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Capital Alliance Holdings Limited - Announcement
Release Date: 06/12/2002 11:46:37 Code(s): CPT
CAPITAL ALLIANCE HOLDINGS LIMITED - ANNOUNCEMENT
CAPITAL ALLIANCE HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1952/000756/06)
Share code: CPT ISIN: ZAE 000011904
INTERIM REPORT FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2002
HIGHLIGHTS
* Fedsure/Norwich integration projects completed ahead of schedule and under
budget with projected future cost savings on track
* Substantial improvement in service levels to Fedsure/Norwich policyholders
and intermediaries
* Reinsurance of Investec Employee Benefits pension annuities concluded
* Increase in headline earnings per share of 32% over September 2001
* Increase in embedded value per share of 11% over March 2002
* Increase in value of in force per share of 27% over March 2002
* Increase in headline earnings of 40% over September 2001
* Excellent result from group risk business
* Acquisition of Saambou Life concluded
SUMMARISED GROUP INCOME STATEMENTS
The following are the unaudited consolidated results of the company and its
subsidiary companies for the six months ended 30 September 2002 together with
comparative figures. Comparative figures have been regrouped and restated where
necessary in order to provide comparable disclosures.
Unaudited Unaudited
six months six months
ended ended
30 September 30 September
2002 2001
Notes R`000 R`000
Income 4 047 778 15 395 097
Net premium income 897 683 877 486
Reinsurance premium
received 1 2 852 345 14 051 678
Investment income 540 058 404 970
(Loss)/gain on revaluation
and disposal of investments (242 308) 60 963
Outgo 3 900 864 15 877 521
Net policyholders` benefits 2 2 499 025 1 371 888
Commissions 64 365 42 051
Administration expenses 107 058 81 853
Exceptional items 3 26 778 9 498
Taxation 5 16 888 23 244
Transfers to policyholder
liabilities and reserves 1 186 750 14 348 987
Life insurance and pensions
business 146 914 (482 424)
Other income attributable
to shareholders 12 169 32 388
Before taxation 5 12 231 47 803
Taxation 5 (62) (15 415)
Income/(loss) after taxation 159 083 (450 036)
Minority interests - (10 993)
Net income/(loss) for the period 159 083 (461 029)
Attributable earnings to
ordinary shareholders 4 147 672 (467 527)
Headline earnings attributable to
ordinary shareholders 4 223 517 160 057 40%
Attributable earnings per
share (cents) 4,5 83 (278)
Headline earnings per
share (cents) 4,5 125 95 32%
Weighted average number of
shares in issue (`000) 5 178 849 167 949
Total shares in issue (`000) 5 178 736 179 134
Notes
1. Reinsurance premium received as at 30 September 2002 comprises R2 711
million in respect of the IEB annuities, plus R183 million in respect of Saambou
Life credit life business reinsured to CAL, less an adjustment of R42 million in
respect of the Fedlife reinsurance transaction. The comparative figure as at 30
September 2001 is in respect of the Fedlife Reinsurance Agreement.
2. Net policyholder benefits paid as at 30 September 2002 are stated gross of
policy loans of R572 million, thus cash paid in respect of policyholder benefits
is R1 927 million. As at 30 September 2001, the comparative figure for policy
loans was R135 million.
3. Exceptional items primarily relate to the Fedlife conversion and
integration project costs.
4. Attributable earnings and headline earnings are calculated as:
Net profit/(loss) for the period 159 083 (461 029)
Less: preference dividend payable (11 411) (6 498)
Attributable earnings for the period 147 672 (467 527)
Plus: Exceptional reserving strain on
reinsurance transactions 56 946 620 000
Amortisation of intangible assets - 935
Amortisation of goodwill 154 -
Exceptional items after tax 18 745 6 649
Headline earnings for the period 223 517 160 057
Attributable earnings are calculated as the net profit/(loss) for the period
less the preference dividends payable accrued as at 30 September 2002 and 30
September 2001 respectively in terms of AC104.
The previously reported headline earnings as at 30 September 2001 were R170,5
million. The restated figure as at 30 September 2001 can be reconciled to the
previously stated figure by increasing other income by R7,6 million (per note
5), less additional taxation of R13 million (per note 5), less preference
dividend accrued payable of R6,5 million, plus preference dividend accrued
receivable of R1,4 million.
SUMMARISED GROUP BALANCE SHEETS
as at Unaudited Restated Unaudited
30 September 31 March 30 September
2002 2002 2001
Note R`000 R`000 R`000
Assets
Investment assets 5 19 031 884 17 491 299 18 070 279
Intangible assets - - 12 816
Goodwill 5 991 - -
Computer equipment, office
furniture and other tangible assets 22 450 18 858 9 384
Current assets 752 708 907 688 536 906
Total assets 19 813 033 18 417 845 18 629 385
Equity, reserves and liabilities
Total shareholders` funds 5 1 356 276 1 267 043 1 130 711
Minority interests - - 30 980
Outside shareholders` interests 200 000 200 000 200 000
Policyholder liabilities and
reserves 17 330 940 15 876 386 16 167 510
Non-current liabilities 211 071 185 647 252 007
Current liabilities 5 714 746 888 769 848 177
Total equity, reserves and
liabilities 19 813 033 18 417 845 18 629 385
LIFE INSURANCE OPERATIONS
Unaudited Unaudited
Six months Six months
ended ended
30 September 30 September
2002 2001
R`000 R`000
Net premium income
Individual - single premiums 22 294 50 958
Individual - recurring premiums 754 180 641 827
Group - lump sums 5 392 6 104
Group - recurring premiums 89 930 50 055
Group funeral - single premiums 1 100 1 698
Credit life - Standard General - 118 975
Credit life - other 24 787 7 869
897 683 877 486
Net policyholders` benefits
Individual life 2 405 266 1 191 869
Death and disability benefits 157 888 51 114
Maturities 1 193 309 651 020
Annuities 362 642 172 689
Surrenders 691 427 317 046
Employee benefits 68 558 59 446
Death and disability benefits 54 175 42 618
Maturities 1 253 1 224
Member withdrawals 5 311 5 850
Scheme terminations and investment withdrawals 4 869 8 160
Group funeral - death and disability benefits 2 950 1 594
Credit life - Standard General - 12 179
Credit life - experience rebate - 104 539
Credit life - other 25 201 3 855
2 499 025 1 371 888
VALUATION BASIS: ECONOMIC ASSUMPTIONS AT 30 SEPTEMBER 2002
Risk discount rate 14,70%
Equity return (before capital gains tax) 14,20%
Fixed interest return (before tax) 12,20%
Property return (before tax) 13,20%
Cash return (before tax) 10,20%
Average investment return on CAL business (before tax) 13,30%
Average investment return on Fedlife business (before tax) 12,20%
Expense inflation rate per annum 7,70%
NEW RECURRING PREMIUMS BY SOURCE
as at 30 September 30 September
2002 2001
R`000 R`000
Individual Life 73 801 88 290
CAL Commercial 8 880 6 970
Broker 5 878 5 597
Distribution partners - continuing 51 663 43 849
- discontinued 7 380 31 874
Group Benefits 47 738 25 093
Group Risk 34 251 8 241
Credit Life 8 525 16 810
Funeral 4 962 42
Total 121 539 113 383
SUMMARISED STATEMENT OF CHANGES IN EQUITY
Unaudited Unaudited
six months six months
ended Restated ended
30 September 31 March 30 September
2002 2002 2001
Note R`000 R`000 R`000
Share capital and premium 1 122 098 998 112 1 069 295
Balance at beginning of period 998 112 520 308 520 308
Arising from share issue 124 297 31 487 31 487
Shares issued on rights issue - 517 500 517 500
Share issue expenses written off (311) (4 761) -
Cancellation of share capital - (66 422) -
Treasury reserve 5 (90 954) (32 828) (23 199)
Balance at beginning of period (32 829) (24 354) (24 354)
Transferred during period (58 125) (8 474) 1 155
Non-distributable reserve 600 600 -
Balance at beginning of period 600 - -
Revaluation of owner-occupied properties - 600 -
Retained earnings 5 324 532 301 159 84 615
Balance at beginning of period 301 158 618 415 618 415
Net income/(loss) for the period 159 083 (234 679) (461 029)
Dividends declared (135 709) (82 577) (72 771)
1 356 276 1 267 043 1 130 711
5. The following changes in accounting policy have been adopted, which
resulted in the disclosed changes;
The treatment of the recognition of dividends, according to the provisions of
AC107, which resulted in:
* an increase of R13 million in taxation as at 30 September 2001, which
reduced the headline earnings as at 30 September 2001 by an equivalent amount;
and
* a change in the retained earnings as at 30 September 2001 and 31 March
2002.
The consolidation of the Capital Alliance Holdings Share Scheme according to
the provisions of AC412, which resulted in:
* an increase of R7,6 million in other income as at 30 September 2001, which
increased headline earnings by an equivalent amount;
* further changes in the retained earnings, investment assets and total
shareholders funds as at 30 September 2001 and 31 March 2002; and
* a change in the weighted average and total number of shares in issue as at
30 September 2001 and 31 March 2002.
SUMMARISED GROUP CASH FLOW STATEMENTS
Unaudited Unaudited
six months six months
ended ended
30 September 30 September
2002 2001
R`000 R`000
Cash flow from operating activities 1 412 545 14 097 352
Cash flow from investing activities (1 283 034) 742 888
Cash flow from financing activities (33 013) (13 069 496)
Net movement in cash and cash equivalents 96 498 1 770 744
Cash and cash equivalents at beginning of period 4 325 993 600 525
Cash and cash equivalents at end of period 4 422 491 2 371 269
GROUP EMBEDDED VALUE
as at 30 September 31 March 30 September
2002 2002 2001
Note R`000 R`000 R`000
Shareholders` net assets
- total 5 1 356 276 1 267 043 1 130 711
- plus other group assets 157 119 160 496 181 581
Net value of in force life business 867 387 666 958 849 439
Gross value of in force life business 1 011 141 836 472 993 360
Less: opportunity cost of capital
adequacy requirements (143 754) (169 514) (143 921)
Embedded value 2 380 781 2 094 497 2 161 730
Capital adequacy requirement ("CAR") 768 232 708 511 672 042
Capital adequacy cover (times) 2,0 2,1 2,0
Net asset value per share (Rand) 8,47 8,16 7,33
Embedded value of in
force business per share (Rand) 4,85 3,81 4,74
Embedded value per share (Rand) 13,32 11,98 12,07
VALUE OF NEW BUSINESS
as at 30 September 31 March 30 September
2002 2002 2001
R`000 R`000 R`000
Gross value of new life insurance business 8 870 25 193 19 362
Less: opportunity cost of capital adequacy
requirements (2 339) (3 635) (3 126)
Net value of new life insurance business 6 531 21 558 16 236
ANALYSIS OF CHANGE IN EMBEDDED VALUE
Embedded Value at 31 March 2002 2 094 497
Plus: Expected return on value of in force 50 717
Return on shareholder`s assets 64 210
New business (including expected return) 6 759
Change in assumptions 60 000
Other including experience variations 193 192
Less: Exceptional items (18 745)
Dividend and STC less capital praised (69 849)
Embedded Value at 30 September 2002 2 380 781
SUMMARISED GROUP COMMENTARY
1. Review of operating results for the period
The accounting policies adopted comply in all material respects with South
African Statements of Generally Accepted Accounting Practice as well as the
South African Companies Act of 1973. These accounting policies are consistent
with those applied at 31 March 2002, with the exception of the consolidation of
the Capital Alliance Holdings Share Scheme in terms of AC412, which is
consolidated for the first time in the results as at 30 September 2002. As a
result of this change, comparative figures have been restated where necessary,
as disclosed in the notes. The financial results for the six months to 30
September 2002 include a full six-month contribution from the Fedsure Life
Assurance Limited ("Fedlife") individual life reinsurance agreement, whereas the
comparatives include the Fedlife business for a four-month period.
1.1 Focus
The group was single-mindedly focused on achieving the following objectives
over the six months to September 2002:
* conclude the Fedlife system conversion and integration projects as per the
project plans presented in November 2001 and May 2002, within the allocated
time and budgets;
* enhance policyholder service delivered, in order to provide security and
added value to policyholders and intermediaries, thus increasing
satisfaction and retention;
* deliver investment returns ahead of the relevant portfolio benchmarks for
shareholders and policyholders following the portfolio re-structuring
exercise completed in November 2001;
* grow the group risk business organically and increase profitability;
* offer a superior value proposition to individual life policyholders, via
the CAL Commercial and distribution partner channels; and
* create and enhance value for shareholders via ordinary operations and
selected business acquisition activities.
1.2 Outcomes
The directors are pleased to report the following outcomes with respect to the
above activities:
* The Fedlife integration projects were completed by end July, ahead of the
anticipated end date of October 2002. The projects were delivered within budget
and have now laid a foundation for improved policyholder and intermediary
service, at a substantially lower cost per policy. It is anticipated that both
policyholders and shareholders will reap the benefits of the system conversions
in future. The conversions have doubled the number of contracts administered on
the Capital Alliance Life ("CAL") application system to almost one million
individual contracts and have confirmed that the group is capable of tackling
complex and demanding integration projects of this nature. Management expenses
for the second half of the year are anticipated to be substantially lower due to
lower IT and contract personnel costs subsequent to the conversion. No credit
has been taken in this valuation for these anticipated savings.
* Considerable enhancements to policyholder and intermediary service have
been secured over the period, based on a common administration platform and
committed staff. Service level turnaround time has reduced to a level consistent
with the traditional CAL book and adherence to service levels has increased to
96%. Positive feedback from policyholders and intermediaries indicates that
service delivered is substantially better than prior to the Fedlife reinsurance
and administration agreements.
* Investment returns were ahead of benchmark, i.e. acceptable in relative
terms. Equity returns in absolute terms were affected by the poor performance of
local equity markets, as were international returns in rand terms, given the
strength of the rand over the period and weak international markets. A
substantial proportion of assets were invested in bonds, which had an excellent
performance and in absolute return portfolios, which delivered returns ahead of
money market returns. The group is confident that the current portfolio
structures will continue to outperform in relative terms, adding value to both
policyholder and shareholder investments. Strong performances in absolute terms
in October and November 2002 underpin this view.
* The group risk area recorded strong results in respect of new business
written and profitability in respect of the existing book. New group risk
premiums were substantially ahead of the comparative period, driven by a greater
presence, higher level of activity and quality of service by the group risk
sales team. An increasing number of blue chip corporates have chosen CAL as the
underwriter to their employee benefit schemes, driven by support from major
corporate brokers. The risk sales and administration teams committed themselves
fully to delivering an enhanced service to policyholders and intermediaries with
the introduction of detailed service level agreements, believed to be an
industry first. The management of the in force book focussed strongly on
profitability and the underwriting result was substantially ahead of the result
for the entire 2002 financial year. During the period the reinsurance agreement
with The Standard General Insurance Company Limited, a subsidiary of African
Bank Investments Limited, was terminated. Although this had an impact on gross
premiums reported, it had a marginal impact on profits, due to the low margin
nature of this business.
* The CAL Commercial channel continued its progress over the period,
recording 27% growth in recurring new business premiums when compared to the
prior period. Persistency has stabilised at a level in excess of the target of
75%, supported by a disciplined approach to ensuring that policyholder needs are
met in an affordable manner. Further growth has been shown post September 2002,
with pleasing productivity enhancements. Although continuing distribution
partner activities gave an acceptable performance, coming off very high growth
rates achieved previously, the overall individual life new business production
was negatively impacted by the cessation of activities with one of the group`s
distribution partners.
* In addition to the above organic growth strategies, the group continued to
look for value adding transactions. The transaction with Saambou Holdings
Limited to acquire 100% of the shares in Saambou Life Assurers Limited ("Saambou
Life") with effect from 1 April 2002 was concluded in August 2002 and since all
regulatory approvals have been secured, the group now controls Saambou Life. All
relevant business was converted onto the CAL administration systems within two
weeks of regulatory approvals being obtained. In addition, CAL concluded a
reinsurance agreement with Investec Employee Benefits Limited ("IEB") whereby
IEB reinsured the pension annuities in payment to CAL with effect from 30
September 2002. Whilst this transaction gave rise to a reserving strain at 30
September 2002 of R57 million, the group believes that there are adequate
opportunities to add to embedded value in future, given the total liabilities
reinsured of R2 768 million. Since all annuities have already been converted
onto the CAL administration system, the payments in respect of November 2002
were made on the CAL system.
In summary, the directors believe that the group`s strategy of favouring the
management of in-force books for the maximisation of embedded value instead of
focusing on new business in current market conditions and the resilience shown
in the face of difficult investment markets, have assisted the group in
achieving an excellent result in the period.
2. Dividends
Declaration of dividends is considered at the year-end.
3. Prospects
Given reasonable investment markets in the second half of the year, the group
is confident that the performance in the second half will exceed that of the
first half.
In particular:
* no credit has been taken for expected further improvements in expenses
resulting from the Fedlife conversion projects;
* the Saambou Life and IEB annuity books had been converted to the CAL
administration system as at the date of this report and no credit has been taken
for the expected expense savings in respect of this business; and
* embedded value of new business is expected to improve as a consequence of a
continued improvement in CAL Commercial and distribution partner business.
Management and staff are committed to delivering superior service to
policyholders and intermediaries and extending the operational successes of the
first half into the second half of the year.
For and on behalf of the directors
L M Nestadt (Chairman) I M Kirk (Chief Executive Officer)
6 December 2002
Johannesburg
Directors: L M Nestadt (Chairman) M P Malungani (Deputy Chairman) I M Kirk
(Chief Executive Officer) B Gildenhuys H R Levin 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
70 Marshall Street Johannesburg 2001
PO Box 1053 Johannesburg 2000
Registration number: 1952/000756/06
Date: 06/12/2002 11:46:29 AM Produced by the JSE SENS Department
