| Mon 2 Jun 2003, 11:14 | | Alexander Forbes Limited Audited Results for the y |
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Continued strong trading results
* Trading profit +19% & exceeds R1 billion
* Core eps +14%
* SA empowerment transaction
* Launch of investment solutions in UK
Review of operations
Overview
Alexander Forbes has produced strong trading results under difficult market
conditions with trading profit up 19% and exceeding R1 billion for the first
time. This resulted in attributable core earnings increasing by 14% to R602
million or 174 cents per share.
The proposed distribution of 67 cents per share is equivalent to a dividend
yield of 6% based on the company"s closing share price on Thursday, 29 May 2003.
Regional review
Africa (principally SA)
The Africa operations increased trading profit by 17% to R540 million. Growth
was almost entirely organic.
* The Risk Services business built on its strong performance in the previous
year, recording trading profit growth of 25%. The Personal Services division,
which was restructured in the first half of the previous year, made a
significant contribution to this growth in profits.
* The Financial Services business recorded trading profit growth of 15% in
difficult market conditions. A number of new business gains were achieved in the
second half of the financial year.
* Investment Solutions produced a good set of results growing headline earnings
by 20%. (See separate results announcement elsewhere in the press today.)
Trading profit increased by 12% and was impacted by depressed local and
international equity markets and the strength of the Rand. Strong new business
gains were again achieved.
International (principally UK)
The International operations increased trading profit by 22% to R514 million.
Excluding the acquisition of Lane Clark & Peacock ("LCP"), the organic growth in
trading profit is 10%.
* The Risk Services business increased trading profit by 25%, benefiting from
the hard insurance market conditions and a turnaround in the loss-making
operations in Argentina. The benefits of the hard insurance market were partly
offset by the withdrawal of insurance capacity in certain lines of business. The
Professional Indemnity division recorded strong new business flows.
* Financial Services: LCP has performed well and in line with expectation,
contributing R51 million to trading profit in the ten months since acquisition.
The Independent Financial Advisory ("IFA") business experienced tough market
conditions with pressure on both revenue and margins resulting in trading profit
decreasing by 56%. The Software Sales and Bureau divisions of this business have
been substantially restructured. The IFA business was ranked the number one
Pensions IFA in the United Kingdom.
* Investment Solutions achieved a break-even result in the two months following
completion of the acquisition of the Schroder Pensions businesses.
* The Direct Marketing business substantially reduced its marketing spend in the
second half of the financial year following the cancellation of an agency
agreement for the Media Insurance Services ("MIS") business. This benefited
trading profit in the short term, which increased by 13%, but will impact on
renewal income in future years. The group continues to explore opportunities for
MIS with alternate providers, while growing the Accidental Death Benefit
business.
Finance costs
Net finance costs increased by R51 million as a result of the funding of
acquisitions concluded during the year. After deducting these finance costs,
profit before associates increased by 15% to R939 million.
Associates
The group"s share of pre-tax profits of associates decreased by 52% to R29
million. This decrease was primarily the result of a significant decline in
profitability of Medscheme. The Medscheme business is in the process of being
restructured to improve performance. In addition, the Group has sold its 49%
interest in Thebe Risk & Benefits group with effect from 31 March 2003 for a
total consideration of R48 million, subject to certain conditions precedent.
Taxation
Excluding headline adjusting items which are of a capital nature and generally
do not attract taxation, the effective tax rate is 25,9% (2002: 30,3%). The main
reason for the year-on-year decrease in the effective tax rate is the migration
of the tax residency of our UK holding company to South Africa, which has
resulted in a R37 million permanent tax saving. Excluding this non-trading item,
the effective tax rate is 30,2%.
Earnings per share
Headline earnings per share is the earnings measure published by the JSE
Securities Exchange SA. Headline earnings excludes goodwill amortisation and
other gains or losses of a capital nature, but includes the unrealised currency
loss which, consistent with prior years, is shown separately in the income
statement because of its non-trading nature. The R115 million unrealised
currency loss in the current year compares to a R157 million gain in the
previous year. This follows the recent appreciation in the Rand against Sterling
and is responsible for the 13% decline in headline earnings per share to 161
cents. Excluding the unrealised currency loss and related taxation effects, core
earnings per share increased by 14% to 174 cents.
Share buyback
In December 2002, a wholly owned subsidiary of Alexander Forbes Limited
purchased 5 116 298 ordinary Alexander Forbes Limited shares on the open market
for an aggregate amount of R70 million. The treasury shares purchased amounted
to 1,4% of the issued share capital of the company at the time of the
transaction and have been deducted from share capital and from the weighted
average number of shares in issue for purposes of calculating earnings per
share.
Distribution
As disclosed in note 8, the recommended distribution to shareholders totals 67
cents per share, representing a 10% increase over the distribution to
shareholders in the previous year. The distribution is 2,6 times covered by core
earnings per share.
Developments
UK acquisitions
The acquisition of a 60% interest in LCP was completed in June 2002. Alexander
Forbes and LCP completed the acquisition of 100% of Schroder Pensions Limited
and Schroder Pensions Services Limited in February 2003. This investment
provides the group with a platform to enter the specialist investment product
market in the UK. This will be achieved by combining Investment Solutions"
experience gained in the SA market with LCP"s actuarial skills and research to
develop multi-manager investment product solutions for defined benefit and
defined contribution pension plans. The acquisitions enable the group to provide
pension administration services across the full range of defined benefit and
defined contribution pension scheme arrangements in the UK.
Empowerment transaction
The group has sold 30% of Alexander Forbes South Africa ("AFSA") to an
empowerment consortium headed by Millennium Consolidated Investments ("MCI").
Broad-based participation is achieved through the Alexander Forbes Community
Trust, which has an effective 5% shareholding in AFSA. The Trust will benefit
those affected by HIV/Aids, as well as education, the aged, the disabled and
women. The commitment to transformation is reflected in the restructuring of the
South African Board which is now chaired by Cyril Ramaphosa and includes Kodwo
(Kojo) Mills and Ndoda Madalane as MCI"s non-executive representatives, and
Geoffrey Nzau and Mpho Nkeli as new executive directors. This transaction has
been of significant strategic benefit to the positioning of the group in SA, and
will assist in transforming our SA operations in their entirety. Benefits have
already been realised from this transaction.
In December 2002 the group completed the buy-out of the minority shareholders of
Investment Solutions resulting in Investment Solutions delisting from the JSE
Securities Exchange SA.
Prospects
Alexander Forbes will continue to focus on delivering meaningful growth in
earnings for shareholders. In Africa, the recent empowerment transaction has
enhanced the potential business opportunities for the group in Risk, Financial
and Multi-manager services. We remain well positioned in this market in these
key areas and will be working to ensure we continue to meet the needs of our
customers. Internationally the focus will be on organic growth from our various
business units, and we will continue to look at selected acquisition
opportunities. The launch of Investment Solutions in the United Kingdom
represents a significant long-term opportunity for the group.
The consolidated Rand result will be impacted by currency volatility,
particularly the performance of the Rand against Sterling in the case of
International earnings, and will also be impacted by equity market conditions in
the case of Investment Solutions. Our Risk businesses should benefit from the
continued hard insurance market.
For and on behalf of the board
GW Kerrigan RI Gordon
Chairman Group chief executive
30 May 2003
INCOME STATEMENT
31 March 31 March
2003 % 2002
Notes Rm increase Rm
Revenue from operations 4 880 15% 4 239
Other revenue 13 18
Total revenue 4 893 15% 4 257
Operating expenses (3 943) (3 475)
Operating profit 950 21% 782
Operational interest income 104 102
Trading profit 1 054 19% 884
Net finance costs 2 (115) (64)
Profit before associates 939 15% 820
Share of profits of associates 29 (52%) 61
Profit before non-trading items 968 10% 881
Headline adjusting items (144) (90)
Unrealised currency (loss)/gain (115) 157
Profit before taxation 709 (25%) 948
Taxation (221) (315)
Profit after taxation 488 (23%) 633
Outside shareholders" interests (75) (78)
Attributable profits 413 (26%) 555
Earnings per share
Earnings per share (cents) 119,4 (26%) 160,4
Diluted earnings per share (cents) 3 117,0 (24%) 154,2
Headline earnings per share (cents) 161,0 (13%) 185,0
Core earnings per share (cents) 174,0 14% 153,2
Distribution per share (cents) 67,0 10% 61,0
Number of shares (millions)
- Issued 346 347
- Weighted average 346 346
Reconciliation to attributablecore earnings
Attributable profits per incomestatement 413
(27%) 555
Less: Headline adjusting items
- Goodwill amortisation 4 155 84
- Other (11) 1
Attributable headline earnings 557 (13%) 640
Less: Unrealised currency loss/(gain)on loan
115 (157)
- Taxation thereon (33) 47
- Permanent taxation relief (37) -
Attributable core earnings 602 14% 530
BALANCE SHEET
Ordinary shareholders" funds beforegoodwill effects
- Africa 1 929 1 760
- International 868 688
Ordinary shareholders" funds before goodwill effects 2
797 2 448
Goodwill written off and amortised (1 832) (1 677)
965 771
Outside shareholders" funds 120 222
Total shareholders" funds 1 085 993
Long-term liabilities
- Interest bearing 2 496 2 140
- Non-interest bearing 7 13
Provisions for post retirementbenefits 5 187
285
Deferred tax (42) 29
Capital employed 3 733 3 460
Policyholders" and cell owners" interest in insurance subsidiaries
Assets 46 302 44 429
Liabilities (46 302) (44 429)
- -
Fixed assets 241 231
Goodwill 1 931 1 315
Associates 6 135 439
Investments and loans receivable
- Interest bearing 674 833
- Non-interest bearing 41 20
Current assets
- Cash and cash equivalents 2 365 3 834
- Other interest bearing receivables 179 126
- Non-interest bearing receivables 1 643 3 027
4 187 6 987
Current liabilities
Interest bearing liabilities 216 701
Non-interest bearing liabilities 3 260 5 664
3 476 6 365
Net current assets 711 622
Employment of capital 3 733 3 460
SEGMENTAL REVENUE ANALYSIS
31 March 31 March
2003 % 2002
Rm increase Rm
Africa 1 968 10% 1 790
Risk Services 680 4% 651
Financial Services 838 13% 739
Investment Solutions 450 13% 400
International 2 912 19% 2 449
Risk Services 1 761 10% 1 594
UK & Europe 1 466 15% 1 275
Asia 104 11% 94
Latin America 191 (15%) 225
Financial Services 755 475
IFA 402 (15%) 475
Lane Clark & Peacock 353 100% -
Investment Solutions 11 100% -
Direct Marketing 385 1% 380
Total revenue from operations 4 880 15% 4 239
SEGMENTAL PROFIT ANALYSIS
Africa 540 17% 462
Risk Services 172 25% 138
Financial Services 208 15% 181
Investment Solutions 160 12% 143
International 514 22% 422
Risk Services 301 25% 241
UK & Europe 265 11% 239
Asia 21 5% 20
Latin America 15 183% (18)
Financial Services 78 28% 61
IFA 27 (56%) 61
Lane Clark & Peacock 51 100% -
Investment Solutions - - -
Direct Marketing 135 13% 120
Total trading profit 1 054 19% 884
Net finance costs
- Africa 7 (73%) 26
- International (122) 36% (90)
Share of profits of associates
- Africa 16 (73%) 59
- International 13 550% 2
Profit before non-trading items perincome statement
968 10% 881
CASH FLOW STATEMENT
Cash flows from operating activities
Cash generated by operations 1 271 966
Taxation paid (390) (240)
Dividends and capital distribution (212) (99)
Net cash inflows from operating activity 669 627
Cash flows from fiduciary activities
Movements in insurance balances (472) (37)
Refund of vendor loan note deposits (554) -
Net cash flow from fiduciary activities (1 026) (37)
Cash invested
Subsidiaries and associates - acquired (1 509) (244)
- sold 38 -
Bond repaid by associate 119 -
Net investments and loans receivable (81) (299)
Net fixed assets acquired (134) (117)
Net cash outflow from investingactivities (1 567)
(660)
Cash flows from financing activities
Net proceeds of share and bond issues 18 32
Share buyback (70) -
Net increase in interest bearing payables 869 261
Cash settlement of retirement obligation (46) -
Dividends paid to outside shareholders (23) (14)
Net cash inflow from financing activities 748 279
Net movement in cash and cashequivalents (1 176)
209
Cash and cash equivalents at beginningof year 3
834 2 686
Cash balances of subsidiaries acquired 311 11
Foreign subsidiaries translationadjustment (604)
928
Cash and cash equivalents at endof year 2 365
3 834
STATEMENT OF CHANGES IN EQUITY
Share Share
capital premium Reserves Total
Rm Rm Rm Rm
At 31 March 2001 3 78 354 435
Share issues - 32 - 32
Foreign subsidiaries translation adjustment - -
(152) (152)
Attributable profits - - 555 555
Dividends - - (99) (99)
At 31 March 2002 3 110 658 771
Share issues - 60 - 60
Foreign subsidiaries translation adjustment - -
5 5
Share buyback reserve - - (70) (70)
Attributable profits - - 413 413
Other adjustments - - (2) (2)
Distribution to shareholders - (108) (104) (212)
At 31 March 2003 3 62 900 965
NOTES TO THE FINANCIAL STATEMENTS
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 the foreign subsidiaries have been
translated to Rands at the following R:GBP exchange rates:
2003 2002
Weighted average rate 14,7 14,3
Closing rate 12,5 16,2
2 Net finance costs
Interest and dividends received
Collateral deposits - vendor loan notes 14
29
Loan swap deposit 36 36
Other 70 65
120 130
Interest paid
Vendor loan notes (13) (26)
Loan swap liability (36) (36)
Exchangeable bonds (139) (129)
Other bank borrowings (47) (3)
(115) (64)
3 Calculation of diluted earnings per share
Diluted earnings per share is determined by increasing the weighted average
number of shares by 7 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 any of the measures of earnings per share.
4 Goodwill charge
The goodwill charge increased by R71 million to R155 million. The increased
charge is mainly attributable to the acquisition of Lane Clark & Peacock during
the year, write downs of investments by the Medscheme associate, the
acceleration of goodwill amortisation of the National Britannia associate and
the write-off of the Rodobens joint venture in Brazil.
5 Provision for post retirement benefits
Balance at beginning of year 285 210
Settlements made in cash (46) -
Income statement charge - 26
Foreign currency translation effect (39) 49
Balance at end of year 200 285
Short-term portion (13) -
187 285
6 Associates
The directors" valuation of associates is R193 million (2002: R544 million). The
decrease in the valuation amount is attributable to the sale of Thebe Risk &
Benefits, the redemption of the GBP7 million bond issued by National Britannia
and a decrease in the valuation of the Medscheme associate.
7 Capital expenditure and commitments
Depreciation for the year 117 122
Capital expenditure for the year 144 140
Operating lease commitments
- Due within one year 190 139
- Thereafter 1 296 939
1 486 1 078
8 Dividend and capital distribution notice
Notice is hereby given that at a meeting on 30 May 2003, the directors
recommended a dividend of 52 cents and capital distribution of 15 cents (by way
of a reduction of the share premium account) totalling 67 cents per share ("the
distribution") in respect of the year ended 31 March 2003. The terms and
conditions of the capital portion of the distribution are subject to approval by
the holder of the exchangeable bonds issued by Alexander Forbes PLC on 15
September 2000, as well as specific approval by shareholders at the forthcoming
annual general meeting to be held on 23 July 2003. Subject to these approvals,
the distribution will be payable to ordinary shareholders recorded in the
register as such on 22 August 2003.
In compliance with the requirements of STRATE, the following dates are
applicable:
Last day to trade cum the distribution Friday, 15 August 2003
Date trading commences ex the distribution Monday, 18 August 2003
Record date Friday, 22 August 2003
Date of payment Monday, 25 August 2003
Shares may not be dematerialised or rematerialised between Monday, 18 August
2003 and Friday, 22 August 2003, both days inclusive.
Audit opinion
Our auditors, PricewaterhouseCoopers Inc, have issued their opinion on the
group"s financial statements for the year ended 31 March 2003. A copy of their
unqualified report is available upon request.
Executive directors: RI Gordon (Group chief executive) J Percy-Davis*QJ
Heaney* MG Ilsley
Non-executive directors: GW Kerrigan (Chairman) TRT Bohlmann PL Heinamann
MC Ramaphosa JVH Robins GGH Todd PJJ van der Walt CP van Niekerk
Alexander Forbes Limited Registration number 1958/001974/06Share code: AFB
ISIN: ZAE 000018230
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
Group company secretary: RA Venter
Transfer secretaries: Computershare Investor Services Limited70 Marshall Street
Marshalltown 2001 South Africa
Sponsor: Investec Securities Limited 100 Grayston Drive Sandown 2196Sandton
South Africa
Independent auditors: PricewaterhouseCoopers Inc Chartered Accountants (SA)
2 Eglin Road Sunninghill 2157 South Africa
www.alexanderforbes.com
