| Tue 11 Jun 2002, 0:00 | | Aflife Audited Group Results |
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AFLIFE AUDITED GROUP RESULTS
African Life Assurance
Audited Group results for the year ended 31 march 2002
Highlights
- Headline earnings per share up 40% to 159,3 cents per share
- Embedded value of new business maintained at R97,8 million
- Embedded value increases 12% to R2,022 billion
- Operating surplus rises 38% to R141 million
- Dividend increases to 65 cents per share
- Total assets exceed R10 billion
STRATEGY
- Superior customer service
- Sustainable unit cost reduction
- Innovative product development
- Alternative premium collection methods
- International replication
- Capitalising on our unique culture
VISION
African Life aims to be the dominant provider of risk financial and
healthcare products in our chosen markets.
Group income statement
Audited Audited
Year to Year to
31 March 31 March
2002 2001
Notes Rm Rm
Premium income 1 2 735,2 1 912,4
Investment return 1 787,0 933,5
Total income 4 522,2 2 845,9
Selling expenses 337,6 298,7
Operating expenses 249,4 216,2
Policyholder benefits 1 051,8 985,1
Change in actuarial value of policy
liabilities 2 453,9 1 009,6
Surplus before tax and exceptional items 429,5 336,3
Exceptional items 2 178,8
Taxation 93,8 62,1
Surplus after tax 335,7 95,4
Minority interests 105,0 63,5
Surplus attributable to ordinary
shareholders 230,7 31,9
Operating surplus 140,9 102,2
Investment income on free assets 89,3 87,3
Taxation (55,1) (62,1)
Headline earnings 175,1 127,4
Exceptional items (178,8)
Investment surpluses on free assets 55,6 83,3
Headline earnings per share (cents) 159,3 114,0
Earnings per share (cents) 209,9 28,5
Dividends per share (cents) 65,0 57,5
Weighted average number of shares (`000s) 109 879 111 812
Notes:
1. Premium income 2 735,2 1 912,4
Recurring 1 400,4 1 293,9
Individual life 1 009,3 1 061,3
Group benefits 391,1 232,6
Single 1 334,8 618,5
Individual life 410,7 578,7
Group benefits 924,1 39,8
2. Exceptional items 178,8
Persal rationalisation reserve 82,4
Closure and sale of operations 4,5
Alignment of valuation and admin processes 67,1
Write-down of investments 24,8
Group balance sheet
Audited Audited
As at As at
31 March 31 March
2002 2001
Rm Rm
Assets
Investments 10 408,8 7 454,1
Intangible assets 62,4 46,1
Fixed assets 118,4 41,6
Current assets 747,0 661,0
11 336,6 8 202,8
Capital, reserves and liabilities
Share capital and premium 488,2 478,0
Reserves 1 162,3 994,4
Excess of assets over liabilities 1 650,5 1 472,4
Minority shareholders` interest 351,6 305,9
Total capital and reserves 2 002,1 1 778,3
Actuarial value of policy liabilities 8 753,2 5 912,9
Long-term liabilities 63,9
Deferred taxation 193,7 105,7
Current liabilities 387,6 342,0
11 336,6 8 202,8
Statement of changes in equity
Audited Audited
As at As at
31 March 31 March
2002 2001
Restated
Rm Rm
Share capital and share premium
Balance at the beginning of the period 478,0 637,6
Arising on shares issued 26,7 34,2
Issue expenses (0,1) (1,0)
Consolidation of share trust (SPE) (4,4) (192,8)
Share repurchases on open market (12,0)
Balance at the end of the period 488,2 478,0
Reserves
Balance at the beginning of the period 994,4 1 041,9
Income attributable to shareholders 230,7 31,9
Dividends paid (62,8) (77,8)
Other direct transfers (1,6)
Balance at the end of the period 1 162,3 994,4
Abridged cash flow statement
Audited Audited
Year to Year to
31 March 31 March
2002 2001
Rm Rm
Cash flows from operating activities 3 937,6 1 081,1
Cash utilised in investing activities (3 986,0) (790,2)
Cash flows from financing activities (53,7) (25,1)
Net (decrease)/increase in cash resources (102,1) 265,8
Cash resources at the beginning of the period 940,7 674,9
Cash resources at the end of the period 838,6 940,7
Group embedded value
The embedded value, independently reviewed by Tillinghast-Towers
Perrin, 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 the 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.
Comparative figures have been reclassified where appropriate.
Embedded value results
Year to Year to
31 March 31 March
2002 2001
Notes Rm Rm
Shareholders` net assets 1 472,4 1 676,6
Value of in-force business 337,4 343,6
Value before cost of capital 386,6 385,6
Cost of capital (49,2) (42,0)
Embedded value at beginning of period 1 809,8 2 020,2
Analysis of change in embedded value 212,3 (210,4)
Roll forward 196,6 235,9
Investment return on free assets 137,6 170,6
Expected return on life business
in force 59,0 65,3
Change over the year 15,7 (446,3)
Value of new business 97,8 98,3
Value at point of sale 90,2 90,7
Expected return to end of year 7,6 7,6
Changes in assumptions and
methodology 1 (64,5) (37,1)
Experience variations 2 35,3 (69,1)
Consolidation of SPE (4,4) (192,8)
Exceptional items (178,8)
Additional adjustments for
Persal change (11,8)
Dividends and new capital (48,5) (55,0)
Embedded value at end of period 2 022,1 1 809,8
Shareholders` net assets 1 650,5 1 472,4
Value of in-force 371,6 337,4
Value before cost of capital 471,4 386,6
Cost of capital (99,8) (49,2)
The capital adequacy requirement
for the company is R448,1 million
and for the group R613,1 million
(31 March 2001: company R461,6 million,
group R543,3 million).
The capital adequacy cover for the
group is 2,7 times
(31 March 2001: 2,7 times).
Value of new business 97,8 98,3
Value before cost of capital 120,2 109,0
Cost of capital (22,4) (10,7)
Assumptions
The main assumptions used are as follows:
1. Economic assumptions % %
p.a. p.a.
Risk discount rate 17,5 17,5
Overall investment return (before tax) 15,0 14,7
Expense inflation rate 10,5 10,5
2. Other assumptions
The assumptions 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 31 March 2002 results.
Notes:
1. Changes in assumptions South Africa International Group
and methodology Rm Rm Rm
Premium updates (20,4) (20,4)
Mortality (17,7) 8,6 (9,1)
CGT (14,9) (14,9)
Persistency (13,4) (13,4)
Modelling change (8,4) (8,4)
Other (1,6) 3,3 1,7
Total (76,4) 11,9 (64,5)
2. Experience variations
Mortality and morbidity 16,5 10,7 27,2
Persistency (6,1) 5,1 (1,0)
Premium updates (10,6) (10,6)
Expenses and commission (8,6) 5,1 (3,5)
Investment return surplus 26,9 26,9
Other (5,6) 1,9 (3,7)
Total (14,4) 49,7 35,3
Embedded value segmental analysis
Shareholders`
net assets
31 March 31 March
Rm 2002 2001
South Africa 1 237,3 1 222,8
Botswana 389,0 230,1
Namibia 24,2 19,5
Total 1 650,5 1 472,4
Embedded value segmental analysis (continued)
Net value of
in-force business
31 March 31 March
Rm 2002 2001
South Africa 224,3 257,2
Botswana 142,6 78,8
Namibia 4,7 1,4
Total 371,6 337,4
Embedded value segmental analysis (continued)
Total
31 March 31 March
Rm 2002 2001
South Africa 1 461,6 1 480,0
Botswana 531,6 308,9
Namibia 28,9 20,9
Total 2 022,1 1 809,8
Commentary
- Environment
Market conditions were mixed in the areas in which African Life
operates, with challenging conditions in the South African life
market, and turbulence in the domestic healthcare industry.
International markets were rewarding for those companies, such as
African Life, prepared to pioneer new markets.
The 12 months to 31 March 2002 were characterised by the significant
contribution to group results from African Life`s international
division, specifically Botswana, and the excellent progress made by
Ingwe, the group`s healthcare subsidiary. Results for the year clearly
reflect the benefits of African Life`s strategy to remain focused on
its core business, while reducing risk by diversifying its activities
geographically into similar markets outside South Africa. This
strategy largely countered the effects of Persal challenges and
increasing pressure on consumer wallets during the year.
African Life`s encouraging results underscore the need and demand for
its products. The group has taken several decisive steps in the past
two years to address a rapidly changing market place and the benefits
to shareholders are now emerging.
Headline earnings per share up 40%. Embedded value up 12%
- Results
Headline earnings per share were 159,3 cents, a 40% increase on
FY2001. The increase in embedded value to R2022 million at 31 March
2002 is very satisfactory. This increase was achieved despite the
negative impact of assumption changes amounting to R64,5 million.
These changes were implemented to reflect the full impact of current
experience in South Africa relating to lapses and automatic premium
updates in the current Persal environment. The 13% increase in
dividend per share to 65 cents reflects the transition from a recent
difficult past to a more positive tomorrow.
New business levels in South Africa matched the previous year`s
volumes, a commendable result, while strong growth was recorded in new
business levels outside of South Africa. Recurring premium income was
stronger in the second half, resulting in an increase of 8% compared
with the prior year.
The low interest rate environment continued to have a negative impact
on South African single premium volumes and margins. Individual single
premiums of R411 million were disappointing compared to the R579
million of the previous year.
Core administration costs were well controlled during the year,
reflecting only an inflationary increase in developed operations.
Foreign exchange gains and the strong performance of the Botswana
Stock Exchange contributed to group results. However, we point out
that had the income statement been prepared on FY2001 Botswana rates
of exchange, headline earnings per share would have been 5,3 cents
lower. Total investment return for the year was up 91% to R1,8
billion.
Taxation of R94 million represents South African normal tax of R20
million and foreign tax of R74 million. Included in the South African
tax charge is a provision for capital gains tax of R8 million.
During March 2002, and in terms of shareholder approval granted at the
last annual general meeting held on 13 August 2001, African Life
repurchased 1088336 of its ordinary shares (0,9% of issued ordinary
share capital) at an average price of R11,00 per share. African Life
is appropriately capitalised at present, while recognising the need to
invest in new business growth and value-enhancing activities.
Management is actively reviewing opportunities for investment while
maintaining group focus.
Embedded value assumptions strengthened
- South African operations
New business volumes for the second half surprisingly exceeded those
of the first half (+11%), reflecting African Life`s swift reaction to
the reopening of state Persal business, while rapidly redirecting
sales initiatives. African Life has made good progress in
rationalising payroll deductions from public sector employees which at
56% is well ahead of industry averages. Accordingly, 50% (R29,5
million) of the Persal reserve set aside in FY2001 has been utilised.
However, as expected, the rationalisation process has put pressure on
the uptake of automatic annual premium increases and also adversely
affected persistency levels. The repricing of the product range in the
second half helped compensate for these unfavourable experiences.
Assumptions used in the actuarial valuation have been updated to take
the most recent experiences into account. Headline earnings from the
South African operations increased to R120 million for the year to 31
March 2002 compared to R68 million of the previous year.
Costs in these operations were tightly controlled during the period,
reflecting only an inflationary increase.
Recurring new business premium income increases 27%
- International
Our international division continues to make impressive progress.
Recurring new business premium income increased by 27%. Single
premiums, in the main, reflected the inflow resulting from the
privatisation of the Botswana state pension fund. Botswana`s
performance was also assisted by a buoyant local stock exchange and a
resilient pula. In Namibia, new management is in place and early
indications are encouraging. Group operations in Kenya, Ghana and
Zambia are proceeding as expected, given their early stage of
development. Each of these markets has great potential and the initial
reception to new products has been very good.
Ingwe growth continues
- Healthcare
Our healthcare activities are conducted through Ingwe Health Plan
Organisation, now a wholly owned subsidiary of African Life. Ingwe
primarily offers affordable products to the emerging market through
its capitation product. Its unique business model has enabled Ingwe to
outperform its peers by developing innovative managed care products
and by integrating the managed care and administrative processes of
health cover. In its third year, Ingwe has made a modest contribution
to profits, growing its membership base strongly with quality new
business from major union affiliates and excellent penetration in the
listed retail sector. Ingwe now has 35000 principal members, up from
21 000 at the end of FY2001. Capitation members are served by six
primary care networks through 250 outlets.
- Prospects
In the past two years, African Life has navigated serious challenges
to the company with some notable successes and without loss of key
staff or focus. Most importantly, African Life has come through
without permanent damage.
Our objectives for the new year are clear. We plan to increase new
business levels in South Africa, continue the group roll-out of our
new technology platform, record a healthy contribution to group profit
from Ingwe and ensure that another of our international operations
meaningfully contributes to the bottom line.
Given the encouraging start to FY2003, the directors are confident of
achieving their objectives in the year ahead, and thereby creating
long-term wealth for shareholders.
- Changes in accounting policies
This 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 owner-occupied 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 on
shareholder reserves. Comparative figures have been restated
appropriately.
- Dividend
A final ordinary dividend (No 27) of 37,5 cents per share has been
declared payable on Monday, 22 July 2002, to the holders of ordinary
shares recorded in the books of the company at the close of business
on Friday, 19 July 2002, this being the record date in order to
participate in such dividend. This brings the total dividend for the
year to 65 cents per share (2001: 57,5 cents per share). The last day
to trade `cum` the dividend will be Friday, 12 July 2002. The shares
trade `ex` dividend on Monday, 15 July 2002. Share certificates may
not be dematerialised or rematerialised between Monday, 8 July 2002
and Friday, 19 July 2002, both dates inclusive. The dividend is
declared payable in the currency of the Republic of South Africa.
The audit report is available for inspection at the company`s
registered address.
By order of the board
D M J Ncube
Chairman
J P Rowse
Chief Executive
7 June 2002
African Life Assurance Company Limited
(Registration number 1911/003818/06)
("African Life" or "the Company")
Company code AFI ISIN code ZAE000000246
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, F J C Truter (Alternate), A van Heerden, T A
Wixley
Touching on tomorrow
Date: 11/06/2002 11:38:30 AM Produced by the SENS Department
