| Tue 4 Dec 2001, 0:00 | | African Life Assurance Company Limited - Interim G |
|
months ended 30 september 2001
African Life Assurance Company Limited
(Registration number 1911/003818/06)
("African Life" or "the Company")
ISIN CODE:ZAE000000246 SHARECODE: AFI
African Life Assurance Company Limited
Interim Group results for the six months ended 30 september 2001
Our Vision .. .
African Life aims to be the dominant provider of risk, financial and
healthcare products in our chosen markets.
Highlights .. .
Headline earnings increases 16% to 75,1 cents per share
Increase in embedded value to R1896 million
Strong performance from international operations
New business access to Persal reopened
Liquidity in shareholders' assets enhanced with timely sale of property
portfolio
New technology platform successfully deployed in Ghana
Headline earnings of 75,1 cents per share
New business volumes match the second half of last year
Strong investment performance in Botswana contributes to results
Ingwe membership increases by 32%
Our Strategy .. .
Superior customer service
Sustainable unit cost reduction
Innovative product development
Alternative premium collection methods
International replication
Committed and talented people.
Focus
Group income statement
Unaudited Unaudited Audited
Six months Six months Year
to to to
30 Sept 30 Sept 31 March
2001 2000 2001
Notes Rm Rm Rm
Premium income 1 898,2 930,0 1 912,4
Investment return 652,5 383,0 933,5
Total income 1 550,7 1 313,0 2 845,9
Selling expenses 148,4 165,7 298,7
Operating expenses 119,2 98,2 216,2
Policyholder benefits 509,4 464,0 985,1
Change in actuarial value
of policy liabilities 609,1 437,6 1 009,6
Surplus before tax and
exceptional items 164,6 147,5 336,3
Exceptional items 2 - 96,4 178,8
Taxation 38,1 18,6 62,1
Surplus after tax 126,5 32,5 95,4
Minority interests 53,6 26,7 63,5
Surplus attributable to
ordinary shareholders 72,9 5,8 31,9
Operating surplus 67,7 62,9 102,2
Investment income on
free assets 47,7 27,8 87,3
Taxation (32,8) (18,6) (62,1)
Headline earnings 82,6 72,1 127,4
Exceptional items - (96,4) (178,8)
Capital appreciation on
free assets (9,7) 30,1 83,3
Headline earnings per
share (cents) 75,1 64,7 114,0
Earnings per share (cents) 66,3 5,2 28,5
Dividends per share (cents) 27,5 27,5 57,5
Weighted average number
of shares ('000s) 109 933 111 438 111 812
Notes:
1. Premium Income 898,2 930,0 1 912,4
Recurring 639,3 657,5 1 293,9
Individual life 503,1 530,1 1 061,3
Group benefits 136,2 127,4 232,6
Single 258,9 272,5 618,5
Individual life 173,9 242,9 578,7
Group benefits 85,0 29,6 39,8
2. Exceptional items 96,4 178,8
Persal rationalisation reserve - 82,4
Closure and sale of operations 4,5 4,5
Alignment of valuation and
admin processes 67,1 67,1
Write-down of investments 24,8 24,8
Group balance sheet
Unaudited Unaudited Audited
As at As at As at
30 Sept 30 Sept 31 March
2001 2000 2001
Rm Rm Rm
Assets
Investments 8 207,0 6 999,2 7 454,1
Fixed assets 160,8 82,1 87,7
Current assets 654,7 517,3 661,0
9 022,4 7 598,6 8 202,8
Capital, reserves and
liabilities
Share capital and premium 502,0 559,8 478,0
Reserves 1 032,3 1 001,1 994,4
Excess of assets over
liabilities 1 534,3 1 560,9 1 472,4
Minority shareholders'
interest 304,2 268,2 305,9
Total capital and reserves 1 838,5 1 829,1 1 778,3
Actuarial value of policy
liabilities 6 698,5 5 294,7 5 912,9
Long-term liabilities - 81,9 63,9
Deferred taxation 122,7 136,8 105,7
Current liabilities 362,7 256,1 342,0
9 022,4 7 598,6 8 202,8
Statement of changes in equity
Unaudited Unaudited Audited
As at As at As at
30 Sept 30 Sept 31 March
2001 2000 2001
Rm Rm Rm
Share capital and share
premium
Balance at the beginning of
the period 478,0 637,6 637,6
Arising on shares issued 27,1 9,8 34,2
Issue expenses - - (1,0)
Consolidation of special
purpose entity (3,1) (87,6) (192,8)
Balance at the end of the
period 502,0 559,8 478,0
Reserves
Balance at the beginning
of the period 994,4 1 041,9 1 041,9
Income attributable to
shareholders 72,9 5,8 31,9
Dividends paid (35,0) (46,6) (77,8)
Other direct transfers - - (1,6)
Balance at the end of the
period 1 032,3 1 001,1 994,4
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 (Ingwe Health Plan Organisation)
have been revalued and are reflected at net asset value.
Embedded value results
Six months to Year to
30 Sept 31 March
2001 2001
Rm Rm
Shareholders' net assets 1 472,4 1 676,6
Value of in-force 337,4 343,6
Value before cost of capital 373,4 385,6
Cost of capital (36,0) (42,0)
Embedded value at beginning
of period 1 809,8 2 020,2
Analysis of change in embedded value 86,1 (210,4)
Roll forward 68,1 235,9
Investment return on free assets 37,9 170,6
Expected return on life business
in force 30,2 65,3
Change over the year 18,0 (446,3)
Value of new business 46,2 98,3
Value at point of sale 43,8 90,7
Expected return to end of year 2,4 7,6
Change in assumptions and methodology (9,7) (37,1)
Experience variations (7,5) (69,1)
Consolidation of SPE (3,1) (192,8)
Exceptional items - (178,8)
Persal rationalisation reserve - (82,4)
Other - (96,4)
Additional adjustments for Persal
changes - (11,8)
Transactions with shareholders (7,9) (55,0)
Dividends and new capital (7,9) (55,0)
Embedded value at end of period 1 895,9 1 809,8
Shareholders' net assets 1 534,3 1 472,4
Value of in-force 361,6 337,4
Value before cost of capital 408,7 373,4
Cost of capital (47,1) (36,0)
The Capital Adequacy Requirement for the Company is R455,4 million
and for the Group R567,5 million (31 March 2001: Company R461,6 million,
Group R519,2 million). The capital adequacy cover for the Group is 2,7 times
(31 March 2001: 2,8 times).
Value of new business 46,2 98,3
Value before cost of capital 51,3 109,0
Cost of capital (5,1) (10,7)
Assumptions
The main assumptions used are as follows:
1. Economic assumptions % %
p.a p.a
Risk discount rate 16,0 17,5
Overall investment return
(before tax) 13,2 14,7
Expense inflation rate 9,0 10,5
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 Capital Gains Tax has been made in the 30
September 2001 results.
Abridged cash flow statement
Unaudited Unaudited Audited
6 months to 6 months to Year to
30 Sept 30 Sept 31 March
2001 2000 2001
Rm Rm Rm
Cash flows from operating
activities 780,1 237,2 1 081,1
Cash utilised in investing
activities (437,3) (354,1) (790,2)
Cash flows from financing
activities (39,9) (6,1) (25,1)
Net increase in cash
resources 302,9 (123,0) 265,8
Cash resources at the
beginning of the period 940,7 763,9 674,9
Cash resources at the end
of the period 1 243,6 640,9 940,7
Embedded value segmental
analysis
Shareholders' Net value of
net assets in-force business Total
30 Sept 31 March 30 Sept 31 March 30 Sept 31 March
Rm 2001 2001 2001 2001 2001 2001
South
Africa 1 233,4 1 222,8 273,8 257,2 1 507,2 1 480,0
Botswana 283,4 230,1 83,5 78,8 366,9 308,9
Namibia 17,5 19,5 4,3 1,4 21,8 20,9
Total 1 534,3 1 472,4 361,6 337,4 1 895,9 1 809,8
Changes in accounting policies
This interim report has been prepared in accordance with the accounting
policies outlined in the 2001 annual report except for the change in the
treatment of dividends with the adoption of AC 107 (revised), the
classification and depreciation of head office land and buildings in terms
of AC 135 and the adoption of the accounting statement on employee benefits
AC 116. The impact of these changes is immaterial to shareholder
reserves.Comparative figures have been restated appropriately.
This interim report is in compliance with AC 127: Interim Financial
Reporting.
Comment
Environment
In South Africa, the trading environment was again extremely challenging.
Following government's decision to reinstate deductions from their payroll
(Persal) for new business, African Life has made good progress in
consolidating our existing customers' policies to comply with the stipulated
maximum of 15% of salary. Considerable progress was also made in developing
alternative premium collection methods and new markets.
Internationally, markets in Africa were very receptive to product offerings
introduced during the period, and we continue to make good progress in
capitalising on opportunities in these regions. Domestically, healthcare
costs continued to rise, resulting in the Ingwe healthcare model rapidly
becoming the preferred choice in affordable healthcare.
Results
Embedded value showed an increase from R1810 million at 31 March 2001 to
R1896 million at 30 September 2001.
New business growth in Botswana countered reduced new business volumes in
recurring and single premium in South Africa, resulting in a very
satisfactory embedded value of new business of R46million for the period.
Recurring premium income of R639million for the six months to 30 September
2001 is 3% lower than the comparable period in 2000. In South Africa,
premium income was negatively impacted by lower new business volumes and
higher lapses, both resulting from the Persal decision. These results were
countered by strong premium growth in Botswana. This reinforces the benefit
of replicating the African Life formula in similar markets and reducing
dependency on a single market. Premium income for the group at the interim
stage is just under half that recorded for full FY2001.
In the volatile single premium market, where our approach has always been to
remain competitive without undue pressure on margin, single premiums of
R174million are disappointing, but understandable, given the low interest
rate environment.
Costs have been well controlled with the increase in group administrative
expenses mainly attributable to developing operations. Selling expenses for
the period are in line with expectations.
Botswana recorded excellent investment returns during the review period,
given a buoyant domestic stock market, increased funds under management and
tactical shifts in their offshore funds. This countered the overall impact
of widespread market volatility post 11 September resulting in a significant
increase in total investment return over the prior period.
Taxation of R38,1million for the six months represents South African normal
tax payable of R3,8million and foreign tax payable of R34,3million.
Headline earnings per share for the period were 75,1 cents, a 16% increase
over the comparable period in FY2001.
South African operations
New business volumes were subdued, given the impact of the Persal decision
for almost the entire review period, and were below those recorded in the
comparable period last year. The Persal issue and difficult trading
conditions in general have also inhibited efforts to improve persistency
levels. Whilst at September approximately 25% of policies over the maximum
15% salary threshold had been rationalised, no release from the reserve set
aside for Persal rationalisation during the year to 31 March 2001 has taken
place. The recent repricing of the product range is expected to favourably
impact margins in the second half.
Costs in these operations were tightly controlled during the period,
reflecting only an inflationary increase.
International
Our international division continues to make impressive progress. New
business premium income in Botswana increased by 29%. Botswana Life also
recorded good growth in its customer base, while reducing unit costs. The
Botswana asset management company recorded strong results, benefiting from a
rising local stock market and an expanding base of assets under management.
In Namibia, whilst the group recorded satisfactory premium income, growth
expectations were not met. In Kenya, the introduction of new products has
been extremely well received, with sales for the interim period exceeding
those of full-year FY2001. In Ghana, operations began in July after the
issue of the required licence and early indications are positive.
Healthcare
Our healthcare activities are conducted through Ingwe Health Plan
Organisation, which offers affordable products to the emerging market
through its capitation product. During the review period, African Life
demonstrated its commitment to Ingwe's potential by acquiring the balance of
the equity (40%) to make Ingwe a wholly owned subsidiary. Key management
remains in place and appropriately incentivised, and the Ingwe brand has
been retained.
Ingwe has rapidly differentiated itself by developing innovative managed
care products and by integrating the managed care and administrative
processes of health cover. Ingwe has continued to aggressively increase its
principal member base. The company's drive for quality new business has
shown early success, with a greater percentage derived from agreements with
major unions and large employers.
Disposal of property portfolio
In the current economic and property market, the group's property exposure
was considered overweight. Accordingly, we rebalanced shareholder assets by
realising the major portion of this investment at the full carrying value at
March 2001 of R480 million, after expenses. African Life will retain a more
appropriate property portfolio, primarily properties in Houghton and Illovo
in Johannesburg. This disposal, effective 30 September 2001, also improves
the liquidity of shareholder assets. The proceeds will be retained to fund
growth opportunities.
Common technology platform
The implementation of a new technology platform for the wider African Life
group is on track and within budget. The system is now in a critical testing
phase in South Africa, with the group's Ghanaian business already operating
on the new technology. Initial results are in line with expectations.
Prospects
African Life has weathered an intensely challenging period over the past 18
months, but this has strengthened our resolve to achieve our vision.
In our individual financial services operation, we have met the Persal
challenge. The business has been repositioned for a changed environment,
with streamlined and enhanced systems for sustainable unit cost reduction in
future, and a renewed focus on profitability.
Our international diversification strategy has clearly demonstrated its
considerable potential during the period, reinforcing our commitment to
developing new markets outside South Africa.
Against an unstable healthcare environment and continual cost increases, the
Ingwe product is rapidly gaining acceptance and has the potential to become
the recognised preferred provider of affordable healthcare cover to the
emerging market.
The group is thus well-positioned with strategies in place to resume its
past growth trajectory.
Dividend
Notice is hereby given that the interim ordinary dividend (No. 26) of 27,5
cents per share in respect of the six months ended 30 September 2001 has
been declared payable to the holders of ordinary shares recorded in the
books of the company at the close of business on Friday, 11 January 2002.
The last day to trade `cum' the dividend will be Friday, 4 January 2002. The
shares commence trading `ex' dividend from the commencement of business on
Monday, 7 January 2002. The record date will be Friday, 11 January 2002.
Payment will be made on Monday, 14 January 2002. Share certificates may not
be dematerialised or rematerialised between Friday, 28 December 2001 and
Friday, 11 January 2002, both days inclusive.
By order of the board
D M J Ncube
Chairman
J P Rowse
Chief Executive
30 November 2001
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, A van Heerden, T A Wixley
