| Wed 9 Apr 2003, 14:21 | | SAGE GROUP LIMITED - AUDITED RESULTS FOR THE 9 MON |
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SAGE GROUP LIMITED
Reg no 1970/010541/06
Share code SGG
ISIN ZAE000006623
AUDITED RESULTS FOR THE NINE MONTHS ENDED 31 DECEMBER 2002
SALIENT FEATURES
Group financial results impacted by discontinuation of international
operations
Satisfactory South African operating performance maintained despite difficult
markets
Core headline earnings of 65,3c per share
Reduced headline loss of 31,9c per share
Group capital raising and introduction of new shareholders
INTRODUCTION
As previously announced, the Group"s financial year-end was changed from March
to December effective 31 December 2002 and the current reporting period is
consequently for the nine months ended 31 December 2002. Comparative figures are
for the twelve months ended 31 March 2002.
The period under review has been particularly challenging for the Group.
Conditions throughout the financial services industry, domestically and
internationally, have been characterised by turbulent and particularly weak
investment markets, continuing currency volatility and intensely competitive and
uncertain conditions throughout the sector. In this difficult environment, the
Group has not been able to secure the foreign capital required for the
continuing expansion of its international insurance operations which resulted in
the decision to discontinue operations with effect from 1 January 2003, thus
impacting on financial results for the period. On the other hand, the Group"s
operations in South Africa have shown considerable resilience, producing sound
operating earnings.
Following the events within the International operations, the Group"s
international subsidiaries were transferred from Sage Life Limited (Sage Life)
to Sage Group Limited (Sage Group) effective 31 December 2002. Consequently, the
international subsidiaries have been separated from the activities of Sage Life
South Africa, which now concentrates exclusively on the development of its core
domestic life assurance and unit trust businesses.
CAPITAL RAISING
Together with JPMorgan, who have been appointed as financial advisors to the
Group, the first steps are being taken to strengthen the Group"s capital base,
with the support of major shareholders and the participation of a consortium of
new shareholders comprising AVASA Holdings Limited (AVASA) and investors on
behalf of whom AVASA acts as agent. This will provide enhanced financial
strength for the Group"s core life assurance and unit trust activities in South
Africa.
Agreements have been concluded in terms of which R350 million of new capital
will be raised by way of a specific issue to the AVASA consortium and by way of
a rights offer to shareholders, underwritten by existing major shareholders and
members of the AVASA consortium. Shareholders are referred to the separate
announcement regarding the specific issue and rights offer.
GROUP RESULTS
ACCOUNTING POLICIES AND PRESENTATION
The Group"s primary financial statements have historically been presented on the
Financial Soundness basis, which equates with the statutory Financial Soundness
Actuarial valuation basis utilised by all life companies as part of their
published statements. It has also provided financial statements in full
compliance with South African Generally Accepted Accounting Practice (GAAP).
Following a decision by the JSE Securities Exchange South Africa ("JSE") that it
will only recognise results reported on the GAAP basis, the audited Group
results are now presented on the GAAP basis only, while Sage Life continues to
report on the Financial Soundness basis.
FINANCIAL RESULTS
On the GAAP basis, the Group"s core headline earnings for the review period,
after adjusting for the discontinuance of international operations, minorities
and share scheme provisions, totalled R98,1 million compared to a loss of R43,4
million in the twelve months to March 2002.
Core headline earnings per share for the review period amounted to 65,3c (29,6c
loss) while the headline loss per share was 31,9c (171,1c).
The Group showed a headline loss of R48,0 million for the nine months compared
with a loss of R251,1 million in the twelve months to March 2002. Domestic
operations achieved pre-tax earnings of R148,7 million for the period (R92,9
million - twelve months to March 2002) while international operations showed a
deficit of R115,1 million (March 2002 - R224,8 million deficit) before
exceptional items.
The Group"s results have been significantly affected by a number of non-
recurring, exceptional and other factors, which have also impacted on the net
asset values, and the embedded values of Sage Life and the Group.
Non-recurring and exceptional factors
In line with the requirement to present GAAP net asset values, and as a
consequence of the international developments described below, the international
activities have been impaired by R110,1 million and discontinuation costs
totalling R80,1 million have been provided for.
* In Sage Life, which is presented on the Financial Soundness basis, the
international activities have been written down by R1 028,9 million to a nominal
R1 at which value they were transferred to Sage Group.
* An operating deficit of R182,5 million, before foreign exchange adjustments,
has been absorbed for the nine months in respect of the international
operations.
* The fair value of the unit trusts business has been written down from R300
million to R150 million in Sage Life to reflect current market conditions and
their present impact on the unit trust industry.
* Further provisions amounting to R57,7 million have been made against amounts
owing under share purchase schemes due to the depressed share price of the
Group.
Other factors
Net foreign exchange translation gains total R102,2 million, reflecting a
positive R181,5 million effect of the strengthening of the Rand on foreign debts
(the Equity Linked Notes) and the negative effect of unrealised deficits of
R79,3 million relating to foreign assets written down.
Investment returns in Sage Life have been negatively affected as a result of
the net decline in market values, both locally and internationally, during the
review period.
A change in the basis of accounting has been adopted whereby Sage Group
Limited"s investment in Sage Life is now reflected on a fair value basis as
opposed to cost. The directors have applied the embedded value of Sage Life,
amounting to R1,3 billion, as representative of its fair value. As a result of
this change, Sage Group Limited reflects a positive shareholders" interest of
R470,6 million, whereas on consolidation the Group reflects a negative
shareholders" interest of R247,8 million.
DIVIDENDS
In view of the negative impact of the non-recurring and exceptional items on the
Group described above, as anticipated in an announcement to shareholders on 17
December 2002, no ordinary dividend has been declared in respect of the six
months ended 31 December 2002. Consequently, the total distribution for the nine
months under review amounts to 25c per share (30c per share for the twelve
months to March 2002).
EMBEDDED VALUE STATEMENTS
SAGE GROUP
The embedded value of the Group at 31 December 2002 amounted to R553,0 million,
equivalent to 352c per share. This measures the current value of the Group"s net
assets at fair value together with the present value of future profits from
business already written by the life assurance operations (net of cost of
capital). The 70,0% decline in embedded value since 31 March 2002 and the
negative embedded value earnings of R1 266,3 million predominantly reflect the
impact of the write-down of the international activities.
SAGE LIFE
Sage Life"s embedded value at 31 December 2002 was R1 331,8 million. The 47,3%
reduction since 31 March 2002 and the negative embedded value earnings of R1
141,2 million also reflect the effect of the non-recurring and exceptional
items. Sage Life"s capital adequacy multiple has reduced from 3,9 at 31 March
2002 to 1,5 at 31 December 2002, and it remains adequately capitalised in terms
of current regulatory guidelines. The capital raising will enable the Group to
satisfy possible future regulatory capital requirements for life companies.
NEW BUSINESS RESULTS
Despite negative investment markets and the disruptive environment in which the
Group has operated in the review period, total new business results reflect only
a modest decline, affected mainly by the reduction of offshore product sales in
South Africa during the period of Rand strength and weak offshore investment
markets.
Total life new business (domestic and international) for the nine months
amounted to R2 120,2 million compared with R2 934,6 million in the twelve months
to March 2002. Measured against the nine months to December 2001, new business
reflects a reduction in aggregate of only 0,9%, with continued growth (38,9%) in
international sales but a slowdown in new business results (-28,3%) in South
Africa. While recurring new business premiums were only 2,8% below the
comparable period in the previous year, domestic single premium new business
declined by 15,6% and offshore single premium new business by 47,7%. Calculated
on the basis of Annual Premium Equivalent (annualised recurring premiums plus
10% of single premiums), domestic new business declined by 11,7% to R287,8
million.
South African unit trust sales for the review period totalled R2,4 billion,
compared to R2,9 billion in the previous twelve months. Repurchases remained at
high levels in line with the industry trend, resulting in a net outflow of
R105,2 million for the nine months. Measured against the nine months to December
2001, sales increased by 27,8% while repurchases rose by 51,6%.
REVIEW OF ACTIVITIES
SOUTH AFRICA
Both Sage Life and Sage Unit Trusts in South Africa continue to perform
satisfactorily in their core activities despite difficult conditions, as
reflected in its Financial Soundness operating results, in particular the
operating surplus of R128,3 million achieved for the nine months as against
R38,0 million in the twelve months to March 2002. Net premiums received in the
review period amounted to R1 188,7 million, reflecting the solid performance in
the core focus area of recurring premium business but a decline in single
premiums as discussed under new business. The total investment return reflects
the impact of the write-down of the international activities and weak investment
markets. Policyholder benefits for the review period totalled R963,7 million
which, although above previous levels on a comparable basis, reflect general
industry trends.
As previously announced, the consortium members, including the Group, who
controlled approximately 46% of ABSA Group Limited (ABSA), concluded agreements
during the review period for the unbundling of Universa (Pty) Limited and the
future of the ABSA shareholding relationships.
Sage elected to withdraw from the ABSA shareholders" agreement and does not
participate in the new ABSA shareholding pool. Instead the Group opted for the
absolute flexibility and liquidity, which it considers desirable for the
effective management of its direct shareholder and policyholder investments in
ABSA shares. Sage has maintained 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, is
represented on its board and has committed to support the planned capital
raising exercise.
The Group"s holding in ABSA, which is accounted for as an investment and is
marked to market, has made a positive contribution to investment results in the
review period.
INTERNATIONAL
The Group"s international businesses, namely Sage Life Assurance of America Inc.
and Sage Life (Bermuda) Limited, have faced exceptional challenges during the
review period which have been the subject of regular update reports to
shareholders. In summary, while new business production reached $160 million
(R1,3 billion) for the nine months to December 2002 (18% up on the comparable
period the preceding year), and assets under management grew to $342,6 million
(R2,9 billion) from $223,7 million (R2,5 billion), the necessary capital to
sustain expansion was not accessible given prolonged weak global capital markets
and the negative sentiment which severely impacted the financial sector.
Against this background a decision was taken to close Sage Life of America to
new business with effect from 1 January 2003, while retaining administration
capabilities in the United States to service existing businesses. In the case of
the Group"s Bermudan operations, the decision on the closure to new business was
subject to the outcome of disposal negotiations, which were in progress, and
these activities consequently remained operational and open for new business.
As of mid February 2003, the Group announced that it had received and was
examining a number of proposals for the purchase of both the USA and Bermudan
businesses on bases, which related to their respective net asset values and the
respective values of in-force business. Negotiations for the disposal of the
United States and Bermudan operations have not been successfully concluded at
the date of this announcement.
In the circumstances, the Group has written down its international operations as
detailed above to a nominal value of R1. The proceeds of any disposals would be
accounted for in the current year. Further announcements will be made following
the completion of negotiations.
BOARD CHANGES
Mr Louis Shill has announced his retirement as Chairman of the Group with effect
from the company"s annual general meeting in May 2003. Mr Shill will continue to
serve as a non-executive director of the Group. A new Chairman will be
designated and announced at the time of the annual general meeting.
Mr Garth Griffin, who has had extensive experience at senior executive level in
the life assurance industry, has been appointed Group Chief Executive with
immediate effect.
Mr Griffin has served as a non-executive director of Sage since 1999 and is
currently Chairman of the Group"s Audit Committee and its Investment Management
Committee.
These changes are dealt with in a media release issued simultaneously with this
announcement.
PROSPECTS
Following a year of exceptionally challenging conditions, the directors believe
the Group is now positioned to warrant renewed optimism on future prospects. The
problems faced within the international operations are now behind the Group and
it is sharply focused on building its domestic life assurance and unit trust
activities. The capital raising exercise, with the backing of existing major
shareholders, and the introduction of new shareholders provide enhanced
stability and will enable the Group to plan further developments and to
reposition its operations.
AUDIT OPINION
The joint auditors, Grant Thornton Kessel Feinstein and KPMG Inc, have issued
their opinion on the Group"s financial statements for the nine months ended 31
December 2002. A copy of their unqualified report is available for inspection at
the company"s registered office.
ABRIDGED FINANCIAL STATEMENTS
Group Income Statement
Audited
9 months ended 12 months ended
31 December 31 March
2002 2002
R000 R000
Domestic operations 148 695 92 904
Operating surplus 228 139 121 695
Provision against share scheme (57 720) (10 301)
loans
Finance costs (21 724) (18 490)
International operations (115 074) (224 817)
(80 243) (178 617)
Operating deficit (non-recurring) (182 466) (122 642)
Foreign exchange translation 102 223 (55 975)
adjustments
Finance costs (34 831) (46 200)
Profit/(loss) before taxation and
exceptional items 33 621 (131 913)
Exceptional items (note1) (191 543) (3 228)
Loss before taxation (157 922) (135 141)
Taxation 73 436 100 455
Loss after taxation (231 358) (235 596)
International minorities and
foreign
preference dividends 8 151 18 687
Loss attributable to ordinary
shareholders (239 509) (254 283)
Adjustment for exceptional items 191 543 3 228
Headline loss (47 966) (251 055)
Reconciliation of headline loss to
core earnings/(loss)
Headline loss (47 966) (251 055)
International operations - 80 243 178 617
discontinued
International minorities and
foreign
preference dividends 8 151 18 687
Provision for share scheme loans 57 720 10 301
Core headline earnings/(loss) 98 148 (43 450)
Core headline earnings/(loss) per
ordinary share (cents) 65,3 (29,6)
Headline loss per share (cents) (31,9) (171,1)
Attributable loss per share (159,4) (173,3)
(cents)
Dividends per ordinary share - interim
(cents)
25,0 30,0
- final (note 2) - -
25,0 30,0
Ordinary shares
- in issue (000) 154 965 147 730
- weighted average number in issue 150 273 146 739
(000)
Compulsorily convertible - in issue (000)
debentures
1 975 2 371
Group Balance Sheet
Audited
31 December 31 March
2002 2002
R000 R000
Assets
Non-current assets 120 465 188 204
Investments of life assurance
subsidiaries 9 904 011 9 499 461
Current assets 663 498 833 031
10 687 974 10 520 696
Shareholders" funds and
liabilities
Total shareholders" (155 386) 97 669
(deficit)/interest
- ordinary shareholders"
(deficit)/interest (247 773) 5 282
- minority shareholders 92 387 92 387
Non-current liabilities (note 3) 558 350 739 863
Long-term assurance funds 9 506 928 9 061 009
Current liabilities 778 082 622 155
- redeemable preference shares
issued
by subsidiaries 91 000 108 500
- interest bearing 107 899 79 097
- other 579 183 434 558
10 687 974 10 520 696
Statement of Changes in Equity
Audited 9 months ended 12 months ended
31 December 31 March
2002 2002
R000 R000
Balance at 5 282 398 017
beginning of period
Proceeds from 10 741 -
subscription shares
issued
Appropriation for
redemption of 2001
preference shares - (2 211)
Attributable loss (239 509) (254 283)
Dividends paid (24 287) (135 629)
Other - (612)
Balance at end of (247 773) 5 282
period
Summarised Group Cash Flow
Statement
Audited
9 months ended 12 months ended
31 December 31 March
2002 2002
R000 R000
Cash flows from (124 030) (433 005)
operations
Cash flows of life
assurance
subsidiaries
including investing 31 016 124 427
activities
Cash flows from 22 044 357 607
financing
Net
(decrease)/increase
in cash and
cash equivalents (70 970) 49 029
Cash and cash
equivalents at
beginning
of period 381 938 332 909
Cash and cash
equivalents at end
of
period 310 968 381 938
Note
1 Exceptional items
Impairment of
assets relating to
discontinued 110 125 1 540
operations
Other 80 152 -
discontinuation
costs
Amortisation of 1 266 1 688
goodwill
191 543 3 228
2 The Group"s financial year end was changed from March to December, effective
31 December 2002. Dividend declaration and payment dates have been aligned with
the change in year end and future declarations will be in respect of the
reporting periods ending 30 June and 31 December respectively.
3 $65 000 000 8% unsecured Equity Linked Notes, redeemable 31 July 2005.
Embedded Value Statements
(Based on Financial Soundness results)
31 December 31 March
2002 2002
Sage Group R000 R000
Group embedded value
Shareholders" interest (106 983) 1 099 598
Present value of future 660 031 743 989
profits of Sage Life (net of
cost of capital)
Embedded value 553 048 1 843 587
Group embedded value per
share
Shares in issue
- ordinary shares 154 965 147 730
- compulsorily convertible 1 975 2 371
debentures
156 940 150 101
Group embedded value per 352 1 228
share (cents)
9 months ended 12 months ended
31 December 31 March
2002 2002
R000 R000
Group embedded value earnings
Embedded value - at end of 553 048 1 843 587
period
Embedded value - at beginning
of
period 1 843 587 1 652 568
(1 290 539) 191 019
Dividends paid 24 287 135 629
Embedded value earnings (1 266 252) 326 648
31 December 31 March
2002 2002
Sage Life R000 R000
Embedded value
Shareholder"s interest 671 743 1 784 028
Present value of future
profits
(net of cost of capital) 660 031 743 989
Embedded value 1 331 774 2 528 017
Financial soundness valuation
- capital adequacy 438 073 462 929
requirement
- capital adequacy multiple 1,5 3,9
(times)
31 December 31 March
2002 2002
R000 R000
Embedded value earnings
New business margin 15,7% 18,9%
Embedded value at end of 1 331 774 2 528 017
period
Embedded value at beginning 2 528 017 2 165 044
of period
(1 196 243) 362 973
Dividends declared 55 000 125 000
Increase in capital 35 (67 026)
Embedded value earnings (1 141 208) 420 947
Components of embedded value
earnings
90 797 142 019
New business 40 324 65 857
Expected return 91 089 89 311
Operating experience 94 900 18 101
variations
Operating assumption changes (135 516) (31 250)
(1 232 005) 278 928
Investment return on
shareholder"s
funds (1 185 544) 238 074
Domestic operations
- income 29 083 51 077
- capital gains (152 629) (88 435)
International operations (1 028 946) 307 399
Taxation and expenses (33 052) (31 967)
Economic assumption changes (46 461) 40 854
Embedded value earnings (1 141 208) 420 947
9 months ended 12 months ended
31 December 31 March
2002 2002
R000 R000
Principal actuarial % %
assumptions
Risk discount rate 12,75 15,50
Pre-tax investment returns
equities 12,75 15,50
property 11,75 14,50
fixed interest securities 10,75 13,50
cash 8,75 11,50
Expense inflation 6,75 8,50
Sage Life Results
9 months ended 12 months ended
31 December 31 March
2002 2002
R000 R000
New business
Life assurance premiums (gross)
Individual 1 981 936 2 712 133
- annualised recurring - 234 435 320 704
South African
- single 1 747 501 2 391 429
- South African onshore 288 070 423 674
- Sage International 1 459 431 1 967 755
- US and International 1 213 063 1 200 675
- SA Bermuda branch 246 368 767 080
Employee benefits - South 138 272 222 435
African
- annualised recurring 65 686 66 079
- single 72 586 156 356
Total new business 2 120 208 2 934 568
South African unit trust 2 355 066 2 872 242
sales
Operating results
Net premiums received 1 188 731 1 609 582
- recurring 815 791 992 322
- single 372 940 617 260
Investment return (855 160) 1 012 195
- investment income 228 130 341 074
- net realised and unrealised
capital (losses)/gains (1 083 290) 671 121
333 571 2 621 777
Outgo (1 395 989) (1 607 552)
Policyholder benefits (963 705) (1 072 439)
Commissions expenses and tax (432 284) (535 113)
(1 062 418) 1 014 225
Increase in policyholder 5 168 (738 118)
reserves
Shareholder"s (1 057 250) 276 107
(deficit)/surplus
Analysis of shareholder"s
(deficit)
/surplus
Operating surplus 128 294 38 033
Return on shareholder"s funds (1 185 544) 238 074
(Loss on
disposal)/revaluation of
investment in
international assurance (1 028 946) 307 399
operations
- net forex translation (183 647) 183 647
differences
- cost of investment (385 525) -
- market value fluctuation (459 774) 123 752
Domestic assets (156 598) (69 325)
Shareholder"s (1 057 250) 276 107
(deficit)/surplus
By order of the board
CS Cant - Secretary 8 April 2003
Directors
*HL Shill (Chairman) *G Griffin (Group Chief Executive) MP Adonisi Dr DC
Cronje *JP Davies BJ du Plessis *JE Henderson Dr BM Ilsley *L Kaplan
*RI Marsden *B Nackan JH Postmus CD Stein CL van Wyk Adv T van Wyk (*
Executive)
Registered Office
11th Floor Sage Centre 10 Fraser Street Johannesburg 2001 PO Box 7755
Johannesburg 2000
Transfer secretaries
Computershare Investor Services Limited 2nd Floor Edura House 41 Fox Street
Johannesburg 2001
PO Box 61051 Marshalltown 2107
Sage Group Limited Reg no 1970/010541/06
Share code SGG
ISIN ZAE000006623
www.sage.co.za
