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Alexander Forbes Limited - Unaudited Interim Results
Alexander Forbes Limited
share code AFB ISIN Code: ZAE000018230
UNAUDITED INTERIM RESULTS
for the six months ended 30 September 2002
- Revenue up 31%
- Organic revenue and profit growth of 23%
- Core headline eps up 22%
- Empowerment positioning in SA
Review of operations
Overview
Alexander Forbes has again produced a strong trading performance with
revenue and trading profit growth of 31% and 27% respectively. This
has been achieved through a combination of organic growth in most core
businesses and the benefits of hard currency earnings from our UK
operations. Excluding acquisitions, the group achieved organic revenue
and trading profit growth of 23%. Core headline earnings per share,
which exclude all non-trading gains and losses, increased 22% to 97,1
cents per share.
Regional review
The growth in African operations was purely organic with trading
profits increasing by 22% to R284 million:
- the Risk Services business built on its strong performance in the
previous year with a 24% growth in trading profits. The Personal Lines
broking business, which was restructured in the first half of the
previous year, made a significant contribution to this growth;
- the Financial Services business recorded profit growth of 15% in
difficult market conditions;
- Investment Solutions again produced excellent results, recording a
28% growth in trading profits and a 32% increase in core headline
earnings per share.
The European (principally UK) operations increased trading profits by
23% to R258 million:
- the Risk Services business, particularly specialty divisions,
benefited from the favourable market conditions with organic profit
growth of 34%;
- the CTC bureau and software businesses of Financial Services
incurred losses whereas the Independent Financial Advisory Services
business performed well in difficult market conditions;
- Lane Clark & Peacock made a positive contribution to group profits
in the four months following acquisition;
- the Direct Marketing business substantially increased its marketing
spend compared to the previous period with a resultant 52% growth in
revenue - the new business strain impacted on margins and profit
growth.
The Asian operations achieved strong revenue and profit growth against
a backdrop of mixed economic conditions across the region. Despite
difficult economic conditions in Latin America, Brazil and Mexico
produced small profits and Argentina achieved a break-even result.
This follows a restructuring of the Argentinian business at the end of
the previous year.
Associates
The profit contribution from associates decreased by 28% to R21
million before tax. This resulted from a decline in the profitability
of the healthcare administration businesses of the two principal SA
associates, Medscheme and Thebe Risk & Benefits.
Core headline earnings
Headline earnings per share is the earnings measure published by the
JSE Securities Exchange South Africa. Headline earnings exclude
goodwill amortisation and other gains or losses of a capital nature,
but include the unrealised currency gain shown separately in the
income statement. The large unrealised currency gain in the previous
financial year is responsible for the relatively low increase in
headline earnings per share in the current period.
Core headline earnings per share is considered to be the most
appropriate measure of the trading performance of the group and is
calculated by excluding the unrealised currency gain (and related
taxation expense) from headline earnings. Core headline earnings per
share increased 22% to 97,1 cents.
Developments and prospects
The acquisition of a 60% interest in Lane Clark & Peacock ("LCP") was
completed in June 2002 and on 18 September 2002 it was announced that
Alexander Forbes and LCP have agreed to acquire 100% of Schroder
Pensions Limited and Schroder Pensions Services Limited for a
consideration equal to the net asset value of the business at 31
August 2002 which is limited to a maximum of 22,5 million. The
acquisition is subject to the approval of the Financial Services
Authority in the UK. This strategic investment provides the group with
a platform to enter the specialist investment product market in the UK
by combining Investment Solutions` experience gained in the South
African market with LCP`s actuarial skills and research to develop
multi-manager investment product solutions for defined benefit and
defined contribution pension plans. The acquisition will also enable
the group to provide pensions administration services across the full
range of defined benefit and defined contribution pension scheme
arrangements in the UK.
It was also announced on 18 September 2002 that Alexander Forbes has
entered into heads of agreement with Millennium Consolidated
Investments ("MCI") in terms of which 30% of the South African
business of Alexander Forbes (excluding certain associates) will be
sold to an empowerment company controlled by MCI. This has been of
significant strategic benefit to the positioning of the group in SA
and has already impacted on opportunities available to the group.
It was further announced on 18 September 2002 that Alexander Forbes
will, subject to shareholder approval and other conditions precedent,
propose a scheme of arrangement or substitute offer to acquire a 100%
shareholding in its listed subsidiary, Investment Solutions Limited.
Documentation relating to the proposed scheme was posted to
shareholders on 7 November 2002.
The prospects for our Risk Services businesses remain strong in the
continuing hard insurance market conditions, whereas the main focus in
our Financial Services businesses will be to grow profits by focusing
on selective opportunities and maintaining cost structures appropriate
to the current market conditions. The relationship with the life
policy underwriter of the Direct Marketing business is being
terminated and alternative relationships and products are being
investigated. This will have no material impact on the earnings of the
Direct Marketing business in the short term.
The board expects satisfactory real growth in core headline earnings
per share for the full year.
For and on behalf of the board
PL Heinamann
Chairman
GW Kerrigan
Group Chief Executive
8 November 2002
Group Income statement
Six months Six months Year
ended ended ended
September 30 September 31 March
2002 % 2001 2002
R million increase R million R million
Revenue from
operations 2 436 31 1 855 4 239
Other revenue 2 (83) 12 18
Total revenue 2 438 31 1 867 4 257
Operating expenses (1 935) 32 (1 469) (3 475)
Operating profit 503 26 398 782
Operational
interest income 59 28 46 102
Trading profit 562 27 444 884
Net finance costs (Note 2) (38) 65 (23) (64)
Profit before associates 524 24 421 820
Share of profits
of associates 21 (28) 29 61
Profit before
non-trading items 545 21 450 881
Headline adjusting
items (Note 3) (52) 49 (35) (90)
Unrealised currency
gain (Note 4) 8 (86) 57 157
Profit before taxation 501 6 472 948
Taxation (168) 8 (156) (315)
Profit after tax 333 5 316 633
Outside shareholders`
interest (42) 24 (34) (78)
Attributable profits 291 3 282 555
Less: Headline
adjusting items* 52 58 33 85
Attributable headline
profits 343 9 315 640
Less: Unrealised
currency gain* (6) (85) (40) (110)
Attributable core
headline profits 337 23 275 530
Core headline earnings
per share (cents) 97,1 22 79,7 153,2
Headline earnings per
share (cents) 98,8 8 91,3 185,0
Earnings per
share (cents) 83,9 3 81,7 160,4
Diluted earnings per share
(cents) (Note 5) 79,9 2 78,1 154,2
Number of shares (millions)
- issued 348 346 347
- weighted average 347 345 346
Stated net of minority interests and taxation
Group balance sheet
Six month Six month Year ended
30 Sep 30 Sep 31 March
2002 2001 2002
R million R million R million
Ordinary
shareholders` funds
- Before goodwill
effects 2 540 2 197 2 448
- Goodwill written off
and amortised (1 732) (1 623) (1 677)
808 574 771
Outside shareholders`
funds 228 151 222
Total shareholders`
funds 1 036 725 993
Long-term liabilities -
interest bearing 2 532 1 786 2 140
- non-interest bearing 4 227 13
Provision for post-
retirement benefits 236 - 285
Deferred tax 4 (23) 29
Capital employed 3 812 2 715 3 460
Policyholders`
and cell owners`
interests in insurance
subsidiaries
Assets 42 374 39 157 43 429
Liabilities (42 374) (39 157) (43 429)
Fixed assets 255 228 231
Goodwill 1 718 1 113 1 315
Associates (Note 6) 258 355 439
Investments and loans
receivable 647 680 853
Current assets
Bank balances 3 792 2 996 3 834
Other interest bearing
receivables 244 102 133
Non-interest bearing
receivables 2 052 2 647 3 020
6 088 5 745 6 987
Current liabilities
Interest bearing
liabilities 406 586 701
Non-interest bearing
liabilities 4 631 4 820 5 541
Provision for
liabilities and charges 117 - 123
5 154 5 406 6 365
Net current assets 934 339 622
Employment of capital 3 812 2 715 3 460
Group cash flow statement
Cash from operating
activities
Cash flows from
operations 759 405 1 086
Taxation paid (183) (104) (240)
Dividends and capital
distribution (212) (99) (99)
Net cash inflow from
operating activities 364 202 747
Cash invested
Subsidiaries and associates
- acquired (399) (149) (244)
- sold 41 - -
- bond repayment
from associate 114 - -
Net movement in investments and
loans receivable (121) (96) (299)
Net fixed assets
acquired (60) (57) (117)
Net cash outflow from investing
activities (425) (302) (660)
Cash from financing
Net proceeds of shares
issued 12 18 32
Net movement in interest
bearing liabilities (25) 36 104
Dividends paid to outside
shareholders (23) (14) (14)
Net cash (outflow)/inflow
from financing activities (36) 40 122
Net movement in cash and
cash equivalents (97) (60) 209
Cash and cash equivalents at
beginning of period 3 834 2 686 2 686
Cash balances of subsidiaries
acquired 40 9 11
Foreign subsidiaries
translation adjustment 15 361 928
Cash and cash equivalents at
end of period 3 792
2 996 3 834
Statement of changes in equity
Share Share
Capital premium Reserves Total
R million R million R million R million
At 31 March 2001 3 78 354 435
Share issues - 18 - 18
Foreign subsidiaries
translation adjustment - - (58) (58)
Attributable profits - - 282 282
Dividends - - (99) (99)
At 30 September 2001 3 96 479 578
Share issues - 14 - 14
Foreign subsidiaries
translation adjustment - - (94) (94)
Attributable profits - - 273 273
At 30 March 2002 3 110 658 771
Share issues - 12 - 12
Foreign subsidiaries
translation adjustment - - (54) (54)
Attributable profits - - 291 291
Dividends and capital
distribution (Note 7) - (108) (104) (212)
As at 30 September 2002 3 14 791 808
Group segmental analysis
Six months Six months Year ended
ended ended
30 September % 30 September 31 March
Rm Variance Rm Rm
Revenue from
operations 2 436 31 1 855 4 239
Africa (principally
South Africa) 955 12 850 1 790
Risk Services 357 5 341 651
Financial Services 374 13 332 739
Investment Solutions 224 27 177 400
Europe (principally
United Kingdom) 1 322 52 868 2 130
Risk Services 762 45 525 1 275
Financial Services 214 8 198 475
Lane Clark & Peacock 126 - - -
Direct Marketing 220 52 145 380
Asia 55 45 38 94
Latin America 104 5 99 225
Trading/Segment profit 562 27 444 884
Africa (principally
South Africa) 284 22 233 462
Risk Services 112 24 90 138
Financial Services 94 15 82 181
Investment Solutions 78 28 61 143
Europe (principally
United Kingdom) 258 23 209 420
Risk Services 157 34 117 239
Financial Services 11 (56) 25 61
Lane Clark & Peacock 15 - - -
Direct Marketing 75 12 67 120
Asia 17 143 7 20
Latin America 3 160 (5) 18
Notes
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.
The income statements and balance sheets of foreign subsidiaries have
been translated to Rands at the following R: exchange rates:
Six months Six months Year ended
ended ended
30 September 30 September 31 March
2002 2001 2002
R million R million R million
Weighted average
rate 15,8 12,7 14,3
Closing rate 16,4 13,2 16,2
2 Net finance costs
Interest and
dividends received
Vendor loan notes 10 14 29
Loan swap deposit 18 18 36
Other 43 38 65
71 70 130
Interest paid
Collateral deposits -
vendor loan notes (9) (12) (26)
Loan swap liability (18) (18) (36)
Exchangeable bonds (75) (63) (129)
Other (7) - (3)
(38) (23) (64)
3 Headline adjusting items
Goodwill amortisation (55) (32) (89)
Other capital items 3 (3) (1)
(52) (35) (90)
4 Unrealised currency gain
The unrealised currency gain
arises from a rand
denominated liability which
finances sterling assets
in the United Kingdom.
This gain is separately
disclosed in the income
statement because of
its non-trading nature.
5 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 R53 million
(2001: R44 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 17 million
(2001:16 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 earnings per share
during the current period.
6 Associates
The directors` valuation of
associates is R367 million
(2001: R394 million)
7 Distribution
In line with the move to
a single annual dividend, a
final distribution of 61
cents per share was paid
on 26 August 2002 relating
to the financial year ended
31 March 2002 comprising a
reduction in the share capital
of 31 cents per share and
a cash dividend of 30 cents
per share.
8 Capital expenditure
and commitments
Depreciation for the period 62 43 122
Capital expenditure
for the period 60 57 117
Future capital commitments
in respect of
contracts placed - 1 1
Operating lease commitments 1 002 1 042 1 078
Due within one year 143 95 139
Thereafter 859 947 939
Guarantees and suretyships 1 2 1
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 MC Ramaphosa+ JVH Robins*+ GGH Todd+ PJJ van
der Walt+ CP van Niekerk+
* 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 70
Marshall 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
www.alexanderforbes.co.za
Date: 11/11/2002 07:50:57 AM Produced by the JSE SENS Department
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