| Mon 3 Jun 2002, 0:00 | | Alexander Forbes Limited Year End Results To 31st |
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Alexander Forbes Limited year end results to 31st March 2002
Alexander Forbes Limited
Audited results for the year ended 31 March 2002
* Headline EPS +49%
* Core headline eps +31%
* Distribution to shareholders +30%
* Revenue from operations +38%
Review of operations
Overview
Alexander Forbes has met its objective of delivering superior returns to
shareholders with headline earnings per share increasing by 49% to 185
cents. This builds on an impressive growth record since listing in 1996 with
compound growth in headline earnings per share of 38% per annum over the
past five years.
Operational review
The continued high revenue growth and profitability has been achieved
through a combination of organic growth in our core Financial Services and
Risk Services businesses in South Africa and the United Kingdom, the
benefits of acquisitions made in the previous year and the effect of the
Rand devaluation on hard currency earnings.
Excluding acquisitions and disposals, the underlying growth in revenue from
operations is 24% (2001: 21%). This represents significant real growth given
the low levels of inflation prevailing in our main markets.
Operational interest income comprises interest income attributable to the
insurance broking operations of Risk Services businesses. The low year-on-
year increase in operational interest income results from the lower interest
rates prevailing in the current year. Despite the low increase in
operational interest income and a net trading loss in the Latin America
region, the group has maintained its record of continuously improving
margins with the trading profit margin improving from 20% to 21%.
Consequently, profit growth exceeded revenue growth, with trading profits
increasing by 46% to R884 million.
Segmental results
Our African (principally South African) operations increased revenue and
trading profits by 17% and 41% respectively. The organic growth in revenue
is 15%.
- Financial Services Africa recorded revenue growth of 8% in difficult
market conditions. Excluding the NBC Consultants & Actuaries disposal in the
previous year, the organic growth in revenue is 10%. Profit growth of 21%
significantly exceeded revenue growth, resulting from increased efficiencies
and tight expense control.
- Listed subsidiary, Investment Solutions, again produced excellent results
with core headline earnings per share increasing 43%.
- Risk Services Africa, which includes retail and reinsurance risk broking,
Guardrisk and Alexander Forbes Insurance, built on its strong performance in
the previous year with revenue and trading profits increasing 21% and 70%
respectively. There was a significant improvement in the profitability of
the Personal Lines broking business in the second half of the year.
Our European (principally United Kingdom) operations increased revenue and
trading profits by 63% and 68% respectively. These results were driven by a
number of factors including the significant hardening of insurance markets,
the benefits of prior year acquisitions and the effect of the Rand
devaluation on sterling earnings. The organic growth in revenue is 37%.
Revenue and trading profits increased by 25% and 29% respectively in
sterling terms.
- Financial Services UK recorded revenue growth of 52% despite the slower
than expected development of the UK stakeholder pensions market. Profit
growth outstripped revenue growth.
- Direct Marketing produced good results given the difficult market
conditions which prevailed for much of the year. Advertising response levels
improved in the period following the UK general election. Revenue and
trading profits increased 13% and 8% respectively.
- Risk Services UK increased revenue and trading profits by 95% and 96%
respectively. Excluding acquisitions, the organic revenue growth is 55%. The
regional retail broking offices performed well with significant new business
gains in a number of offices. The wholesale and specialist insurance broking
divisions had an excellent year. The London-based retail broking division
had a challenging year during which acquired businesses were integrated into
the group`s structures. The integration costs have been absorbed in the
current year`s results.
Asia produced a strong trading result despite the generally flat economic
conditions in the region. Strong performances were recorded in Hong Kong,
Singapore and Thailand.
The Latin American region had a disappointing year primarily as a result of
the economic collapse in Argentina where we had operated a significant
direct marketing, consumer business. This business has been restructured
with a significant reduction in headcount and is expected to trade
profitably in the next financial year provided the economy does not further
deteriorate. Our Mexican operations continued to grow and in November 2001
we purchased Bufete de Consultoria Actuarial, a leading actuarial and
consulting partnership. This acquisition further expands our Financial
Services business.
Profit before associates
Other interest income net of finance costs declined by R74 million as a
result of the decline in interest rates and a full year of financing costs
being incurred in respect of the GBP100 million exchangeable bonds issued in
September 2000. After taking full account of the financing costs of
acquisitions, profit before associates increased 34% to R820 million.
Associates
The group`s share of pre-tax profits of associates decreased 10% to R61
million. This resulted from start up losses incurred by National Britannia
and a decline in the profits of Thebe Risk & Benefits. The group`s share of
start up losses of National Britannia amounted to R9 million following
delays in the roll-out of their web-based interactive risk management
system. Medscheme produced another solid performance with the group`s share
of pre-tax headline profits increasing 15% to R40 million.
Earnings per share
Headline earnings per share increased 49% to 185 cents per share. Core
headline earnings are calculated by deducting the unrealised currency gain
classified as a non-trading item, and the related taxation charge, from
headline earnings. Core headline earnings per share increased 31% to 153,2
cents.
Basic earnings per share increased 28% to 160,4 cents per share. This is
substantially lower than the 49% increase in headline earnings per share as
a result of the R66 million profit recorded in the previous financial year
in respect of the disposal of NBC Consultants & Actuaries and the phasing in
of goodwill amortisation. Prior to 1 April 2000 all goodwill balances were
written off directly against share premium and reserves.
Distribution to shareholders
The recommended distribution to shareholders totals 61 cents per share,
representing a 30% increase over the dividend paid in the previous year.
Cover has been maintained at 2,5 times based on core headline earnings per
share.
Succession planning
Rael Gordon, the former chief executive of Alexander Forbes` subsidiary,
Investment Solutions, transferred to Alexander Forbes on 1 April 2002. He
succeeds Graeme Kerrigan as group chief executive on 1 January 2003 and will
be based in London from August 2002.
Graeme Kerrigan retires from his position as group chief executive on 31
December 2002 and will succeed Paul Heinamann as non-executive chairman of
Alexander Forbes. Paul Heinamann will continue to serve on the board. Leon
Lewis has accepted a consulting role in the direct marketing business in the
United Kingdom and, consequently, will not be joining the Alexander Forbes
board at this time as a non-executive director.
Prospects
The year under review has been a period of consolidation of acquisitions
made in the previous financial year. All acquisitions have been fully
integrated into the group and the associated costs have been absorbed in the
current year`s results. The group is now well positioned for further
international expansion.
In January 2002, the group acquired options to purchase 80% of Lane Clark &
Peacock (LCP), a highly respected and successful actuarial and consulting
partnership in the UK. We intend exercising our first option for 60% later
this month and have a further option to acquire an additional 20% of LCP in
2005. This acquisition is strategically important to the group and offers
further expansion opportunities.
The board expects satisfactory real growth in core headline earnings per
share in the forthcoming year.
For and on behalf of the board
PL Heinamann
Chairman
GW Kerrigan
Group chief executive
31 March 31 March
2002 % 2001
Rm increase Rm
Group income statement
Revenue from operations 4 239 38 3 070
Other revenue 18 28
Total revenue 4 257 3 098
Operating expenses (3 475) (2 592)
Operating profit 782 55 506
Operational interest income 102 98
Trading profit 884 46 604
Other interest income
Note 2 (64) 10
Profit before associates 820 34 614
Share of profits of associates 61 68
Profit before non-trading items 881 29 682
Headline adjusting items (90) 1
Other non-trading items
Note 3 157 35
Profit before taxation 948 32 718
Taxation (315) (225)
Profit after taxation 633 28 493
Outside shareholders` interest (78) (65)
Attributable profits 555 30 428
Headline adjusting items
(net of minority interests and
taxation):
- Profit on disposal of interests - (63)
- Goodwill amortisation 84 47
- Other 1 12
Attributable headline profits 640 51 424
Headline earnings per share (cents) 185,0 49 124,3
Core headline earnings per share
(cents) 153,2 31 117,2
Earnings per share (cents) 160,4 28 125,5
Diluted earnings per share
(cents) Note 4 154,2 28 120,6
Distribution per share (cents) 61,0 30 47,0
Number of shares (millions)
- issued 347 344
- weighted average 346 341
Group balance sheet
Ordinary shareholders` funds
- Before goodwill effects 2 448 2 028
- Goodwill amortisation (1 677) (1 593)
Total shareholders` funds 771 435
Outside shareholders` funds 222 146
Total shareholders` funds 993 581
Long-term liabilities - interest
bearing 2 140 1 558
- non-interest bearing 13 125
Provisions for post-retirement
benefits 285 210
Deferred tax 29 (29)
Capital employed 3 460 2 445
Policyholders` and cell
owners` interests in insurance
subsidiaries
Assets 43 429 34 547
Liabilities (43 429) (34 547)
Fixed assets 231 201
Goodwill 1 315 965
Associates
Note 5 439 231
Investments and loans receivable 853 581
Current assets
Cash and cash equivalents 3 834 2 686
Other interest bearing receivables 133 95
Non-interest bearing receivables 3 020 1 874
6 987 4 655
Current liabilities
Interest bearing liabilities 701 498
Non-interest bearing liabilities 5 541 3 579
Provisions for liabilities and
charges 123 111
6 365 4 188
Net current assets 622 467
Employment of capital 3 460 2 445
Group cash flow statement
Cash from operating activities
Cash flow from operations 1 123 38 811
Movement in insurance balances (37) 141
Taxation paid (240) (125)
Dividends paid (99) (105)
Net cash inflow from operating
activities 747 722
Cash invested
Subsidiaries and associates -
acquired (244) (1 056)
- sold - 104
Net investments and loans receivable (299) 29
Net fixed assets acquired (117) (67)
Net cash outflow from investing
activities (660) (990)
Cash from financing
Net proceeds of share and bonds
issues 32 1 063
Net increase in interest bearing
payables 104 342
Dividends paid to outside
shareholders (14) (12)
Net cash inflow from financing
activities 122 1 393
Net increase in cash and cash
equivalents 209 1 125
Cash and cash equivalents at
beginning of year 2 686 1 118
Cash balances of subsidiaries
acquired 11 281
Foreign subsidiaries` translation
adjustment 928 162
Cash and cash equivalents at
end of year 3 834 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 bonds - 73 - 73
Foreign subsidiaries
translation adjustment - - (32) (32)
Attributable profits - - 428 428
Dividends - - (139) (139)
At 31 March 2001 3 78 354 435
Share issues - 32 - 32
Foreign subsidiaries
translation adjustment - - (152) (152)
Attributable profits - - 555 555
Dividends - - (99) (99)
At 31 March 2002 3 110 658 771
Group segmental analysis
31 March 31 March
2002 % 2001
Rm increase Rm
Revenue from operations 4 239 38 3 070
Africa 1 790 17 1 531
- Financial Services 739 8 682
- Investment Solutions 400 29 311
- Risk Services 651 21 538
Europe 2 130 63 1 304
- Financial Services 475 52 313
- Direct Marketing 380 13 337
- Risk Services 1 275 95 654
Asia 94 49 63
Latin America 225 31 172
Trading profit 884 46 604
Africa 462 41 328
- Financial Services 181 21 150
- Investment Solutions 143 47 97
- Risk Services 138 70 81
Europe 420 68 250
- Financial Services 61 259 17
- Direct Marketing 120 8 111
- Risk Services 239 96 122
Asia 20 150 8
Latin America (18) (200) 18
Notes to the financial statements
1 basis of accounting
The financial information has been prepared on the historical cost basis in
accordance with South African Statements of Generally Accepted Accounting
Practice. 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 and the related STC expense to be recognised only when declared.
Previously dividend payments were recognised in the period to which the
distribution related. The change in accounting policy resulted in a R4
million decrease in the taxation expense for the previous financial year.
The aggregate restatement of opening reserves is reflected in the Statement
of Changes in Equity.
* AC116, "Employee Benefits", which prescribes the actuarial valuation basis
to be adopted when measuring retirement benefit liabilities for accounting
purposes. It requires provision to be made for any deficit in funded
retirement schemes. It also requires provision to be made for all unfunded
pre- and post-retirement employee benefits previously accounted for on a pay-
as-you-go basis. The change in accounting policy did not affect the results
for the previous financial year. The aggregate restatement of opening
reserves is reflected in the Statement of Changes in Equity and includes the
following:
* R95 million in respect of a deficit in the closed UK pension fund
* R61 million in respect of unfunded post-retirement benefits, mainly
medical benefits
* R43 million in respect of accrued employee leave
* Deferred taxation relief on the above items at the standard corporate tax
rate of 30%.
The income statements and balance sheets of foreign subsidiaries have been
translated to Rands at the following R:GBP exchange rates:
Weighted average rate 14,3 11,0
Closing rate 16,2 11,5
31 March 31 March
2002 2001
Rm Rm
2 other interest income
Interest and dividends received
Vendor loan notes 29 14
Loan swap deposit 36 36
Exchangeable bonds -
unutilised proceeds 8 18
Other 57 50
130 118
Interest paid
Collateral deposits -
vendor loan notes (26) (13)
Loan swap liability (36) (36)
Exchangeable bonds -
financing acquisitions (117) (29)
Exchangeable bonds -
unutilised proceeds (12) (28)
Other (3) (2)
(64) 10
3 other non-trading items
Other non-trading items comprise an unrealised currency gain of R157 million
(2001: R35 million) in respect of a loan swap arrangement.
4 calculation of diluted earnings per share
Diluted earnings per share is determined by adjusting the relevant earnings
per share calculation as follows:
- Increasing earnings by R90 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
14 million in respect of the dilutory impact of employee share options.
The equity conversion option under the exchangeable bonds did not have a
dilutory effect on basic earnings per share.
5 associates
The directors` valuation of associates is R544 million (2001: R302 million)
6 capital expenditure and commitments
Depreciation for the year 122 71
Capital expenditure for the year 140 77
Operating lease commitments
Due within one year 139 92
Thereafter 939 901
1 078 993
Guarantees and suretyships 1 6
Dividend and capital distribution notice
Notice is hereby given that at a meeting on 31 May 2002, the directors
recommended a dividend and capital distribution (by way of a reduction of
the share premium account) totaling 61 cents per share ("the distribution")
in respect of the year ended 31 March 2002. The terms and conditions of the
capital portion of the distribution are subject to approval by the holder of
the exchangeable bonds issued by Alexander Forbes UK Plc on 15 September
2000, as well as specific approval by shareholders at the forthcoming annual
general meeting. Subject to these approvals, the distribution will be
payable to ordinary shareholders recorded in the register as such on 23
August 2002.
In compliance with the requirements of STRATE, the following dates are
applicable:
Last day to trade cum the distribution Friday, 16 August 2002
Date trading commences ex the distribution Monday, 19 August 2002
Record date Friday, 23 August 2002
Date of payment Monday, 26 August 2002
Shares may not be dematerialised or rematerialised between Monday, 12 August
2002 and Friday, 23 August 2002.
directors: PL Heinamann+ (Chairman) GW Kerrigan* (Group chief executive)
RI Gordon (Deputy 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
registered office: Alexander Forbes Place 61 Katherine Street Sandown 2196
PO Box 787240 Sandton 2146
Telephone +27 (0)11 269 0000 Fax +27 (0)11 269 1111 E-mail
info@aforbes.co.za www.alexanderforbes.com www.alexfbs.co.za
company secretary: RA Venter
transfer secretaries: Computershare Investor Services Limited 11 Diagonal
Street Johannesburg 2001 South Africa
sponsor: Investec Securities Limited 100 Grayston Drive Sandown 2196
Sandton South Africa
reporting accountants and auditors: PricewaterhouseCoopers Inc Chartered
Accountants (SA)
2 Eglin Road Sunninghill 2157 South Africa
share code: AFB share ISIN: ZAE 000018230
www.alexanderforbes.com
Date: 03/06/2002 08:00:00 AM Produced by the SENS Department
