| Mon 9 Jun 2003, 8:35 | | Audited Group results for the year ended 31 march |
|
African Life Assurance -
African Life Assurance
Embedded value of new business increased by 41%
Recurring premium income up 20%
Headline earnings increased by 26%
Total embedded value maintained despite volatile investment markets
Total dividend increased by 20% to 78 cents per share
Audited Group results for the year ended 31 march 2003
SA Recurring New Business volumes up 24%
Substantial increase in assets under management in Botswana
Group income statement
Audited Audited
Year to Year to
31 March 31 March
2003 2002
Notes Rm Rm
Premium income 1 5 611,9 2 735,2
Recurring 1 676,2 1 400,4
Single 3 935,7 1 334,8
Investment return (717,1) 1 800,3
Income from associate companies 4,2 5,0
Goodwill amortised (13,6) (18,3)
Total income 4 885,4 4 522,2
Selling expenses (382,3) (337,6)
Operating expenses (333,9) (249,4)
Policyholder benefits (1 775,7) (1 051,8)
Change in actuarial value of
policyholder liabilities (2 199,1) (2 453,9)
Surplus before tax 194,4 429,5
Taxation (101,0) (93,8)
Surplus after tax 93,4 335,7
Minority interests (36,6) (105,0)
Surplus attributable to
ordinary shareholders 56,8 230,7
Operating surplus 173,6 140,9
Investment income on free assets 126,3 89,3
Taxation (79,7) (55,1)
Headline earnings 220,2 175,1
Investment (losses)/gains on
free assets net of tax (163,4) 55,6
Headline earnings per share (cents) 201,3 159,3
Fully diluted headline
earnings per share (cents) 201,1
Earnings per share (cents) 51,9 209,9
Fully diluted earnings per share (cents) 51,8
Dividends per share (cents) 78,0 65,0
Weighted average number of shares (000"s) 109 354 109 879
Notes:
1. Premium income 5 611,9 2 735,2
Recurring 1 676,2 1 400,4
Individual life 1 236,4 1 009,3
Group benefits 439,8 391,1
Single 3 935,7 1 334,8
Individual life 785,7 410,7
Group benefits 3 150,0 924,1
Group balance sheet
Audited Audited
As at As at
31 March 31 March
2003 2002
Rm Rm
Assets
Investments 11 907,9 10 408,8
Intangible assets 52,9 62,4
Fixed assets 114,9 118,4
Current assets 920,3 747,0
Total assets 12 996,0 11 336,6
Equity and liabilities
Share capital and premium 488,2 488,2
Reserves 1 102,5 1 162,3
1 590,7 1 650,5
Minority shareholders" interest 360,3 351,6
Total shareholders" interest 1 951,0 2 002,1
Actuarial value of policyholder
liabilities 10 496,3 8 753,2
Deferred taxation 159,5 193,7
Current liabilities 389,2 387,6
Total equity and liabilities 12 996,0 11 336,6
Statement of changes in equity
Audited Audited
Year to Year to
31 March 31 March
2003 2002
Rm Rm
Share capital and share premium
Balance at the beginning of the period 488,2 478,0
Arising on shares issued - 26,6
Consolidation of Special Purpose Entity - (4,4)
Share repurchases on open market - (12,0)
Balance at the end of the period 488,2 488,2
Reserves
Balance at the beginning of the period 1 162,3 994,4
Income attributable to shareholders 56,8 230,7
Dividends paid (116,6) (62,8)
Balance at the end of the period 1 102,5 1 162,3
Abridged cash flow statement
Audited Audited
Year to Year to
31 March 31 March
2003 2002
Rm Rm
Cash flows from operating activities 3 207,8 3 937,6
Cash utilised in investing activities (2 401,4) (3 986,0)
Cash flows from financing activities - (53,7)
Net increase/(decrease) in cash resources 806,4 (102,1)
Cash resources at the beginning
of the period 838,6 940,7
Cash resources at the end of the period 1 645,0 838,6
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) are
reflected at net asset value.
Year to Year to
31 March 31 March
2003 2002
Embedded value results Notes Rm Rm
Shareholders" net assets 1 590,7 1 650,5
Value of in-force 432,4 371,6
Value before cost of capital 545,0 471,4
Cost of capital (112,6) (99,8)
Embedded value at end of period 2 023,1 2 022,1
Capital adequacy requirement (CAR) 656,8 613,1
CARcover 2,4 2,7
Embedded value earnings
Embedded value at end of year 2 023,1 2 022,1
Embedded value at beginning of year (2 022,1) (1 809,8)
Change in embedded value 1,0 212,3
Dividends and new capital 122,9 48,5
Embedded value earnings 123,9 260,8
These earnings can be analysed
as follows:
Roll forward 24,0 191,1
Investment return on free assets
after tax (34,9) 137,6
Expected return on life business in
force 58,9 *53,5
Change over the year 99,9 69,7
Value of new business at end of year 137,8 97,8
Value at point of sale 124,8 90,2
Expected return to end of period 13,0 7,6
Change in assumptions
and methodology 1 (7,2) (64,5)
Experience variations 2 (12,7) *29,9
Consolidation of Special
Purpose Entity - (4,4)
Additional exchange rate fluctuations (18,0) 10,9
Total earnings 123,9 260,8
Value of new business at end of year 137,8 97,8
Value at point of sale before
cost of capital 165,9 120,2
Cost of capital at point of sale (28,1) (22,4)
Assumptions
The main assumptions used
are as follows:
1. Economic assumptions 2003 2002
South Africa Botswana South Africa Botswana
% p.a. % p.a. % p.a. % p.a.
Risk discount rate 14,5 16,5 17,5 17,5
Overall investment
return (before tax) 11,3 12,6 15,0 13,8
Expense inflation
rate 7,5 7,0 10,5 8,0
2. Other assumptions
The assumptions for future mortality, morbidity, persistency, premium updates
and expenses 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 and methodology
South Africa International Group
Rm Rm Rm
Mortality (5,5) - (5,5)
Expenses 16,7 15,7 32,4
Persistency (0,7) (11,0) (11,7)
Premium Updates (19,6) - (19,6)
Data and methodology
changes 0,8 (9,6) (8,8)Other
(3,7) (9,4) (13,1)
Total operational (12,0) (14,3) (26,3)
Economic 28,8 (9,7) 19,1
Total 16,8 (24,0) (7,2)
2. Experience variations
Mortality and morbidity 12,5 16,0 28,5
Persistency 13,1 8,7 21,8
Premium updates (9,2) 3,2 (6,0)
Expenses and commission (19,3) 16,7 (2,6)
Tax (16,0) - (16,0)
Other 6,5 20,5 27,0
Total operational (12,4) 65,1 52,7
Economic (9,5) (55,9) (65,4)
Total (21,9) 9,2 (12,7)
*The prior years values have been updated to use a calculation methodology
consistent with the current reporting year, hence enabling a more meaningful
comparison.
Segmental analysis
Operating surplus International
South Africa business Total
31 March 31 March 31 March 31 March 31 March 31 March
Rm 2003 2002 2003 2002 2003 2002
Life
operations 114,1 58,6 37,3 71,0 151,4 129,6
Asset
management 22,2 11,3 22,2 11,3
Total 114,1 58,6 59,5 82,3 173,6 140,9
Embedded value
of new business
Life
operations 87,2 52,5 28,1 30,8 115,3 83,3
- Recurring 56,1 34,8 22,0 24,2 78,1 61,5
- Single 25,3 15,5 3,8 2,5 29,1 15,5
- Other 5,8 2,2 2,3 4,1 8,1 6,3
Asset
management 22,5 14,5 22,5 14,5
Total 87,2 52,5 50,6 45,3 137,8 97,8
Total embedded Shareholders" Net value of
value net interest in-force business Total
31 March 31 March 31 March 31 March 31 March 31 March
Rm 2003 2002 2003 2002 2003 2002
South Africa 1 185,4 1 237,3 283,6 224,3 469,0 1 461,6
Botswana 386,8 389,0 138,4 142,6 525,2 531,6
Namibia 18,5 24,2 10,4 4,7 28,9 28,9
Total 1 590,7 1 650,5 432,4 371,6 2 023,1 2 022,1
Commentary
Environment
The results of the South African life operations were achieved in a market
beginning to show signs of improvement, but still under pressure due to wide-
ranging new legislation, high interest rates and higher-than-expected inflation.
Healthcare markets were again challenging, with spiralling prices highlighting
the need for affordable cover. In contrast, the international markets in which
we operate were characterised by further democratisation and encouraging
economic signals for those prepared to tackle the challenges of doing business
in Africa.
Results
The benefit of a clear and focused growth strategy came through strongly in the
12 months to March 2003 as African Life produced good results in a very
challenging environment.
Embedded value of new business rose 41% to R138 million for the year, reflecting
growth in recurring new business volumes in South Africa of 24%, an increased
contribution from our international operations and tight control of costs.
Importantly, the combination of shareholder asset mix and operational excellence
countered the poor performance of investment markets to shield total embedded
value. Operating surplus increased 23% to R174 million. Headline earnings per
share increased by 26% over the prior year to 201,3 cents per share. Foreign
currency translation rates positively impacted headline earnings by 1,6%.
Recurring premium income increased 20% over the prior year to R1,7 billion.
Single premium income was R3,9 billion during the year, largely attributable to
the R2,9 billion inflows from the privatised Botswana state pension fund. The
final dividend was increased by 21% to 45,5 cents per share. The embedded value
margin achieved on new business confirms that operating expenses across the
Group were well controlled during the year.
These results are compelling evidence that African Life, guided by its growth
strategy, is making great progress in meeting the life event financial needs of
individuals in emerging markets.
South African life operations
The life operations in South Africa produced excellent results for the year,
with recurring new business 24% above the previous year"s volumes and an
increase in average new business premium. As a result of focused retention
initiatives, the customer base increased by 11%. Embedded value of new business
amounted to R56 million. The segmental analysis shows that the margin of
recurring new business in South Africa was 18% (F2002: 15%) - a very
satisfactory achievement confirming the tight cost control measures that are in
place. Importantly, market share was increased in a highly competitive sector.
The strength of the company"s relationships with intermediaries was reflected in
a significant increase in productivity, and maintaining a strong focus on the
quality of business. Business alliances focused on delivering continual benefit
improvements to customers again underpinned steady growth in this market. The
life operations are well prepared for impending market conduct regulation
expected to be introduced later in 2003. Single premium income rose by 74% to
R639 million. These volumes were achieved by a slight reduction in margin, which
was more than compensated for in increased volumes.
International
The benefits of transferring the successful African Life formula to our
international operations were again evident in the review period. New business
recurring premium income from international operations increased by over 14% for
the year to March 2003, accounting for 31% of group new business recurring
premium income. The embedded value of international activities showed a
satisfactory increase for the year. Results for the year from Botswana were
commendable, with solid growth in premium income from Botswana Life and
substantially increased assets under management in the Botswana asset management
company. Namibia"s contribution to the group was disappointing and performance
will be closely monitored in the new year. Results from operations in Kenya and
Ghana have been equity accounted. New business volumes from these operations
increased 60% over the previous year. In Kenya, the short-term and life
businesses are being separated, enabling African Life to focus on the
considerable potential of the life market.
Healthcare
Our healthcare activities are conducted through Ingwe Health Plan Organisation,
which offers affordable products to the emerging market through its range of
products. It was a year of consolidation, following two years of growth, as
Ingwe focused on establishing a national distribution infrastructure and
installing a new technology platform that will enable the company to manage
significantly increased volumes in future as competition intensifies. During the
year, Ingwe maintained the base of principal members under administration and
considerably improved the solvency position of its medical scheme to meet the
requirements of new legislation. These operations made a modest contribution to
the Group.
Common administration platform
African Life"s new administration system, Orfeo, was installed in the new
business division of South Africa"s life operations with positive results.
Rigorous testing for the rest of the system is continuing in the South African
operations and the new system is expected to be rolled out to the remaining
business units once testing is complete. Operational benefits are already
emerging, but the real benefits will only begin to flow once the full system is
operational. Orfeo is operational in Ghana and Zambia.
Board of directors
Mandiza Mbekeni, attorney and experienced businesswoman, was appointed a non-
executive director during the year. We thank our outgoing directors Hillie Meyer
and Frans Truter for their counsel and input as board members.
Dividend
A final dividend (No 29) of 45,5 cents per share has been declared for the six
months to 31 March 2003, bringing the total dividend for the year to 78 cents
per share (F2002: 65 cents per share). The dividend is payable to shareholders
of ordinary shares recorded in the books of the company at the close of business
on 4 July 2003, the record date to participate in this dividend. The last day to
trade cum dividend will be Friday, 27 June 2003. The shares commence trading ex
dividend from the start of business on Monday, 30 June 2003. Payment will be
made on Monday, 7 July 2003. Share certificates may not be dematerialised or
rematerialised between Monday, 30 June 2003 and Friday, 4 July 2003, both days
inclusive. The dividend declared is payable in the currency of the Republic of
South Africa.
Reporting
This report has been prepared in accordance with the Group"s published
accounting policies which comply with South African Statements of Generally
Accepted Accounting Practice, and are consistent with those of the previous
year.
The financial information has been audited by PricewaterhouseCoopers Inc. whose
unqualified audit opinion is available for inspection at the Group"s registered
address. The embedded value results have also been independently reviewed by
actuarial consultants, Tillinghast-Towers Perrin.
Prospects
African Life is now firmly on track to sustainable growth, correctly positioned
in its chosen market and capable of capitalising on the substantial
opportunities in this market. The challenges of recent years have been met and
valuable lessons learned. We have identified our many strengths and will
continue to build on these. We have identified our weaknesses and are addressing
these. We understand that more needs to be done to reach our full potential, and
the commitment to achieving this is spread throughout the Group. In the key
recurring premium income area, the strategy is in place to harvest the full
potential, while the volatile single premium area, especially in South Africa,
will always be challenging.
The targets we have set are closely aligned to achieving real rates of return
and all business segments are projecting a contribution to growth in embedded
value in the new financial year. African Life"s target market is a challenging
one, but we are proving that for the right company at the right time, it"s the
right market for sustainable growth and shareholder wealth creation.
By order of the board
Sipho Nkosi
Chairman
Jeremy Rowse
Chief Executive
9 June 2003
African Life Assurance Company Limited
(Registration number 1911/003818/06)
("African Life" or "the Company")
Share code: AFI ISIN code: ZAE000000246
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 P Rowse (Chief Executive) (British), A H
Arnott, J A Burbidge (British), C T Harding,
W A Jack, J D Krige, T K S Letlape, Ms M Mbekeni, A van Heerden,
T A Wixley
The right company at the right time in the right market
Date: 09/06/2003 08:00:14 AM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
