| Tue 3 Dec 2002, 14:04 | | African Life - Interim Financial Reporting. |
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African Life - Interim Financial Reporting.
African Life Assurance Company Limited
(Registration number 1911/003818/06) ("African Life" or "the Company")
ISIN: ZAE000000246
Share code: AFI
Group results for the six months ended 30 September 2002
a future filled with opportunity
touching on tomorrow
HighlightS
- Recurring premium income up 29%
- Operating profit increases 27%
- Headline earnings per share 12% higher
- Embedded value of new business up 62%
- New business volumes in SA 29% higher
- Interim dividend up 18%
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Environment
South African life operations recorded an impressive performance despite wide-
ranging new legislation, increasing interest rates and higher than expected
inflation. Healthcare markets remained turbulent, characterised by unabated cost
increases. Internationally, markets in Africa were very receptive to product
offerings introduced during the period, and the fruits of our diversification
strategy are clear.
Operating profit increases 27%
Results
Headline earnings per share increased by 12% against the comparable period in
2001. Embedded value showed a satisfactory increase from R2 022,1 million at 31
March 2002 to R2 084,8 million at 30September 2002, despite the poor performance
of local and international investment markets. The 18% increase in the interim
dividend to 32,5 cps reflects the confidence of the board that African Life has
resumed its growth track. Recurring premium income, the lifeblood of our
operation, is 29% higher than the comparable period in 2001, at R823,8 million
for the six months to 30 September 2002. While single premium income in the
period at R1439 million was good, the inherent volatility of new business flows
remains. Investment return benefited from increased interest rates, but was
negatively impacted by the general decline in both local and international
investment markets. Operating expenses in South Africa were well controlled -
the increase in group operating expenses reflects mainly the appreciation of the
Botswana pula against the rand and a shift in the timing of expenses over the
year. Taxation of R60,8 million represents South African tax of R38,6 million
and foreign taxes of R22,2 million. South African taxation in FY2002 benefited
from prior-year overprovisions of R12,5 million. Ingwe operations recorded a
small loss during the review period. The depreciation of the South African rand
against the Botswana pula in the second half of FY2002 has had an impact of 6%
on headline earnings when comparing this interim period to the comparable
interim period of FY2002.
New business growth in South Africa, increasing average premiums in Botswana,
strong single premium inflows and tight control of costs resulted in a very
pleasing increase of 62% in embedded value of new business to R74,9 milion for
the period (30 September 2001: R46,2 million).
Pleasingly, during the review period, African Life`s financial statements
required no significant experience variations or assumption changes that were
under management control, as these relate mainly to investment market
performance as noted.
New business volumes in South Africa 29% higher
South African operations
New business volumes were 29% higher, reflecting very pleasing progress in
diversifying the domestic customer base and developing alternative premium
collection methods. Rationalisation of the state payroll deduction business is
now 73% complete and African Life is working closely with the industry and
authorities to ensure completion at a date acceptable to all parties.
Importantly, recent changes to the distribution network have resulted in a
strong and sustainable improvement in both productivity and quality of new
business, with our customer base showing very satisfactory growth.
Operating expenses in these operations were well controlled during the period,
reflecting only an inflationary increase.
Botswana new business recurring premiums up 36%
International
Our international division continues to make impressive progress. New business
recurring premium income in Botswana was up 36% on the comparable period,
assisted mainly by increased average premiums. The increase in annual premium
income and continued unit cost reduction in Botswana is encouraging. The
Botswana asset management company recorded strong results, benefiting from an
expanding base of assets under management despite the impact of sharply reduced
activity on the local stock market and poor performance on international
markets. Also, this operation benefited from further inflows following the
privatisation of the Botswana State Pension Fund. Performance in Namibia has
still not reached potential in a market that shows growth opportunity. In Kenya,
good progress has been made in separating the short-term and life businesses,
enabling African Life to capitalise on its technical expertise in managing the
life operations. In Ghana, sales volumes at this stage are very encouraging, and
in Zambia we have also recently started marketing individual life policies.
Healthcare Our healthcare activities are conducted through Ingwe Health Plan
Organisation, which offers affordable products to the emerging market through
its capitation product. Given the challenging conditions in healthcare markets
generally, this pioneering business model must be dynamic to meet the needs of a
developing market. Accordingly, close attention is being paid to positioning
Ingwe appropriately for its growth phase in a market whose potential is only now
being fully understood.
Common administration platform In October 2001, our Ghanaian business
commenced operations utilising the group`s new administration system, Orfeo. In
South Africa, the development phase of Orfeo was completed within budget, during
the review period, and the testing phase is now under way prior to conversion.
Zambia commenced operations using Orfeo as its administration system. The
benefits of an integrated technology platform are expected to emerge in FY2004.
Board of directors
Sipho Nkosi was appointed non-executive chairman of African Life on 28 November
2002. He brings a wealth of local and African business experience to the board
and an understanding of African Life`s chosen markets. Craig Harding, head of
individual financial services in South Africa, was appointed to the board on 1
October 2002.
Prospects These results provide further evidence that African Life is on its
way to achieving its growth potential.
We expect the positive trend in new business income to continue in the second
half of this financial year.
In all core areas, strategies are focused on providing affordable risk-based
financial products to emerging markets, thereby creating long-term wealth for
shareholders.
Dividend
An interim ordinary dividend (No 28) of 32,5 cents per share has been declared
for the six months ended 30 September 2002, payable to shareholders of ordinary
shares recorded in the books of the company at the close of business on Friday
10 January 2003, this being the record date in order to participate in such
dividend. The last day to trade cum dividend will be Friday 3 January 2003. The
shares commence trading ex dividend from the commencement of business on Monday
6 January 2003. Payment will be made on Monday 13 January 2003. Share
certificates may not be dematerialised or rematerialised between Monday 6
January 2003 and Friday 10 January 2003, both days inclusive. The dividend
declared is payable in the currency of the Republic of South Africa.
By order of the board
J D Krige J P Rowse
Acting chairman Chief executive
28 November 2002
Group income statement
Unaudited Unaudited Audited
6 months to 6 months to Year to
30 September 30 September 31 March
2002 2001 2002
Notes Rm Rm Rm
Premium income 1 2 262,8 898,2 2 735,2
Recurring 823,8 639,3 1 400,4
Single 1 439,0 258,9 1 334,8
Investment return (339,8) 652,5 1 787,0
Total income 1 923,0 1 550,7 4 522,2
Selling expenses (187,3) (148,4) (337,6)
Operating expenses (155,4) (119,2) (249,4)
Policyholder benefits (645,0) (509,4) (1 051,8)
Change in actuarial
value of policy
liabilities (783,3) (609,1) (2 453,9)
Surplus before tax 152,0 164,6 429,5
Taxation (60,8) (38,1) (93,8)
Surplus after tax 91,2 126,5 335,7
Attributable to
minority shareholders (24,4) (53,6) (105,0)
Surplus attributable
to ordinary
shareholders 66,8 72,9 230,7
Operating surplus 86,3 67,7 140,9
Investment income on
free assets 57,6 47,7 89,3
Taxation (52,0) (32,8) (55,1)
Headline earnings 91,9 82,6 175,1
Investment (losses)/gains on
free assets after tax (25,1) (9,7) 55,6
Surplus attributable
to ordinary
shareholders 66,8 72,9 230,7
Headline earnings
per share (cents) 84,0 75,1 159,3
Earnings per share
(cents) 61,1 66,3 209,9
Dividends per share
(cents) 32,5 27,5 65,0
Weighted average
number of shares (`000s) 109 354 109 933 109 879
Notes:
1. Premium income 2 262,8 898,2 2 735,2
Recurring 823,8 639,3 1 400,4
Individual life 594,9 503,1 1 009,3
Group benefits 228,9 136,2 391,1
Single 1 439,0 258,9 1 334,8
Individual life 396,0 173,9 410,7
Group benefits 1 043,0 85,0 924,1
Group balance sheet
Unaudited Unaudited Audited
as at as at as at
30 September 30 September 31 March
2002 2001 2002
Rm Rm Rm
Assets
Investments 11 146,3 8 207,0 10 408,8
Intangible assets 58,1 59,4 62,4
Fixed assets 122,0 101,3 118,4
Current assets 757,8 654,7 747,0
12 084,2 9 022,4 11 336,6
Capital, reserves and
liabilities
Share capital and premium 488,2 502,0 488,2
Reserves 1 163,0 1 032,3 1 162,3
Excess of assets over
liabilities 1 651,2 1 534,3 1 650,5
Minority shareholders`
interest 379,1 304,2 351,6
Total capital and reserves 2 030,3 1 838,5 2 002,1
Actuarial value of policy
liabilities 9 521,3 6 698,5 8 753,2
Deferred taxation 206,5 122,7 193,7
Current liabilities 326,1 362,7 387,6
12 084,2 9 022,4 11 336,6
Statement of changes in equity
Unaudited Unaudited Audited
as at as at as at
30 September 30 September 31 March
2002 2001 2002
Rm Rm Rm
Share capital and share
premium
Balance at the beginning
of the period 488,2 478,0 478,0
Arising on shares issued - 27,1 26,6
Consolidation of special
purpose entity - (3,1) (4,4)
Share repurchases on
open market - - (12,0)
Balance at the end of
the period 488,2 502,0 488,2
Reserves
Balance at the beginning
of the period 1 162,3 994,4 994,4
Income attributable to
shareholders 66,8 72,9 230,7
Dividends paid (66,1) (35,0) (62,8)
Balance at the end of
the period 1 163,0 1 032,3 1 162,3
Abridged cash flow statement
Unaudited Unaudited Audited
6 months to 6 months to Year to
30 September 30 September 31 March
2002 2001 2002
Rm Rm Rm
Cash flows from operating
activities 728,1 780,1 3 937,6
Cash utilised in investing
activities (774,2) (437,3) (3 986,0)
Cash flows from financing
activities - (39,9) (53,7)
Net (decrease)/increase in
cash resources (46,1) 302,9 (102,1)
Cash resources at the
beginning of the period 838,6 940,7 940,7
Cash resources at the end
of the period 792,5 1 243,6 838,6
Group embedded value
The embedded value 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.
Embedded value results Six months to Year to
30 September 31 March
2002 2002
Notes Rm Rm
Shareholders` net assets 1 650,5 1 472,4
Value of in-force business 371,6 337,4
Value before cost of capital 471,4 373,4
Cost of capital (99,8) (36,0)
Embedded value at beginning
of period 2 022,1 1 809,8
Analysis of change in
embedded value 62,7 212,3
Roll forward 44,9 196,6
Investment return on free
assets after tax 10,0 137,6
Expected return on life
business in force 34,9 59,0
Change over the year 17,8 15,7
Value of new business 74,9 97,8
Value at point of sale 71,7 90,2
Expected return to end of period 3,2 7,6
Change in assumptions and
methodology 1 (2,2) (64,5)
Experience variations 2 9,0 35,3
Consolidation of SPE - (4,4)
Other 7,3 -
Dividends, STC and new capital (71,2) (48,5)
Embedded value at end of period 2 084,8 2 022,1
Shareholders` net assets 1 651,2 1 650,5
Value of in-force business 433,6 371,6
Value before cost of capital 521,4 471,4
Cost of capital (87,8) (99,8)
The capital adequacy requirement for the Company is R473,0 million and for the
Group is R615,7 million (31 March 2002: Company R448,1 million, Group R608,2
million).
The capital adequacy cover for the Group is 2,7 times (31 March 2002: 2,7
times).
Value of new business at calculation date 74,9 97,8
Value before cost of capital 89,0 120,2
Cost of capital (14,1) (22,4)
Assumptions
The main assumptions used are as follows:
1. Economic assumptions (South Africa) % %
p.a. p.a.
Risk discount rate 16,2 17,5
Overall investment return (before tax) 13,7 15,0
Expense inflation rate 9,2 10,5
The economic bases for Botswana and Namibia are set consistently based on the
economic fundamentals in the respective countries.
2. Other assumptions
The assumptions for future mortality, persistency and premium escalations are
based on recent experience adjusted for anticipated future trends. In
particular, allowance has been made for deteriorating mortality as a result of
AIDS.
Notes:
1. Changes in assumptions South Africa International Group
and methodology Rm Rm Rm
Mortality (8,1) - (8,1)
Economic 22,0 - 22,0
Expenses - (2,9) (2,9)
Collecting commission (3,0) - (3,0)
Data and methodological
changes (14,1) 3,9 (10,2)
Total (3,2) 1,0 (2,2)
2. Experience variations
Mortality and morbidity 8,1 11,1 19,2
Persistency 10,6 4,4 15,0
Premium updates (6,3) - (6,3)
Expenses and commission (8,0) 13,0 5,0
Investment return surplus 6,5 (25,8) (19,3)
Other (6,6) 2,0 (4,6)
Total 4,3 4,7 9,0
Embedded value segmental analysis
Shareholders` Net value of
net assets in-force business Total
30 Sept 31 March 30 Sept 31 March 30 Sept 31 March
Rm 2002 2002 2002 2002 2002 2002
South Africa 1 235,3 1 237,3 264,1 224,3 1 499,4 1 461,6
Botswana 401,0 389,0 156,2 142,6 557,2 531,6
Namibia 14,9 24,2 13,3 4,7 28,2 28,9
Total 1 651,2 1 650,5 433,6 371,6 2 084,8 2 022,1
Accounting policies and presentation
The accounting policies adopted, comply with South African Statements of
Generally Accepted Accounting Practice, as well as the South African Companies
Act of 1973 and the Long-term Insurance Act of 1998. These accounting policies
are consistent with those applied at 31 March 2002. This interim report is in
compliance with AC 127:
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: S A Nkosi (Chairman), J D Krige, J P Rowse (Chief Executive)
(British), A H Arnott, J A Burbidge (British), C T Harding, W A Jack, T K S
Letlape, H P Meyer, F J C Truter (Alternate), A van Heerden, T A Wixley
Date: 03/12/2002 08:00:01 AM Produced by the JSE SENS Department
