of life assurance subsidiaries 7 935 194 6 934 848
Current assets 835 379 606 886
Goodwill 17 728 18 572
8 958 281 7 728 419
Shareholders' funds and liabilities
Total shareholders' interest 407 232 464 202
Redeemable preference shares issued
by subsidiaries 108 500 118 500
Long-term liabilities 585 455 440 166
Long-term assurance funds 7 480 927 6 327 787
Current liabilities 376 167 377 764
- interest bearing 12 187 11 244
- other 363 980 366 520
8 958 281 7 728 419
The reconciliation to total shareholders' interest
as reflected in the financial soundness balance
sheet is as follows:
Total shareholders' interest per GAAP
balance sheet 407 232 464 202
Add/(deduct) 655 052 589 217
- adjustment to distributable reserves
- current period 76 877 204 795
- prior periods 702 915 498 284
- minority interest (124 740) (113 862)
Total shareholders' interest per financial
soundness balance sheet 1 062 284 1 053 419
Statement of changes
in equity (GAAP)
Unaudited
Six months ended 30 September
2001 2000
R000 R000
Balance at beginning of period 464 202 549 072
Increase in minority interest 10 878 9 268
Proceeds from
shares/debentures issued - 1 889
Share issue costs (156) (321)
Final appropriation
for full redemption of
2001 preference shares (2 211) -
Revaluation of investments (392) 13 178
Attributable earnings 26 221 11 450
Dividends paid
- prior accounting period (91 310) (97 667)
Balance at end of period 407 232 486 869
Summarised group cash flow
statement (GAAP)
Unaudited
Six months ended 30 September
2001 2000
R000 R000
Cash flows from operating
Activities (165 044) (160 622)
Cash flows of life
assurance subsidiaries
including investing activities 76 890 10 286
Cash flows from financing
Activities 136 232 8 793
Net increase/(decrease)
in cash equivalents 48 078 (141 543)
Cash and cash equivalents
at beginning
of period 332 909 413 797
Cash and cash equivalents
at end of period 380 987 272 254
Dividend declaration
The directors have resolved to declare an interim cash dividend of 30 cents
per ordinary share in respect of the six months ended 30 September 2001
(2000: 45 cents) to shareholders registered as such at the close of business
on 18 January 2002 (the "record date").
Last date of trade "cum" dividend Friday 11
January 2002
Shares trade "ex" dividend Monday 14
January 2002
Record date Friday
18 January 2002
Payment date Monday 21 January 2002
In order to comply with the procedures of STRATE, share certificates may not
be dematerialised/rematerialised between Monday, 7 January and Friday, 18
January 2002, both days inclusive.
By order of the board
CS Cant
Secretary
21 November 2001
Directors HL Shill (Chairman) MP Adonisi Dr DC Cronj JP Davies BJ du
Plessis DM Falck G Griffin JE Henderson Dr BM Ilsley L Kaplan RI
Marsden Dr DF Mostert B Nackan JH Postmus CD Stein CL van Wyk Adv T
van Wyk WD Winckler
Registered office 11th Floor Sage Centre 10 Fraser Street Johannesburg
2001 PO Box 7755 Johannesburg 2000 Transfer secretaries Computershare
Services Limited 2nd Floor Edura House 41 Fox Street Johannesburg 2001
PO Box 61051 Marshalltown 2107
Sage Group Limited Reg no 1970/01541/06 Share code SGG ISIN code
ZAE000006623
www.sage.co.za
