| Wed 18 Dec 2002, 12:04 | | Sage Group Limited - Announcement to Shareholders |
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Sage Group Limited - Announcement to Shareholders - Corporate Update
SAGE GROUP LIMITED
("Sage Group" or "the Group")
(Incorporated in the Republic of South Africa)
(Registration number 1970/010541/06)
(Share code SGG ISIN no ZAE000006623)
ANNOUNCEMENT TO SHAREHOLDERS - CORPORATE UPDATE
1. INTERNATIONAL OPERATIONS
Following previous announcements regarding capital raising initiatives in the
United States, shareholders are informed that the board of directors has
approved plans to suspend the international marketing and underwriting
activities of the United States and Bermuda operations and to cease all new
sales of these operations with effect from 1 January 2003. This action will be
taken if additional sources of capital necessary to support sales momentum and
infrastructure are not secured by that date. The plans include disbanding
existing sales, marketing and ancilliary resources from mid-January.
Administration capabilities will be retained to continue servicing existing
contract owners.
The decision to close the international operations to new business in January,
if additional capital is not secured, was taken despite the fact that projected
total sales for the financial reporting period 1 April 2002 to 31 December 2002
of approximately $160 million (R1,5 billion) represent an increase of 18% on the
comparable nine month period in the previous year. Assets under management
currently amount to $306 million (R2,7 billion). However, the necessary capital
to sustain expansion is currently not accessible, given prolonged weak global
capital markets and the negative sentiment which has severely impacted the life
assurance sector. The Board considered it prudent to utilise existing resources
for the management of the existing business on the books.
Sage Group will continue to explore a variety of alternatives for the
international activities including an outright sale of Sage Group`s
international interests. The Group remains constrained by currency controls from
utilising South African funds for the cash needs of the international
activities.
Against this background, the boards of Sage Group and Sage Life have resolved to
transfer the Group`s international subsidiaries from Sage Life to Sage Group by
31 December 2002. Consequently, the international subsidiaries will be
separated from the activities of Sage Life South Africa which will concentrate
on the ongoing development of its core domestic life assurance and unit trust
businesses.
2. SAGE GROUP RESULTS
There are a number of factors which will have an effect on the Group`s results
for the nine months ending 31 December 2002, which will be announced in March
2003 following completion of the audited Group financial statements, including
the Sage Life actuarial valuation.
The Group`s primary financial statements have until now been presented on the
Financial Soundness Basis and it has also provided financial statements in full
compliance with South African GAAP. Following a decision by the JSE Securities
Exchange South Africa ("JSE") that it will only recognize results reported on
the GAAP basis, the Group results will in future be presented on the GAAP basis,
while Sage Life will continue to report on the Financial Soundness Basis in
terms of regulatory requirements. As the GAAP basis does not fairly present the
results of a life assurance group, additional information will be provided to
reflect the consolidated Financial Soundness results, based on fair value
principles.
From a trading perspective, the Group has continued to achieve positive
aggregate growth in new business, with the expansion of international sales as
indicated above, but a slowdown in new business growth in South Africa - unit
trust sales are ahead of the previous year while recurring new business premiums
are in line with the previous year. However, single premium new business is well
below the previous year`s level as a result in particular of the reduction
throughout the industry of offshore product sales, reflecting the period of Rand
strength and weak offshore investment markets.
The Group`s results for the nine months to December 2002, the new year end, will
be significantly affected in particular by a number of non- recurring and other
factors which will impact on the net asset values, and consequently the Embedded
Values of Sage Life and the Group:
Non-recurring
In line with the requirement to present GAAP net asset values, the international
activities will be written down out of reserves. This write down will
incorporate unrealised foreign exchange deficits incurred as a result of the
strengthening of the Rand during the current reporting period.
The development costs/trading losses absorbed for the nine months in respect of
the international operations.
The change in accounting emphasis from Financial Soundness to GAAP to meet JSE
requirements.
Further provisions against amounts owing under share purchase schemes due to the
depressed share price of the Group.
In view of current market conditions and their impact on the unit trust
industry, it is intended to write down the value of the unit trust subsidiary to
reflect those conditions.
Other Factors
The Group`s results are subject to exchange rate movements and the impact of the
strengthening of the Rand on foreign debts owing will positively affect
earnings.
Investments are reflected at market values at the year end and closing market
prices will as usual influence profitability.
A change in the basis of accounting will be adopted whereby the Group`s
investment in Sage Life will be reflected on a fair value basis. The Group
holding company will therefore more realistically reflect its capital position.
Despite the considerable impact of all these items, which will take place mainly
within the Sage Life structure, that company remains adequately capitalised with
net assets exceeding its Capital Adequacy Requirement. In addition, measures
are presently under consideration to strengthen the capital position of the
Group and of Sage Life in order, inter alia, to meet anticipated new regulatory
capital requirements.
Dividends
In view of the exceptional circumstances outlined above, it is envisaged that no
dividend will be declared in respect of the six months ending 31 December 2002.
3. POLICYHOLDER AND UNITHOLDER SECURITY
The developments set out above do not affect policyholders and unitholders in
South Africa or internationally, whose interests remain securely protected.
Contract owner assets within the United States and Bermuda are fully funded and
held in separate accounts which are not subject to any general claims against
the relevant companies. In addition, the death benefit and other guaranteed
rider features have been reinsured with highly rated reinsurers. All contract
owner benefits and rights remain fully in force.
South African policyholders of Sage Life are not affected and are protected in
terms of domestic regulations and those of its Bermuda branch by both domestic
and Bermuda regulations.
4. FURTHER ANNOUNCEMENT
In due course a further announcement will be made in connection with the
international operations.
By order of the Board
CS Cant - Secretary
17 December 2002
Sponsor
ABSA Corporate & Merchant Bank
Corporate Finance
(Registration number 1986/004794/06)
Date: 18/12/2002 08:00:00 AM Produced by the JSE SENS Department
