| Wed 21 Aug 2002, 0:00 | | Sage Group Limited - Interim Report For The Three |
|
SAGE GROUP LIMITED
Interim report for the three months ended 30 June 2002
Salient features
- Group headline earnings of R48,1 million for the quarter
- Strong operating performance maintained
- Satisfactory Financial Soundness earnings despite fully absorbing net
unrealised
currency losses
- Second interim dividend following year-end change
- Continued growth of international activities
- Sustained new business growth
- Ongoing organic growth in South Africa
- Solid embedded value results
INTRODUCTION
As previously announced the Group`s financial year-end has been changed from
March to December, effective 31 December 2002, bringing it into line with the
statutory reporting date of its international assurance operations.
Consequently, the current interim reporting period is for the three months ended
30 June 2002 and will be followed by audited results for the nine months ending
31 December 2002.
As no formal actuarial valuation was carried out at 30 June 2001, it is not
possible to produce meaningful comparative figures at that date and consequently
the previously published figures for the six months ended 30 September 2001 have
been included, together with the audited results for the year ended 31 March
2002. Dividend declaration and payment dates have been aligned with the change
in year-end, as reflected below.
The period under review has seen a continuation of the broad trends reflected at
the March year-end, namely turbulent and generally weak investment markets,
considerable currency volatility and intensely competitive and uncertain
conditions throughout the financial services industry, domestically and
internationally. Despite this inhibiting environment, the Group has maintained
its operating progress, with sustained expansion of its activities and continued
solid financial results and actuarial valuations, consistent with previous
reporting periods.
GROUP RESULTS
Accounting policies and presentations
The Group`s primary financial statements are presented on the Financial
Soundness basis which equates with the statutorily required Financial Soundness
actuarial valuations utilised by all life companies as part of their published
statements of embedded value. This primary basis of accounting reflects the
current net value of the Group`s assets and liabilities as well as its realistic
earnings for the period and is in line with the principles of fair value
accounting.
In addition, the Group provides financial statements in full compliance with
South African Statements of Generally Accepted Accounting Practice (GAAP),
despite the shortcomings of this standard in a life assurance group and
particularly one whose capital and free reserves are substantially dedicated to
investments in operating subsidiaries.
These accounting policies are consistent in all material respects with those
applied in the comparative periods.
Financial results
On the primary Financial Soundness accounting basis, Group headline earnings for
the three months to June amounted to R48,1 million, a satisfactory result in a
difficult period relative to the earnings of R98,9 million in the six months to
September 2001 and R180,6 million in the year to March 2002. This is
particularly so, taking into account that following the strengthening of the
rand, the Group results have absorbed a net R46 million foreign exchange
translation loss in respect of the international operations.
Salient features are the following:
- Earnings from South African operating activities show a pleasing trend,
particularly in life assurance which has performed well ahead of previous
reporting periods.
- The international assurance operations were not revalued at 30 June 2002 in
view of the short period since reporting the year-end results in May. The dollar
value of the international operations therefore remains unchanged and reflects
no earnings in the review period, despite highly satisfactory new business
results as reflected below.
- Other net earnings of R96,3 million on free assets show a substantial
improvement on the previous periods and reflect the benefit of the recovery in
the market value of the major investment in ABSA Group Limited (ABSA) subsequent
to 31 March 2002.
Fully diluted headline earnings per share for the three months under review
amounted to 32,5 cents, also in line with the earnings pattern in previous
periods.
On the GAAP basis of accounting, which consolidates all subsidiaries
predominantly at net asset values, and which is reported in addition to the
primary Financial Soundness basis, the Group achieved headline earnings of R45,3
million or 30,6 cents per share in the three months, also reflecting substantial
foreign exchange translation adjustments.
Second interim dividend
A dividend of 25 cents per share has been declared - the previous declaration,
was 30 cents per share at the interim stage in 2001. This is a second interim
declaration following the deferment of the final dividend at March 2002 to align
with the change in financial year-end, and is intended to establish a base for
the first six months of future full financial years. A final dividend will be
considered at the time of announcing the results for the nine months to December
2002.
As stated in the last annual report, the returns on the Group`s strategic
investments are substantially of a capital nature resulting in a decision to
resume capitalisation share awards. Consequently, the dividend now declared will
be by way of a capitalisation award with a cash alternative, together with the
additional feature of enabling shareholders who elect cash to subscribe for new
ordinary shares in the company.
This feature is designed to accommodate the differing tax structures of
shareholders. The capitalisation route is also expected to further strengthen
the Group`s capital base and cash resources in anticipation of possible future
increases in statutory capital requirements.
In respect of 51% of the ordinary shares in issue in the company, major
shareholders have undertaken to receive capitalisation shares or to subscribe
for new ordinary shares.
EMBEDDED VALUE STATEMENTS
Notwithstanding weak investment markets and continued currency volatility, the
Group`s inherent strength is again reflected throughout the embedded value
statements.
Sage Group Limited
The embedded value of the Group at 30 June 2002 amounted to R1,9 billion
equivalent to 1 297 cents per share, a 5,6% increase over the three months. This
basis measures the current value of the Group`s net assets on the primary basis
of accounting together with the present value of future profits from business
already written by the life assurance operations (net of cost of capital).
Group embedded value earnings for the review period amounted to R102,6 million,
a continuing positive trend relative to previous reporting periods.
Sage Life Limited
Sage Life`s embedded value at 30 June 2002 was R2,7 billion, a 4,9% improvement
over the three month reporting period. Embedded value earnings for the review
period of R123,0 million show a similar trend, particularly in respect of
earnings on new business. Sage Life`s capital adequacy multiple remains
unchanged at 3,9.
NEW BUSINESS RESULTS
Sage Life`s impressive new business record has continued in the past three
months as reflected in the following table.
Three
months
ended 30
June
2002 2001 %
R000 R000 change
Life assurance premiums
(gross)
Individual 753 860 463 265 62,7
Annualised recurring - 80 087 77 358
South Africa
Single 673 773 385 907
South Africa onshore 87 658 89 293
Sage International 586 115 296 614
- US and 455 877 166 732
International
- SA Bermuda branch 130 238 129 882
Employee benefits - 47 248 32 509 45,3
South African
Annualised recurring 22 861 14 099
Single 24 387 18 410
Total life new business 801 108 495 774 61,6
South African unit trust 845 140 412 304 105,0
sales
Total life new business (domestic and international) increased by 61,6% from
R495,8 million in the quarter to June 2001 to R801,1 million in the three months
under review, remaining well ahead of the general industry trend. Single
premiums increased by 72,7% and recurring premiums by 12,6%.
Individual single premium production in South Africa continues to benefit from
the company`s innovative range of international investment products marketed
through the Bermuda branch and catering to the R750 000 foreign exchange
allowance. Individual recurring new business has increased only moderately in
line with the industry as a whole.
International new business generated domestically in the USA and directly
offshore via Bermuda increased by 173,4% to R455,9 million ($44,4 million).
Total international new business, including sales generated by the Bermuda
branch, amounted to R586,1 million ($57,1 million) for the three months to June,
an increase of 97,6% compared to the June 2001 quarter.
Sage Life`s employee benefits division has achieved continuing strong growth in
new business with an increase of 45,3% to R47,2 million in the past three
months.
The South African new business results reflects the ongoing success of the
company`s product development and distribution strategies and in particular the
competitive investment performance being achieved for clients by the Group`s
asset management team.
South African unit trust sales for the review period show a resurgence and at
R845,1 million were double the level in the comparable period last year. In line
with the trend throughout the unit trust industry, sales were diluted by the
continuing high level of repurchases, nonetheless there was a net inflow of R33
million for the review period.
REVIEW OF ACTIVITIES
International
The Group`s international businesses, namely Sage Life Assurance of America Inc
and Sage Life (Bermuda) Limited have made continued progress during the review
period despite the exceptionally challenging operating environment, compounded
by upheavals in the corporate world and depressed investment markets.
As reflected above, the momentum of international product sales growth has been
maintained. Domestic US business has increased significantly despite the
challenging environment post the events of September 11, 2001. A major impetus
has been from Bermuda-based offshore activities where sales generated through
Sage Life South Africa`s Bermuda branch have been progressively reinforced by
the expanding international penetration of the Bermuda subsidiary. Business
generated via Bermuda represented 52,5% of total international sales in the
review period. The introduction by Sage of a unique and highly innovative sector
rotation investment concept launched in association with Standard & Poor`s has
taken root strongly in the US distribution network. Offshore distribution is
also benefiting from the progressive build up of sales in association with the
leading global financial institutions, JP Morgan Chase, First Union and HSBC.
The international operations have been funded to date by the Group and are
themselves free of any debt financing. In previous reports it was stated that
investigations were underway into finding alternatives for funding the ongoing
financing capital requirements of the burgeoning international business. Despite
the difficult financial climate in the United States, the Group is proceeding
with its plans to introduce the capital required for the expansion of the
international activities for a number of years ahead. With the financing plans
being delayed due to the current turbulence in financial markets, a tight budget
policy is being followed in the meantime within existing resources. Should the
delays be prolonged, the Group may consider the sale of part or all of these
successfully trading operations.
South Africa
Sage Life in South Africa continues to make satisfactory progress as reflected
in its operating results. Net premiums received in the review period amounted to
R386,4 million which together with the total investment return of R254,1million
produced total income of R640,5 million. After providing for policyholder
benefits, other outgoes and the increase in policyholder reserves, the
shareholder`s surplus for the three months amounted to R68,5 million which is
consistent with the previous reporting periods. During the review period the
company`s product range was extended with the launch of The Global Savings Plan,
an affordable monthly premium option alternative to supplement the offshore
series.
Sage Unit Trusts has continued to produce satisfactory results given a difficult
industry environment.
ABSA Group
The strategic investment in ABSA, which is accounted for as an investment and
is marked to market, has contributed meaningfully to investment results in the
review period.
Negotiations between the consortium members, including the Group, who control
approximately 46% of ABSA, regarding the unbundling of Universa (Pty)
Limited and the future of the ABSA shareholding relationships, have been
concluded and the final agreements are dealt with in a separate announcement by
the consortium and ABSA.
Sage has elected to withdraw from the existing ABSA shareholders agreement and
will not participate in the new ABSA shareholding pool. Instead, it has opted
for the absolute flexibility and liquidity which it considers desirable for its
ongoing direct shareholder and policyholder investments in ABSA shares. Sage
anticipates maintaining the excellent business relationship it has built up with
ABSA over the last decade independently of its ABSA shareholding. In its turn,
ABSA continues to be a substantial shareholder in Sage and is represented on its
board.
FINANCIAL SOUNDNESS RESULTS (PRIMARY BASIS OF ACCOUNTING)
Group income statement
Unaudited Unaudited Audited
Three months Six months Year ended
ended 30 June ended 30 Sept 31 March
2002 2001 2002
R000 R000 R000
FINANCIAL SOUNDNESS EARNINGS
South African operating activities 18 345 (3 009) 67 800
- Life assurance 16 826 (8 913) 38 033
- Unit trusts 4 568 8 780 28 281
- Other 4 951 6 020 19 273
- Taxation (8 000) (8 896) (17 787)
International operating activities (46 105) 9 313 174 028
- Value added by international
assurance operations - 15 983 83 131
- Net foreign exchange translation
gains/(losses) (46 105) (6 670) 90 897
Unrealised (losses)/gains on translation of
foreign investments (118 580) 66 577 304 338
Provision for gains/(losses) on translation of
equity linked note 72 475 (73 247) (213 441)
Other net earnings on free assets 96 284 120 972 34 279
South Africa
- Income - 10 145 15 534
- Unrealised capital revaluations
- listed investments 96 284 76 550 (30 616)
- unlisted investments - (73 807) (70 000)
International
- Net surplus on disposal of free assets - 108 084 119 361
Sage Life Limited financial soundness
headline earnings 68 127 276 107
Group net financing costs, overheads and
secondary tax on companies (note 1) (20 384) (28 340) (95 459)
Group financial soundness
headline earnings 48 140 98 936 180 648
Group financial soundness earnings per
share (cents)
Basic 32,6 67,4 123,1
Fully diluted 32,5 67,4 123,1
Dividends per ordinary share (cents) 25,0 30,0 30,0
Ordinary shares
- in issue (000) 148 125 147 730 147 730
- weighted average number
in issue (000) 147 966 146 739 146 739
Compulsorily convertible debentures
- in issue (000) 1 976 2 371 2 371
Group balance sheet
Unaudited Audited
30 June 31 March
2002 2002
R000 R000
Assets
Non-current assets 119 411 119 737
Investments of life assurance subsidiaries 8 612 531 8 518 289
Current assets 399 784 422 708
9 131 726 9 060 734
Shareholders` funds and liabilities
Total shareholders` interest 1 147 713 1 099 598
Redeemable preference shares issued
by subsidiaries 98 500 98 500
Non-current liabilities (note 2) 667 388 739 863
Long-term assurance fund 6 809 847 6 688 704
Current liabilities 408 278 434 069
- interest bearing 87 327 79 097
- other 320 951 354 972
9 131 726 9 060 734
Assets managed by the USA international
assurance operations 2 423 859 2 546 060
(30 June 2002 - $236 071 000; 31 March 2002 - $223 682 000)
Notes
Unaudited Unaudited Audited
Three months Six months Year ended
ended 30 June ended 30 Sept 31 March
2002 2001 2002
R000 R000 R000
1 Group net financing costs, overheads
and secondary tax on companies
Net financing costs (19 025) (3 015) (65 034)
- Equity linked notes (12 981) - (49 449)
- Other (6 044) (3 015) (15 585)
Foreign preference dividends - (8 142) (8 142)
Net group overheads (1 359) (5 407) (5 660)
Secondary tax on companies - (11 776) (16 623)
(20 384) (28 340) (95 459)
2 Non-current liabilities
$65 000 000 8% unsecured Equity Linked
Notes redeemable 31 July 2005.
3 Comparative figures
Certain comparative figures have been
reclassified to provide a more
meaningful comparison.
STATEMENT OF CHANGES IN EQUITY
Unaudited Audited
Three months Year ended
ended 30 June 31 March
2002 2002
R000 R000
Balance at beginning of period 1 099 598 1 053 419
Appropriation for redemption of 2001
preference shares - (2 211)
Revaluation of investments - 3 636
Attributable earnings 48 140 180 648
Dividends paid - (135 629)
Other (25) (265)
Balance at end of period 1 147 713 1 099 598
Summarised Group cash flow statement
Unaudited Audited
Three months Year ended
ended 30 June 31 March
2002 2002
R000 R000
Cash flows from operations 26 208 7 318
Cash flows from investing activities (89 847) (370 151)
Cash flows from financing 8 230 343 440
Net decrease in cash equivalents (55 409) (19 393)
Cash and cash equivalents at
beginning of period 157 245 176 638
Cash and cash equivalents at
end of period 101 836 157 245
EMBEDDED VALUE STATEMENTS
Sage Group Limited
30 June 30 Sept 31 March
2002 2001 2002
R000 R000 R000
Group embedded value
Shareholders` funds 1 147 713 1 062 284 1 099 598
Present value of future profits of Sage Life
(net of cost of capital) 798 501 689 640 743 989
Embedded value 1 946 214 1 751 924 1 843 587
Group embedded value per share
Shares in issue
- ordinary shares 148 125 147 730 147 730
- compulsorily convertible debentures 1 976 2 371 2 371
150 101 150 101 150 101
Group embedded value per share (cents) 1 297 1 167 1 228
Three months Six months Year ended
ended 30 June ended 30 Sept 31 March
2002 2001 2002
R000 R000 R000
Group embedded value earnings
Embedded value - at end of period 1 946 214 1 751 924 843 587
Embedded value - at beginning of period 1 843 587 1 652 568 1 652 568
102 627 99 356 191 019
Dividends paid - 99 452 135 629
Embedded value earnings 102 627 198 808 326 648
Sage Life Limited
30 June 30 Sept 31 March
2002 2001 2002
R000 R000 R000
Embedded value
Shareholder`s funds 1 852 517 1 618 171 1 784 028
Present value of future profit (net of cost
of capital) 798 501 689 640 743 989
Embedded value 2 651 018 2 307 811 2 528 017
Financial soundness valuation
- capital adequacy requirement 472 987 437 256 462 929
- capital adequacy multiple (times) 3,9 3,7 3,9
Three months Six months Year ended
ended 30 June ended 30 Sept 31 March
2002 2001 2002
R000 R000 R000
Embedded value earnings
Embedded value at end of period 2 651 018 2 307 811 2 528 017
Embedded value at beginning of period 2 528 017 2 165 044 2 165 044
123 001 142 767 362 973
Dividends declared - 75 000 125 000
Increase in capital 35 - (67 026)
Embedded value earnings 123 036 217 767 420 947
Components of embedded value earnings 97 976 55 564 142 019
New business 20 019 32 634 65 857
Expected return 28 648 28 816 89 311
Operating experience
- variations 34 309 (5 886) 18 101
- assumption changes 15 000 - (31 250)
25 060 162 203 278 928
Investment return on
shareholder`s funds 51 698 136 189 238 074
- income 1 519 20 465 19 110
- capital appreciation and forex
translation differences 50 179 115 724 218 964
Economic assumption changes (26 638) 26 014 40 854
Embedded value earnings 123 036 217 767 420 947
Principal actuarial assumptions % % %
Risk discount rate 13,75 12,80 15,50
Pre-tax investment returns
equities 13,75 12,80 15,50
property 12,75 11,80 14,50
fixed interest securities 11,75 10,80 13,50
cash 9,75 8,80 11,50
Expense inflation 6,75 9,50 8,50
Sage Life operating results
Unaudited Unaudited Audited
Three months Six months Year ended
ended 30 June ended 30 Sept 31 March
2002 2001 2002
R000 R000 R000
Net premiums received 386 416 783 515 1 609 582
- recurring 263 591 464 747 992 322
- single 122 825 318 768 617 260
Investment return 254 116 580 722 1 012 195
- investment income 73 210 183 404 341 074
- net realised and unrealised
capital gains 180 906 397 318 671 121
640 532 1 364 237 2 621 777
Outgo (450 864) (775 215) (1 607 552)
Policyholder benefits (308 075) (516 828) (1 072 439)
Commissions, expenses and tax (142 789) (258 387) (535 113)
189 668 589 022 1 014 225
Increase in policyholder reserves (121 144) (461 746) (738 118)
Shareholder`s surplus 68 524 127 276 276 107
RESULTS IN TERMS OF SOUTH AFRICAN STATEMENTS OF
GENERALLY ACCEPTED
ACCOUNTING PRACTICE (GAAP)
Group income statement (GAAP)
Unaudited Unaudited Audited
Three months Six months Year ended
ended 30 June ended 30 Sept 31 March
2002 2001 2002
R000 R000 R000
Profit/(loss) before taxation and
exceptional items 66 372 104 924 (131 913)
Exceptional items (807) (1 614) (3 228)
Profit/(loss) before taxation 65 565 103 310 (135 141)
Taxation 21 023 56 745 100 455
Profit/(loss) after taxation 44 542 46 565 (235 596)
Foreign preference dividends - 8 142 8 142
Earnings/(loss) attributable to
ordinary shareholders 44 542 38 423 (243 738)
Adjustment for exceptional items 807 1 614 3 228
Headline earnings/(loss) 45 349 40 037 (240 510)
Headline earnings/(loss) per share (cents)
Basic 30,7 27,3 (163,9)
Fully diluted 30,6 27,3 (163,9)
Attributable earnings/(loss) per share (cents)
Basic 30,2 26,2 (166,1)
Fully diluted 30,1 26,2 (166,1)
Reconciliation between GAAP and financial
soundness results
GAAP headline earnings/(loss) 45 349 40 037 (240 510)
Adjustments in respect of consolidation of
life insurance company`s subsidiaries 2 791 58 899 421 158
- investment (deficits)/surpluses on
free assets (118 580) 82 395 443 705
- operating results of subsidiaries
net of foreign exchange differences 114 391 (28 496) (62 151)
- dividends from subsidiaries 6 980 5 000 39 604
Group financial soundness headline
earnings 48 140 98 936 180 648
Group balance sheet (GAAP)
Unaudited Audited
30 June 31 March
2002 2002
R000 R000
Assets
Non-current assets 218 033 222 648
Investments of life assurance subsidiaries 9 614 021 9 499 461
Current assets 728 161 798 587
10 560 215 10 520 696
Shareholders` funds and liabilities
Total shareholders` interest 142 186 97 669
- Ordinary shareholders` interest 49 799 5 282
- Minority shareholders 92 387 92 387
Redeemable preference shares issued
by subsidiaries 108 500 108 500
Non-current liabilities (refer note 2 to
financial soundness results) 667 388 739 863
Long-term assurance funds 9 080 854 9 061 009
Current liabilities 561 287 513 655
- interest bearing 87 327 79 097
- other 473 960 434 558
10 560 215 10 520 696
The reconciliation to total shareholders` interest
as reflected in the financial soundness balance
sheet is as follows:
Ordinary shareholders` interest per GAAP
balance sheet 49 799 5 282
Reinstatement of adjustment to fair value
of subsidiary companies net assets 1 097 914 1 094 316
- current period 2 791 421 158
- prior periods 1 094 316 655 403
- amortisation of goodwill and USA
preference dividend 807 17 755
Total shareholders` interest per financial
soundness balance sheet 1 147 713 1 099 598
Statement of changes in equity (GAAP)
Unaudited Audited
Three months Year ended
ended 30 June 31 March
2002 2002
R000 R000
Balance at beginning of period 5 282 398 017
Appropriation for redemption of 2001
preference shares - (2 211)
Attributable earnings 44 542 (243 738)
Dividends paid - (146 174)
Other (25) (612)
Balance at end of period 49 799 5 282
Summarised Group cash flow statement (GAAP)
Unaudited Audited
Three months Year ended
ended 30 June 31 March
2002 2002
R000 R000
Cash flows from operations (15 191) (433 005)
Cash flows from investing activities (90 125) 124 427
Cash flows from financing 8 230 345 976
Net decrease in cash equivalents (97 086) 37 398
Cash and cash equivalents at beginning of
period 381 938 344 540
Cash and cash equivalents at end of period 284 852 381 938
Capitalisation share award with cash dividend alternative
and share subscription elections
The board of directors has resolved to issue ordinary capitalisation shares to
ordinary shareholders recorded in the register of shareholders on Friday, 4
October 2002. Ordinary shareholders will be given the opportunity to decline the
issue of ordinary shares in respect of all or any part of their shareholding and
to elect to receive a cash dividend. Upon so electing, ordinary shareholders
will receive a dividend payment of
25 cents per ordinary share.
The last day of trading in order to participate in the capitalisation share
award is Friday, 27 September 2002 and the ordinary shares will commence trading
ex dividend on Monday, 30 September 2002. The record date will be Friday, 4
October 2002.
Ordinary shareholders electing the cash dividend will also be given the
opportunity to elect to apply all or any part of the amount of the cash dividend
to subscribe for new ordinary shares in the company. For ordinary shareholders
exercising the above election the dividend will be paid in cash for their
benefit and on their behalf into a dedicated trust account held with ABSA Trust
Limited, and the proceeds of such payment will forthwith be applied in paying
for their subscription shares on Monday, 7 October 2002.
A circular setting out the full details of these arrangements and containing the
necessary election forms will be posted to shareholders on or about Wednesday,
11 September 2002. In order to be valid, completed election forms will need to
be received by the company`s transfer secretaries not later than 14:30 on
Friday, 4 October 2002.
Cash dividend payments and capitalisation and subscription share certificates
will be posted to certificated shareholders and dematerialised shareholders will
have their safe custody accounts credited or updated with their CSDP or broker
on Monday, 7 October 2002.
A further announcement containing details of the capitalisation award, the cash
election and the subscription election will be published on or about Wednesday,
11 September 2002.
By order of the board
CS CANT
Secretary
20 August 2002
Directors HL Shill (Chairman) MP Adonisi Dr DC Cronje 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 *Executive
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
Website www.sage.co.za
Date: 21/08/2002 07:38:46 AM Produced by the JSE SENS Department
