| Tue 25 Jun 2002, 0:00 | | CAPITAL ALLIANCE HOLDINGS LIMITED: AUDITED GROUP R |
|
CAPITAL ALLIANCE HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
Registration number: 1952/000756/06
JSE share code: CPT ISIN: ZAE 000011904
AUDITED GROUP RESULTS
for the year ended 31 March 2002
HIGHLIGHTS
* Substantial progress achieved in the integration of
Fedsure and Norwich Life business
* Major improvement in service given to Fedsure and Norwich Life clients
* Premium income on ordinary life business exceeds R1 billion for
the first time
* Increase in headline earnings +40%
* Increase in headline earnings per share +28%
* Increase in dividend per share +41%
The following are the audited consolidated results of the company and its
subsidiary companies for the year ended 31 March 2002 together with
comparative figures. Comparative figures have been regrouped and restated
where necessary in order to provide comparable disclosure.
SUMMARISED GROUP INCOME STATEMENT
Reinsurance Ordinary
trans- life
action business Total Total
2002 2002 2002 2001 %
Notes R'000 R'000 R'000 R'000 change
Income 16 028 535 1 569 353 17 597 888 728 751
Premiums net of
reinsurance
premiums 1 134 252 1 019 846 2 154 098 629 372
Reinsurance
premium 1 13 887 185 - 13 887 185 -
Investment income 555 341 226 880 782 221 189 646
Gain on revaluation
and disposal of
investments 451 757 322 627 774 384 (90 267)
Outgo 16 522 384 1 324 763 17 847 147 459 501
Policyholders'
benefits net of
reinsurance 591 758 591 758 561 437
Reinsurance claims 2 2 804 404 - 2 804 404 -
Commissions 62 655 82 229 144 884 58 480
Administration
expenses 76 588 117 297 193 885 105 701
Exceptional items 3 18 146 17 700 35 846 62 498
Taxation 4 9 989 8 518 18 507 18 467
Transfers to/(from)
life funds 13 550 602 507 261 14 057 863 (347 082)
Life insurance and
pensions business (493 849) 244 590 (249 259) 269 250
Other income
attributable to
shareholders 6 962 16 265
Before taxation 12 917 34 204
Taxation (5 955) (17 939)
(Loss)/profit
after taxation (242 297) 285 515
Minority interests 5 - (16 467)
Attributable
(loss)/profit to
ordinary shareholders (242 297) 269 048
Headline earnings
attributable to
ordinary shareholders 6 402 795 288 252 40
Attributable earnings
per share (cents) (155) 188
Headline earnings
per share (cents) 258 201 28
Dividend per ordinary
share (cents) 70 49.5 41
Dividend cover (headline
earnings, times) 3.7 4.1
Weighted average
number of shares
in issue ('000) 7 155 931 143 080
Total shares
in issue ('000) 7 175 290 133 886
Notes
1. Reinsurance premium represents the best estimate liabilities at 31 May
2001 of R11 247 million plus policyholder loans of R2 709 million less
sundry adjustments of R69 million.
2. Reinsurance claims are gross of loans recovered at time of payment of
R361 million.
3. Exceptional items in 2002 relate to the one-off costs in respect of the
restructure of the reinsurance business and the closure of the SDS sales
division.
4. Due to the change in accounting policy in respect of AC107, dividends and
secondary tax on companies have been restated in the years in which the
dividends were paid. This resulted in a credit to tax of R13 million in 2001
and additional tax of R9 million in 2002. Other taxes include RFT levies of
R13 million.
5. The group's investment in Capital Alliance Finance has been equity
accounted.
6. Headline earnings are calculated as:
R'000 R'000
Attributable (loss)/profit (242 297) 269 048
Plus: exceptional reserving strain on reinsurance
transaction at 31 May 2001 620 000 -
Amortisation of intangible assets - 2 050
Exceptional items after tax 25 092 17 154
402 795 288 252
Represented by:
Earnings in respect of the reinsurance transaction
from 1 June 2001 138 853
Earnings in respect of ordinary Capital Alliance
Holdings business 263 942 402 795
7. The increase in number of shares in issue is
attributed to the following: '000
Arising from the issue of capitalisation shares 3 446
Arising from the rights issue 45 000
Cancellation of shares (7 042)
41 404
INDIVIDUAL RECURRING NEW BUSINESS BY
DISTRIBUTION CHANNELS
Year ended
31 March
2002
R'000 %
Broker 61 806 34
CAL Commercial 29 056 16
Bancassurance and other 89 546 50
180 408 100
SUMMARISED GROUP BALANCE SHEETS
Audited Audited
31 March 31 March
2002 2001
R'000 R'000
Assets
Investment assets 17 518 509 3 167 964
Intangible assets - 16 581
Computer equipment office furniture and other
current tangible assets 18 857 12 062
Current assets 907 688 468 381
Total assets 18 445 054 3 664 988
Equity reserves and liabilities
Total shareholders' funds 1 294 251 1 140 721
Outside shareholders' interests 200 000 -
Minority interests - 24 110
Life insurance funds 15 876 386 1 818 523
Non-current liabilities 185 646 221 990
Current liabilities 888 771 459 644
Total equity, reserves and liabilities 18 445 054 3 664 988
LIFE INSURANCE OPERATIONS
Ordinary
Reinsurance life
transaction business Total Total
2002 2002 2002 2001
Notes R'000 R'000 R'000 R'000
Premiums net of
reinsurance
Individual
- single premiums 67 537 260 071 327 608 126 412
Individual
- recurring premiums 1 066 715 381 961 1 448 676 338 511
Group
- lump sums - 11 710 11 710 14 553
Group
- other premiums - 109 271 109 271 74 602
Credit life
- Stangen - 220 519 220 519 140 060
Credit life
- other - 22 835 22 835 9 811
Group funeral
- single premiums 8 - 13 479 13 479 (74 577)
1 134 252 1 019 846 2 154 098 629 372
Policyholders' benefits
net of reassurance
Individual life 2 2 804 404 215 056 3 019 460 153 786
Employee benefits - 137 378 137 378 78 092
Credit life
- Stangen 9 - 229 190 229 190 320 319
Credit life
- other - 6 929 6 929 4 301
Group funeral
- death and disability
benefits - 3 205 3 205 4 938
2 804 404 591 758 3 396 162 561 436
Notes
8. Prior year includes an amount of R80 million representing premiums
refunded to The Standard General Insurance Company Limited ("Stangen") due
to the termination of the funeral business reinsurance agreement.
9. Included in the Stangen credit life claims is an experience rebate in
respect of positive experience on the credit life reinsurance contract with
Stangen of R218 million relating to the year ended 31 March 2002 (2001: R263
million).
VALUATION BASIS: ECONOMIC ASSUMPTIONS
AT 31 MARCH 2002
Reinsurance Ordinary
transaction life business
Risk discount rate 15,5% 16,5%
Equity return (before capital gains tax) 15,5% 15,5%
Fixed interest return (before tax) 13,5% 13,5%
Cash return (before tax) 11,5% 11,5%
Expense inflation rate per annum 9,0% 2% year 1
4% year 2
6% year 3
9% thereafter
COMPOSITION OF SHAREHOLDERS' NET ASSET VALUE
Year ended
31 March
2002
R'000 %
Equity (including unlisted investments) 561 709 43
Cash 508 828 39
Interest bearing 324 230 25
Property 23 574 2
Other (124 090) (9)
1 294 251 100
GROUP EMBEDDED VALUE
as at Ordinary
Reinsurance life Total
transaction business 31 March 31 March
2002 2002 2002 2001
Notes R'000 R'000 R'000 R'000
Shareholders' net assets
- total 1 494 252 1 494 252 1 140 721
- less preference shares (200 000) (200 000) -
- plus other group assets 160 496 160 496 138 523
Net value of in force
life business 475 411 191 547 666 958 203 022
Gross value of in force
life business 629 072 207 400 836 472 208 281
Less: opportunity cost
of capital
adequacy requirements 10 (153 661) (15 853) (169 514) (5 259)
Embedded value 475 411 1 646 295 2 121 706 1 482 266
Capital adequacy
requirement (CAR) 708 511 122 706
Capital adequacy cover
(times) 2,1 9,3
Net asset value
per share (Rands) 8,30 9,55
Embedded value of
in force business
per share (Rands) 3,80 1,52
Embedded value
per share (Rands) 11 12,10 11,07
Notes
10. The opportunity cost of CAR has increased substantially due to:
- the change in the asset mix backing the CAR. Previously the target
allocation for investment of the CAR was 100% in equities and now the target
allocation is 65% in equities and 35% in bonds; and
- the introduction of capital gains tax, which has reduced the prospective
return on equities.
11. The figure disclosed at 31 March 2001 was R10,78 per share. This figure
has been restated due to the change in disclosure of the dividend due to
AC107, as per Note 4. Furthermore the NAV at 31 March 2002 reduced by R66,4
million in respect of the share repurchase programme.
SUMMARISED STATEMENT OF CHANGES IN EQUITY
Audited Audited
year year
ended ended
31 March 31 March
2002 2001
Notes R'000 R'000
Share capital and premium 998 112 520 308
Balance at beginning of year 520 308 601 439
Arising from share issue 12 544 226 36 239
Cancellation of share capital (66 422) (117 370)
Non-distributable reserve 600 -
Balance at beginning of year - -
Movement during the year 600 -
Accumulated profits 295 539 620 413
Balance at beginning of year 541 118 350 365
Restatement in respect of
change in accounting policy 4 79 295 64 632
Restated accumulated profits
at beginning of year 620 413 414 997
Accumulated profits attributable to
shareholders (242 297) 269 048
Dividends paid - preference and ordinary (82 577) (63 632)
1 294 251 1 140 721
Note
12. The change in share capital and premium can be analysed as follows:
R'000
Arising from the issue of capitalisation shares 31 487
Arising from the rights issue 517 500
Share issue expenses written off (4 761)
544 226
SUMMARISED GROUP CASH FLOW STATEMENTS
Audited Audited
year year
ended ended
31 March 31 March
2002 2001
R'000 R'000
Cash flow from operating activities 13 191 396 54 682
Cash flow from investing activities (10 075 900) (436 152)
Cash flow from financing activities 609 974 40 534
Net movement in cash and cash equivalents 3 725 468 (340 936)
Cash and cash equivalents at beginning of period 600 525 941 461
Cash and cash equivalents at end of period 4 325 993 600 525
VALUE OF NEW BUSINESS
as at 31 March 31 March
2002 2001
Notes R'000 R'000
Gross value of new life insurance business 25 193 22 345
Less: opportunity cost of
capital adequacy requirements 10 (3 635) (1 993)
Net value of new life insurance business 13 21 558 20 352
Note
13. The net value of new business excludes losses of R3,5 million (after
tax) incurred in respect of closure costs of the discontinued SDS division,
which incurred losses of R31,5 million (after tax) in the prior year.
ANALYSIS OF CHANGE IN EMBEDDED VALUE
Reinsurance Ordinary
Note transaction life business Total
New Business Value 13 - 19 431 19 431
Unwinding of risk discount rate 74 059 31 468 105 527
Change to non-economic assumptions
and basis (40 785) (40 585) (81 370)
Non-recurring profits 35 422 82 682 118 104
Experience variations 65 010 (23 534) 41 476
Subtotal 133 706 69 462 203 168
Investment experience profits 20 512 4 902 25 414
Changes in economic assumptions (110 656) (7 804) (118 460)
Investment return on life
shareholder funds (62 000) 112 437 50 437
Balance of return on group assets - 88 502 88 502
Subtotal (152 144) 198 037 45 893
Total (18 438) 267 499 249 061
SUMMARISED GROUP COMMENTARY
1. Operating results for the YEAR
The accounting policies adopted by the company and the group comply, in all
material respects with South African Statements of Generally Accepted
Accounting Practice, as well as the South African Companies Act, 1973 (Act
of 1973) as amended. The consolidated financial statements are prepared on
the historical-cost basis, modified by the revaluation of investment
properties, owner-occupied properties and financial instruments to fair
value.
These accounting policies are consistent with those applied at 31 March
2001, except for:
* the adoption of the new accounting statement on Events After the Balance
Sheet Date ("AC107");
* the adoption of the revised accounting statement on Employee Benefits
(AC116).
The directors are pleased to report highly satisfactory results for the
12 months ended 31 March 2002. The group has managed to continue its record
of profitable growth as a result of a strong focus on managing the embedded
value drivers. Features of the year were:
* An increased focus on the life insurance activities of the group,
particularly in the light of the successful conclusion of the reinsurance
agreement with Fedsure Life Assurance Limited ("Fedlife") in August 2001.
* A lesser focus on the savings and loans activities of the group, as
documented in the interim report published in December 2001.
* A lesser focus on healthcare activities, as evidenced by the sale of 74%
of Capital Alliance Health (Pty) Ltd during the year.
* Substantial progress made in the integration of the Fedlife and Norwich
Life South Africa Limited ("Norwich") policy data onto the Capital Alliance
Life administration platform.
* Measurable improvements in the quality and responsiveness of client
service given to Fedlife and Norwich clients, leading to better than
expected client retention.
* Meaningful increases in investment returns.
* A 40% increase in headline earnings to R403 million.
2. Capital Alliance Life
Capital Alliance Life concluded a reinsurance agreement with Fedlife on
24 August 2001, effective from 31 May 2001. The results of the business
covered under this reinsurance agreement (which are for a period of ten
months) are disclosed separately, in order to allow for meaningful
comparison to be made between the other business (the "ordinary life
business") conducted in Capital Alliance Life during this period, and the
year ended 31 March 2001.
The headline earnings from the life business grew by 38% over the previous
period to R371 million. This is considered an excellent performance given
the difficult new business environment and the volatility in equity markets,
particularly in the period post 11 September 2001.
Ordinary life business
Distribution activities have been re-engineered over the past three years
and the embedded value of new business showed an increase over the previous
period. This was driven by an increase of 45% in the number of new
individual life policies issued, an increase of 32% in the new individual
life recurring annual premium income written, a reduction in acquisition
costs as a result of re-structuring and an improvement in persistency. It is
pleasing to note that this performance is slightly ahead of the budget for
the year and was achieved against a background of a reduction in recurring
premium volumes in the industry in general. Group risk new business showed
an 18% increase to R47 million, whilst credit life new business increased by
43% to R27 million. Both of these lines of business ended the year ahead of
budget.
Investment performance over the year showed an improvement over the prior
period, despite volatility caused by the events of 11 September 2001.
Reinsurance transaction
At 31 May 2001 the reinsurance transaction gave rise to an initial
reserving strain on the Financial Soundness Valuation ("FSV") basis of R620
million, since the transaction was based on a best estimate valuation basis.
This reserving strain reduced to an amount of approximately R300 million at
31 March 2002.
The critical issues in the success of the reinsurance transaction are:
* Improvement in the service levels offered to policyholders.
* Improvement in the investment returns earned for policyholders.
* Retention of business above the valuation assumptions.
* Reducing the costs associated with the administration of the business.
Considerable improvement in the service levels offered to policyholders has
been achieved since concluding the reinsurance transaction. Turnaround times
for concluding client service queries have reduced from up to 50 days in
August 2001, to a maximum of five days by 31 March 2002. The backlog of 45
000 queries as at 24 August 2001 has been completely eradicated. Further
improvements in service turnaround times (to an expected maximum of three
days for the majority of queries) will be achieved once the integration
projects have been completed. As at the date of this report all of the
Norwich contracts and Fedlife annuities had been converted to the Capital
Alliance Life administration systems. It is anticipated that the remaining
Fedlife contracts will be converted during July 2002 and that all conversion
related projects will be concluded by 31 August 2002. This is a substantial
achievement, given the magnitude of the conversion project and the short
duration within which it has been achieved. In addition the conversion from
the Fedlife/Norwich systems to the Capital Alliance Life system will result
in substantial cost savings in future years. No credit has been taken for
these cost savings in the embedded value calculations.
Continued improvement in the level of investment returns earned for
policyholders has been seen over the period from 1 June 2001 to 31 March
2002. This improvement can be ascribed to a better investment process and
regular asset liability matching exercises. Public confusion regarding the
decision by Investec Employee Benefits to revoke certain non-vesting bonuses
on retirement fund investment contracts, resulted in a substantial amount of
concern amongst policyholders and a subsequent increase in queries and
contract terminations. This is unfortunate, since the current interim bonus
rates for all individual policyholder portfolios are on par with the market.
The Investec Employee Benefits decision did not affect individual life
clients in any way.
The retention of business is receiving much focused attention and currently
the level of terminations and surrenders is well within the actuarial
assumptions utilised at the time of concluding the reinsurance transaction.
Interested parties can refer to the presentations available on the Capital
Alliance website (http://www.capitalalliance.co.za) for further information
on the integration project.
3. Capital Alliance Finance
The correctness of the group's decision, reported in the interim report
published in December 2001, to scale down the new business activities in the
savings and loans business, was evident in the failures of both UniFer and
Saambou Bank earlier this year. The group has decided to focus on life
insurance activities and to treat Capital Alliance Finance as a private
equity investment. The group no longer exercises management control over the
business and has, accordingly, decided to de-consolidate the results of
Capital Alliance Finance and rather equity account for its share of
earnings. The share of after tax earnings from Capital Alliance Finance for
the year was R5 million and was influenced by the group's decision to raise
a 25% provision for bad debt against total advances as at 31 March 2002.
4. Capital Alliance Holdings
Other income of the holding company, after tax, was R7 million. Capital
Alliance Holdings issued R200 million preference shares on 1 June 2001 and a
further 45 million ordinary shares at R11,50 for R517,5 million on 24
October 2001 in terms of the fully underwritten rights issue. The additional
capital raised was required to re-capitalise Capital Alliance Life, in order
to ensure that all statutory capital requirements could be met post the
reinsurance transaction. Dividends paid on these preference shares amounted
to R16,3 million in the period 1 June 2001 to 31 March 2002. The group re-
purchased 7 million shares for a total consideration of R66,4 million during
the financial year. These shares were acquired at less than the embedded
value per share, hence enhancing embedded value per share for the remaining
shares.
The increase of 10% in the dividend for the previous year was lower than the
historical increase due to uncertainty regarding funding of the Fedlife
reinsurance transaction. It is the company's aim to show dividend increases
in line with the increase in headline earnings and hence the dividend this
year has increased by 41% to 70 cents per share. This increase also
compensates for the low level of last year's increase and date to the 39%
increase in headline earnings.
5. Prospects
Management is committed to ongoing enhancement of the value offered to
current Capital Alliance Life policyholders, current Fedlife policyholders,
prospective policyholders and shareholders through:
* a continued focus on providing excellent customer service;
* an innovative product range, focused on the specific needs of the target
market and which provides real value to clients;
* rapid completion of the integration project to move Fedlife policies
fully onto the Capital Alliance platform, providing both service and
financial benefits;
* continued improvements in investment returns via the improved investment
process; and
* committed action to further enhance the value of new and in force
business.
Progress made with the reinsurance transaction validates the business model
in a period when many market commentators consider there is opportunity for
further industry consolidation. The group will continue to pursue further
opportunities that can add further shareholder value.
It should be recognised that the group has made a substantial achievement in
the 28% increase in headline earnings per share this year on top of the 51%
increase the previous year. Nevertheless, given reasonable investment
markets and the planned reduction in administration costs resulting from the
integration project, the group is confident of showing further real growth
in earnings per share next year.
6. Capitalisation award
The directors of Capital Alliance Holdings Limited ("the company") have
resolved to award capitalisation shares to the ordinary shareholders
recorded in the share register of the company at the close of business on
Friday, 16 August 2002 ("the record date").
The number of capitalisation shares to which a shareholder will be entitled
to in terms of the capitalisation award will be determined by multiplying
the number of ordinary shares held by the shareholder by a ratio. This ratio
will be arrived at by multiplying 70 cents per share by 1,05 and dividing
the result by the weighted average trading price of the ordinary shares of
the company on the JSE Securities Exchange South Africa ("JSE") for the five
business days ending Wednesday, 31 July 2002 ("the issue price").
The last day to trade the company's shares on the JSE "cum" the
capitalisation award to ensure a purchaser appears as owner on the record
date, will be Thursday, 8 August 2002.
Shareholders will be given the opportunity to decline the award of
capitalisation shares in respect of all or part of their shareholding by
renouncing their entitlement to such capitalisation shares in favour of the
Capital Alliance Holdings Employee Share Scheme, which has agreed to act as
underwriter and to instead receive cash of 70 cents per share ("the cash
election").
Documentation in respect of the capitalisation award and the cash
election will be posted to shareholders on or about Friday, 19 July 2002.
In order to be valid, completed election forms for certificated shareholders
wishing to receive the cash election will need to be received by the
company's transfer secretaries by no later than the close of business on
Wednesday, 14 August 2002. In the case of dematerialised securities, Central
Securities Depository Participants ("CSDP") or brokers should be notified of
beneficial owner elections in sufficient time for the CSDP to inform the
company by the close of business on Wednesday, 14 August 2002, as to their
election.
Application will be made to the JSE for the capitalisation shares to be
listed with effect from the commencement of business on Monday, 12 August
2002 when the price of the company's securities will be quoted "ex" the
capitalisation award. It is expected that cheques and share certificates
(where required) in respect of new ordinary shares will be posted to
shareholders on or about Monday, 19 August 2002. Shareholders' accounts in
respect of dematerialised securities will be credited by their CSDPs or
brokers on Monday, 19 August 2002.
Share certificates may not be dematerialised or rematerialised between
Friday, 2 August 2002 and Friday, 16 August 2002, both days inclusive.
7. Post Balance Sheet events
The directors are pleased to announce the following post balance sheet
events:
* The conclusion of an agreement in principle with Saambou Holdings Limited
to acquire all of the share capital of Saambou Life Limited. This
acquisition furthers the group's strategy of operating as a consolidator in
the industry. Further announcements will be made in due course.
* The introduction of Peu Investment Group (Pty) Limited ("Peu") as a
strategic shareholder with effect from 1 April 2002. The transaction, which
involves approximately 20% of the group's issued share capital, has been
facilitated by Investec Group Limited, currently the single largest
shareholder in the group. The group believes that the new black empowerment
shareholder will add value to the group's operations in a number of areas
and will enthusiastically pursue the opportunities created by this
transaction. Mr Peter Malungani of Peu has joined the board as deputy
chairman.
For and on behalf of the board of directors of Capital Alliance Holdings
Limited
L M Nestadt (Chairman)
I M Kirk (Chief Executive Officer)
25 June 2002
Johannesburg
Directors:
L M Nestadt (Chairman) I M Kirk (Chief Executive Officer) (Irish)
B Gildenhuys H R Levin M P Malungani T A Mokhobo
Company Secretary:
W T Green
Registered office:
162 Anderson Street Johannesburg 2001
PO Box 261813 Excom 2023
Transfer secretaries:
Computershare Investor Services Limited
11 Diagonal Street Johannesburg 2001
PO Box 1053 Johannesburg 2000
www.capitalalliance.co.za
Date: 25/06/2002 01:45:00 PM Produced by the SENS Department
