| Wed 18 Jun 2003, 8:33 | | Capital Alliance - Audited Results For The Financi |
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CAPITAL ALLIANCE
Registration number: 1952/000756/06
Share code: CPT ISIN: ZAE 000011904
AUDITED RESULTS FOR THE FINANCIAL YEAR ENDED 31 MARCH 2003
* Integration of Fedsure/Norwich completed ahead of schedule and within budget
* Integration of Investec Employee Benefits pension annuities completed
* Integration of Saambou Life policies completed
* Increase of 113% in embedded value of new business
* Increase in headline earnings per share of 22% over March 2002
* Increase in headline earnings of 40% over March 2002
* Proposed increase in dividend of 20% to 84 cents
* Increase in embedded value per share of 12% over March 2002 despite poor
investment markets
The following are the audited consolidated results of the company and its
subsidiary companies for the year ended 31 March 2003 together with comparative
figures. Comparative figures have been regrouped and restated where necessary in
order to provide comparable disclosures.
Summarised Group Income Statements
Audited for the year ended
Notes 31 March 2003 31 March 2002
R"000 R"000
Income 4 521 918 17 597 888
Net premium income 4 560 767 16 041 283
Investment income 1 205 418 782 220
(Loss)/gain on revaluation and
disposal of investments (1 244 267) 774 385
Outgo 4 030 039 17 847 147
Net policyholder benefits 4 760 057 3 396 163
Commissions 138 963 144 884
Administration expenses 1 250 977 242 748
Amortisation of intangible assets 2 43 285 -
Taxation (29 060) 5 489
Transfers (from)/to policyholder liabilities (1 134 183) 14 057 863
Life insurance and pensions business 491 879 (249 259)
Split as:
Operating income 420 947 (299 695)
Shareholders" investment income 167 443 25 831
Shareholders" (loss)/gain on revaluation
and disposal of investments (96 511) 24 605
Other income attributable to shareholders 3 594 14 580
Before taxation 5 061 20 535
Taxation (1 467) (5 955)
Income/(loss) after taxation for the year 495 473 (234 679)
Preference dividend (23 537) (16 304)
Attributable earnings to ordinary shareholders 471 936 (250 983)
Headline earnings attributable to
ordinary shareholders 3 515 221 369 017
Attributable earnings per share (cents)
Basic 264,3 (161,4)
Fully diluted 264,1 (161,3)
Headline earnings per share (cents)
Basic 288,5 237,3
Fully diluted 288,4 237,2
Dividend per ordinary share paid
during the year (cents) 70,0 49,5
Dividend cover (headline earnings, times) 4,1 4,8
Weighted average number of shares in issue ("000) 178 572 155 521
Fully diluted number of shares in issue ("000) 178 663 155 564
Total shares in issue ("000) 177 186 174 880
Notes:
1. Administration expenses include non-recurring items of R33 million for 2003
and R35,8 million for 2002. Furthermore VAT and levies have been reclassified
and restated from taxation in 2002 to administration expenses in 2003.
2. Intangible assets represent the present value of in force business arising on
the acquisition of Saambou Life, which will be written off over a period of
three years in proportion to the expected timing of the emergence of profits of
this business.
3. Headline earnings are calculated as:
R"000 R"000
Attributable earnings for the year 471 936 (250 983)
Plus: exceptional reserving strain on
reinsurance transactions - 620 000
amortisation of intangible assets 43 285 -
Headline earnings for the year 515 221 369 017
The published headline earnings in 2002 was an amount of R402,8 million. To
reconcile to the figure of R369 million shown above it is necessary to add R7,6
million (per note 5), subtract R16,3 million in respect of preference dividends
and subtract R25,1 million in respect of non-recurring expenses.
Summarised Group Balance Sheets
Audited as at
Notes 31 March 2003 31 March 2002
R"000 R"000
Assets
Investment assets 5 17 618 620 17 489 556
Intangible assets 2 23 308 -
Property, plant and equipment 38 775 20 601
Deferred tax 89 401 -
Current assets 798 589 907 688
Total assets 18 568 693 18 417 845
Equity, reserves and liabilities
Total shareholders" funds 5 1 662 869 1 267 041
Outside shareholders" interests 200 000 200 000
Policyholder liabilities 15 405 943 15 876 386
Non-current liabilities 223 660 185 647
Current liabilities 1 076 221 888 771
Total equity, reserves and liabilities 18 568 693 18 417 845
Life Insurance Operations
Audited for the year ended
Notes 31 March 2003 31 March 2002
R"000 R"000
Net premium income
Individual - single premiums 183 589 327 608
Individual - recurring premiums 1 369 650 1 448 676
Group - lump sums 29 209 11 710
Group - other premiums 179 804 109 271
Group funeral - single premiums 8 407 13 479
Credit life - normal 50 383 22 835
- Standard General - 220 519
Reinsurance premiums 2 739 725 13 887 185
4 560 767 16 041 283
Net policyholder benefits
Individual life 4 4 450 443 3 019 461
Death and disability benefits 328 033 154 914
Maturities 1 970 689 1 403 594
Annuities 771 608 513 046
Surrenders 1 380 113 947 907
Group benefits 171 099 140 583
Death and disability benefits 133 159 93 805
Maturities 3 059 2 383
Member withdrawals 9 840 16 118
Scheme terminations and investment withdrawals 18 856 25 072
Funeral benefits 6 185 3 205
Credit life - normal 45 925 6 929
- Standard General 92 590 229 190
4 760 057 3 396 163
Note:
4. Policyholder benefits are stated gross of policy loans. In order to arrive at
an estimate of net cash outflow in respect of benefits paid, R1 311 million in
respect of policy loans must be deducted from the gross claims of R4 450
million.
Summarised Statement Of Changes In Equity
Audited for the year ended
Notes 31 March 2003 31 March 2002
R"000 R"000
Share capital and premium 5 1 018 347 965 283
Balance at beginning of year 965 283 495 954
Arising from share issue 124 297 31 487
Shares issued on rights issue - 517 500
Holding company shares acquired
by group companies (70 923) (8 475)
Share issue expenses written off (310) (4 761)
Cancellation of share capital - (66 422)
Non-distributable reserve 600 600
Balance at beginning of year 600 -
Revaluation of owner-occupied properties - 600
Retained earnings 5 643 922 301 158
Balance at beginning of year 301 158 618 414
Net income/(loss) for the year 495 473 (234 679)
Pre-acquisition profits of subsidiary
previously held as investment (6 695) -
Dividends declared (146 014) (82 577)
1 662 869 1 267 041
Note:
5. The consolidation of the Capital Alliance Holdings Share Scheme according to
the provisions of AC412 resulted in:
* an increase of R7,6 million in other income as at 31 March 2002 which
increased headline earnings by an equivalent amount;
* further changes in the retained earnings, investment assets and total
shareholder"s funds at 31 March 2002; and
* a change in the weighted average and total number of shares in issue as at
31 March 2002.
Summarised Group Cash Flow Statement
Audited for the year ended
31 March 2003 31 March 2002
R"000 R"000
Cash flow from operating activities 73 768 13 186 253
Cash flow from financing activities (35 720) 601 499
Cash flow from investing activities (2 599 955) (10 062 284)
Net movement in cash and cash equivalents (2 561 907) 3 725 468
Cash and cash equivalents at beginning of year 4 325 993 600 525
Cash and cash equivalents at end of year 1 764 086 4 325 993
Group Embedded Value
as at
31 March 2003 31 March 2002
R"000 R"000
Shareholders" net assets
Total 1 662 869 1 267 041
Plus: other group assets 88 658 160 496
Net value of in force life business 628 653 666 958
Gross value of in force life business 829 282 836 472
Less: opportunity cost of capital
adequacy requirements (200 629) (169 514)
Embedded value 2 380 180 2 094 495
Capital adequacy requirement ("CAR") 903 153 708 511
Capital adequacy cover (times) 2,1 2,1
Net asset value per share (Rand) 9,89 8,16
Embedded value of in force business per share (Rand) 3,55 3,81
Embedded value per share (Rand) 13,43 11,98
Value Of New Business
as at
Note 31 March 2003 31 March 2002
R"000 R"000
Net value of new life insurance business 38 557 18 079
Gross value of new life insurance business 6 43 136 21 714
Less: opportunity cost of capital
adequacy requirements (4 579) (3 635)
Note:
6. The value of new business for 2002 includes losses of R3,5 million (after
tax) incurred in respect of closure costs of the discontinued SDS division.
Analysis Of Growth In Embedded Value
for the year ended
31 March 2003 31 March 2002
R"000 R"000
Embedded value at end of year 2 380 180 2 094 495
Embedded value at start of year 2 094 495 1 458 510
Growth in embedded value 285 685 635 985
Changes in share capital 46 370 469 329
Dividends declared or paid (146 014) (82 577)
Embedded value earnings 385 329 249 233
Analysed as:
Saambou Life opening embedded value 124 310 -
Roll forward 136 956 107 174
Investment return on group net assets 31 371 75 706
Expected return on value of in force 105 585 31 468
Value of new business 38 557 18 079
Expected return on new business 2 412 1 351
Change in economic assumptions 9 065 (7 804)
Change in non-economic assumptions and basis 31 497 (40 585)
Experience variations 42 532 171 018
Embedded value earnings 385 329 249 233
Composition Of Shareholders" Net Asset Value
as at
31 March 2003 31 March 2002
R"000 R"000
Equity 611 929 561 709
Cash 232 850 481 618
Interest bearing 782 891 324 230
Property 60 273 23 574
Other (25 074) (124 090)
1 662 869 1 267 041
Valuation Basis: Economic Assumptions
for the year ended
31 March 2003 31 March 2002
% %
Risk discount rate on CAL business 12,9 16,5
Risk discount rate on Fedlife business 12,9 15,5
Equity return (before capital gains tax) 12,4 15,5
Property return (before tax) 11,4 14,5
Fixed interest return (before tax) 10,4 13,5
Cash return (before tax) 8,4 11,5
Average investment return on CAL business (before tax) 11,1 14,75
Average investment return on Fedlife business (before tax) 11,1 13,75
Expense inflation rate per annum 6,4 9,0
New Business Annual Premium Income By Source
for the year ended
31 March 2003 31 March 2002
R"000 R"000
Individual life recurring premiums 114 982 180 407
CAL Commercial 17 921 15 088
Broker 9 459 16 685
Distribution partners - continuing 80 048 95 137
- discontinued 7 554 53 497
Group benefits recurring premiums 66 948 71 971
Group risk and funeral 60 016 49 770
Credit life 6 932 22 201
Total new recurring premiums 181 930 252 378
Single premiums 195 118 288 290
Individual life 183 390 285 000
Credit life 11 728 3 290
Summarised 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 was
consolidated for the first time in the results as at 30 September 2002. The
circular issued by the JSE Securities Exchange South Africa ("JSE") on headline
earnings has also been adopted. As a result of these changes, comparative
figures have been restated where necessary, as disclosed in the notes. The
financial information has been audited by PricewaterhouseCoopers Inc whose
unqualified audit opinion is available for inspection at the group"s registered
address. The financial results for the twelve months to 31 March 2003 include a
full twelve month contribution from the Fedsure Life Assurance Limited
("Fedlife") individual life reinsurance agreement, a six month contribution from
the Investec Employee Benefits ("IEB") annuities reinsurance agreement and a
five month contribution from Saambou Life Assurers Limited ("Saambou Life")
which was consolidated from 1 November 2003. The comparatives only include the
Fedlife business for a ten month period.
The directors are pleased to report an extremely favourable financial result
despite the very poor investment markets experienced during the year. These
results followed a 40% increase in headline earnings in 2002 and a 46% increase
in headline earnings in 2001. This track record validates the effectiveness of
the group"s strategy in a difficult industry sector.
1.1 Focus
The group was single-mindedly focused on achieving the following
objectives over the twelve months to March 2003:
* Complete 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 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.
* Create and enhance embedded value for shareholders via ordinary operations
and selected business acquisition activities.
* Enhance embedded value of new business from the individual life and group
risk distribution activities.
* Further the group"s strategy to be a leader in black economic empowerment
("BEE") in the life insurance industry.
1.2 Outcomes
The directors are pleased to report the following outcomes with respect
to the above activities:
* The Fedlife integration projects were completed ahead of schedule and
within budget and both policyholders and shareholders are now reaping the
benefits. Further reductions in administration expenses are planned and it is
expected that the full benefit of reduced administration costs will be achieved
by September 2003. No allowance has been made for further expected reductions in
administration costs in these results.
* The group continued to implement and investigate further value adding
transactions. All regulatory approvals for Capital Alliance Life ("CAL") to
acquire 100% of the shares in Saambou Life with effect from 1 April 2002 were
received in November 2002 and the administration of the Saambou Life policy base
was fully integrated onto the CAL administration system by the end of that
month. CAL concluded the reinsurance agreement with IEB whereby IEB reinsured
the pension annuities in payment to CAL with effect from 30 September 2002. This
gave rise to a reserving strain at 30 September 2002 of R57 million. The
liabilities reinsured were R2 768 million and all of these annuities were
converted onto the CAL administration system by end November 2002.
* Service level turnaround times have reduced to those consistent with the
traditional CAL book and adherence to service levels has increased to 98%.
Positive feedback has been received from policyholders and intermediaries on the
quality of service delivered. The call centre achieved 5th place in the "Call
Centre of the Year" competition for insurers, banks and other financial services
companies. Further enhancements to service utilising the internet have been
rolled out to intermediaries and policyholders. This service can be accessed by
registering at www.capitalalliance.co.za.
* Whilst investment performance in most portfolios was ahead of benchmark
and results recently published by industry peers, absolute returns were
extremely poor in the period. This was a consequence of the 30% decline in the
local equity market and poor returns from international assets due to rand
strength and weak international investment markets, which were not totally
offset by a good performance from local bonds and high nominal returns on local
cash. Nevertheless, bonuses on with profit and smooth bonus portfolios were
maintained at competitive levels, based on the group"s positive outlook on
investment performance for this year. This view is underscored by good returns
on investment portfolios since 1 April 2003, driven by the strong performance in
the local equity and bond markets.
* Embedded value of new business increased substantially over the prior
year. The growth in embedded value was driven by:
* a change in the mix of products sold.
* a repricing exercise that led to new business being written at higher
margins.
* an increase of 19% in CAL Commercial production even though the number of
agents was 20% lower. The average number of policies produced per agent per
month increased to 6,5 with a first year persistency in excess of 75%.
Thus the increased margins on products sold more than compensated for the
reduced volume of new business premiums.
* The group risk business contributed to the increase in embedded value of
new business due to increased volumes and a change in product mix towards
products with higher margins. The contribution to operating profit from group
risk business increased substantially over the prior year as a result of focused
management action to re-price unprofitable schemes, retain profitable schemes,
invest in staff development and implement a new administration system to
increase staff productivity.
* BEE initiatives were aligned around the five pillars of:
* equity shareholding
* employment equity
* staff development and training
* procurement and
* corporate social responsibility.
The group has the highest direct black empowerment shareholding in the
listed life insurance sector and is ahead of insurance industry averages in
respect of employment of historically disadvantaged individuals ("HDI"s"). A
board empowerment sub-committee consisting of three non-executive directors,
chaired by the deputy chairman, was established during the year to advise the
board on all matters relating to empowerment and transformation within the
group. The group spent 4% of payroll on the development and training of HDI"s
over the period and has budgeted for further spend in staff development and
training this year. More than 33% of the group"s procurement spending is
directed to black suppliers. The group continued to support a number of
important corporate social responsibility programmes, which are primarily
targeted at education and upliftment of underprivileged children to empower them
to achieve their full potential. For example, the Siyandiza programme, run in
conjunction with the South African Air Force, aims to encourage children to
study mathematical sciences in order to pursue careers in aviation.
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
only focusing on new business in current market conditions, and the resilience
shown in the face of extremely difficult investment markets, have assisted the
group in achieving an excellent result in the period.
2. Capitalisation award or cash dividend election
The directors of Capital Alliance Holdings Limited ("Capital Alliance" or
"the company") have resolved to award capitalisation shares to the ordinary
shareholders recorded in the share register of the company at the close of
business on Friday, 15 August 2003 ("the record date").
The number of capitalisation shares to which a shareholder will be entitled
in terms of the capitalisation award will be determined by multiplying the
number of ordinary shares held by the shareholder by a ratio. This ratio will be
arrived at by multiplying 84 cents per share by 1,05 and dividing the result by
the weighted average trading price of the ordinary shares of the company on the
JSE for the five days ending Wednesday, 30 July 2003 ("the issue price"), which
ratio will be announced on Thursday, 31 July 2003. The last day to trade Capital
Alliance shares on the JSE "cum" the capitalisation award to ensure a purchaser
appears as owner on the record date, will be Friday, 8 August 2003.
Shareholders will be given the opportunity to decline the award of
capitalisation shares in respect of all or part of their shareholding and
instead may elect to receive a cash dividend of 84 cents per share ("the cash
election"). Documentation in respect of the capitalisation award and the cash
election will be posted to shareholders on or about Friday, 18 July 2003. In
order to be valid, completed election forms for certificated shareholders
wishing to receive the cash election will need to be received by the company"s
transfer secretaries by no later than 12:00 on Friday, 15 August 2003. In the
case of dematerialised securities, Central Securities Depository Participants
("CSDP") or brokers should be notified of beneficial owner elections in
sufficient time, in terms of their agreement, for the CSDP to inform the company
by 12:00 on Friday, 15 August 2003, as to their election. Application will be
made to the JSE for the maximum number of capitalisation shares to be listed
with effect from the commencement of business on Monday, 11 August 2003 when the
price of the company"s securities will be quoted "ex" the capitalisation award.
It is expected that cheques and share certificates (where required) in respect
of new ordinary shares will be posted to shareholders on or about Monday, 18
August 2003. The number of shares listed will be adjusted on or about Tuesday,
19 August 2003. Shareholders" accounts in respect of dematerialised securities
will be credited by their CSDPs or brokers on Monday, 18 August 2003. Share
certificates may not be dematerialised or rematerialised between Monday, 11
August 2003 and Friday, 15 August 2003, both days inclusive.
3. Prospects
The group will continue to focus on growing operating earnings and dividends
in real terms. Further reductions in administration costs and enhancements in
service levels should have a positive impact on earnings and embedded value. The
improvement in the embedded value of individual life new business should
continue, probably at a lower rate. Group risk business should continue to
increase its contribution to new business embedded value and profit. Although
the group believes that further consolidation in the sector would be beneficial
to all stakeholders, despite considerable effort in the year there appear to be
few local opportunities at present to conclude transactions that enhance
shareholder value. Accordingly the group will continue to investigate a small
number of offshore integration and administration initiatives to determine
whether these could achieve the required shareholder returns at an acceptable
level of risk.
For and on behalf of the board of directors of Capital Alliance Holdings
Limited
L M Nestadt (Chairman)
I M Kirk (Chief Executive Officer)
17 June 2003
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
Share code: CPT ISIN: ZAE 000011904
www.capitalalliance.co.za
