| Mon 10 Nov 2003, 11:01 | | Alex Forbes result the six months ended 30 Sep 03 |
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Alexander Forbes Limited - Unaudited Results For The Six Months Ended 30
Release Date: 10/11/2003 07:00:06 Code(s): AFB
Alexander Forbes Limited - Unaudited results for the six months ended 30
September 2003
Alexander Forbes Limited
Registration number 1958/001974/06
Share code AFB ISIN ZAE000018230
Unaudited results for the six months ended 30 September 2003
* Revenue of R2,2 billion
* Trading profit of R508 million
* Results affected by significant Rand strength
* Core EPS of 80,4 cents (-17%)
Review of operations
Overview
Trading profit in base currency of our Africa and International operations
showed a 7% increase and 2% decrease respectively. After taking account of the
25% decrease in the average R:GBP exchange rate used for conversion of our
International earnings and a reduced contribution from associates, core earnings
per share decreased by 17% to 80,4 cents. All core businesses remain profitable
and continue to produce strong cash flows.
Regional review
Africa (principally South Africa)
The trading profit of the African operations increased by 7% to R304 million:
- Risk Services
The Risk Services and Personal Services businesses have delivered a strong
combined performance with trading profit growing by 23% to R138 million. This
results from revenue gains and good profit growth in the Broking business and
strong profit growth in the Personal Services business resulting from continued
efficiency gains. New initiatives include the successful launch of a Reinsurance
Solutions business.
- Financial Services
The Financial Services business recorded a 7% decrease in trading profit to R87
million. The core actuarial consulting and administration businesses produced
good growth. Results were, however, affected by the impact of difficult market
conditions on the individual financial planning business (particularly currency
conditions), reduced profit share in Alexander Forbes Life and the effects of
restructuring of the asset consulting business. In addition, there have been
some cost pressures arising from developing capacity and improving our
empowerment positioning.
- Investment Solutions
Investment Solutions recorded a 1% growth in trading profit to R79 million. The
business continues to achieve strong net new business flows, with assets under
management increasing to R54 billion (including off-balance sheet assets of R3
billion). Revenue and profit were, however, impacted by the strength of the
Rand, a reduction in initial fees and lower margins on large fund clients and
assets from Stanlib Multi-Manager.
International (principally United Kingdom)
Trading profit of the International operations decreased by 2% to GBP17,2
million when measured in base currency. The trading profit in Rands has been
significantly impacted by the strengthening of the Rand with a 25% deterioration
in the weighted average Rand/Sterling conversion rate:
- International Risk Services
The UK Risk Services businesses produced varied results with trading profit
increasing by 5% to GBP10,4 million. The Professional Indemnity business
continues to benefit from new business flows and the hard insurance market
conditions. The Wholesale Broking business experienced varying results across
divisions as a result of some team movements and the impact of the weaker Dollar
on US$-denominated brokerage. The Corporate Broking business recorded good
growth, having benefited from positive actions taken in the previous year.
Asia and Latin America remain small contributors to total profits but are a
source of referral business for our London brokerage operations and represent an
important part of our international network.
- UK Financial Services
Lane Clark & Peacock (LCP) produced a solid performance contributing GBP1,8
million to trading profit (compared to GBP0,9 million for the four months to 30
September 2002).
The Independent Financial Advisory (IFA) business contributed GBP0,7 million to
trading profit and has improved prospects for the second half of the year.
- UK Investment Solutions
The Investment Solutions business incurred a start-up trading loss of GBP0,6
million as a result of delays in obtaining regulatory approvals. All approvals
are now in place and portfolios are being actively marketed to clients. The
defined contribution administration business continues to attract new clients.
- Direct Marketing
Direct Marketing trading profits reduced as anticipated. The business continues
to actively market a variety of products, but currently on a smaller scale.
Financing
Net finance costs increased by R54 million as a result of the funding of
acquisitions concluded during the previous financial year and lower interest
earnings on cash balances held in the UK. Trading profit, net of finance costs,
decreased by 21% to R416 million.
Prior to 31 March 2000, all goodwill balances were written off directly against
share capital and reserves. As shown in the balance sheet, ordinary shareholders
funds total R2 823 million before write-off and amortisation of this goodwill.
Interest bearing debt net of free cash available to the group totals R1 803
million, yielding a debt to equity ratio of 64%. This gearing level is within
acceptable limits given the 6 times interest cover position, the cash generative
nature of the group"s businesses, the diverse client base and the high
proportion of income which is annually renewable or annuity in nature.
The group is currently investigating restructuring offshore debt maturing in the
2005 and 2006 financial years.
Associates
The pre-tax profit contribution from associates decreased from R21 million to R3
million as a result of the disposal of the group"s shareholding in Thebe Risk &
Benefits in March 2003 and small trading losses incurred by National Britannia
and Medscheme. Management changes have been implemented at Medscheme and the
business continues to be restructured to improve performance.
Taxation
The effective tax rate on headline earnings has improved slightly from 30,4% to
28,8%. This results from favourable developments relating to prior year tax
assessments.
Earnings per share
Core earnings per share decreased by 17% to 80,4 cents per share (see note 3).
More than half of this decrease relates to the impact of the appreciation of the
Rand against the Sterling and the reduced profit contribution from associates.
Notwithstanding the decrease in core earnings per share, all core businesses
remain profitable and continue to produce strong cash flows.
Developments and prospects
The South African business has received a "BB" empowerment rating from
independent rating agency, Empowerdex. Transformation is progressing well
including board restructuring as well as certain imminent senior BEE
appointments which should enhance this rating and the group"s empowerment
positioning.
Based on current currency levels, the impact of the Rand strength will have a
less significant impact on the results for the second half. In addition we
expect an improved result from the UK Risk Services business in the second half.
As a result of these factors, earnings for the year ending 31 March 2004 are
expected to be broadly in line with the previous financial year.
For and on behalf of the board
GW Kerrigan RI Gordon
Chairman Group chief executive
7 November 2003
Income statement
Six months Six months Year
ended ended ended
30 Sept 30 Sept 31 March
2003 2002 2003
Rm % Rm Rm
Revenue from operations 2 202 (10%) 2 436 4 880
Other revenue 14 2 13
Total revenue 2 216 (9%) 2 438 4 893
Operating expenses (1 761) (1 935) (3 943)
Operating profit 455 (10%) 503 950
Operational interest income 53 59 104
Trading profit 508 (10%) 562 1 054
Net finance costs (note 2) (92) (38) (115)
Profit before associates 416 (21%) 524 939
Associates profits 3 21 29
Profit before non-trading
items 419 (23%) 545 968
Headline adjusting items (74) (52) (144)
Unrealised currency
(loss)/gain (27) 8 (115)
Profit before taxation 318 (37%) 501 709
Taxation (113) (168) (221)
Profit after taxation 205 (38%) 333 488
Minority interests (20) (42) (75)
Attributable profit 185 (36%) 291 413
-
Earnings per share (cents) 53,5 (36%) 83,9 119,4
Headline earnings per share
(cents) 74,9 (24%) 98,8 161,0
Core earnings per share
(cents) 80,4 (17%) 97,1 174,0
Diluted earnings per share
(cents) (note 4) 53,0 (34%) 79,9 117,0
Number of shares (millions)
- issued 346 348 346
- weighted average 346 347 346
Reconciliation to attributable core earnings
Attributable profit per
income statement 185 (36%) 291 413
Add: Headline adjusting items
- Goodwill amortisation 77 55 155
- Other (3) (3) (11)
Headline earnings 259 (24%) 343 557
Add: Unrealised currency
loss/(gain) on loan 27 (8) 115
- Taxation thereon (8) 2 (33)
- Permanent taxation relief - - (37)
Core earnings 278 (17%) 337 602
Segmental analysis
Six months Six months Six months Six months
ended ended ended ended
30 Sept 30 Sept 30 Sept 30 Sept
2003 % 2002 2003 % 2002
Revenue Trading Profit
International (GBPm)
Financial Services 26,2 22% 21,5 2,5 56% 1,6
IFA 11,7 (13%) 13,5 0,7 - 0,7
Lane Clark & Peacock 14,5 81% 8,0 1,8 100% 0,9
Direct Marketing 5,9 (58%) 13,9 4,2 (11%) 4,7
Investment Solutions 1,8 - - (0,6) - -
Risk Services 61,6 6% 58,3 11,1 (1%) 11,2
UK & Europe 53,3 11% 48,2 10,4 5% 9,9
Asia 3,2 (9%) 3,5 0,7 (36%) 1,1
Latin America 5,1 (23%) 6,6 - - 0,2
Total International (GBPm) 95,5 2% 93,7 17,2 (2%) 17,5
Total International (Rm) 1 165 (21%) 1 481 204 (27%) 278
Africa (Rm)
Financial Services 415 11% 374 87 (7%) 94
Investment Solutions 237 6% 224 79 1% 78
Risk Services 385 8% 357 138 23% 112
Total Africa (Rm) 1 037 9% 955 304 7% 284
Total Group (Rm) 2 202 (10%) 2 436 508 (10%) 562
Net finance costs
Africa (19) (186%) 22
International (73) (22%) (60)
Share of profits of associates
Africa 1 (92%) 13
International 2 (75%) 8
Profit before non-trading items 419 (23%) 545
Cash flow statement
Six months Six months Year
ended ended ended
30 Sept 30 Sept 31 March
2003 2002 2003
Rm Rm Rm
Cash from operating activities
Cash flows from operations 467 343 1 271
Taxation, dividends and
capital distribution (329) (395) (602)
Net cash inflow/(outflow) from
operating activities 138 (52) 669
Cash flows from fiduciary activities
Movements in insurance balances 285 416 (472)
Refund of vendor loan note
deposits (42) (298) (554)
Net cash inflow/(outflow) from
fiduciary activities 243 118 (1 026)
Cash invested
Net subsidiaries and associates (19) (244) (1 352)
Net movement in investments and
loans receivable 15 (121) (81)
Net fixed assets acquired (127) (60) (134)
Net cash outflow from investing
activities (131) (425) (1 567)
Cash from financing
Net proceeds of shares issued 10 12 18
Share buy-back (17) - (70)
Net movement in interest bearing
liabilities (67) 273 869
Cash settlement of retirement
obligations (13) - (46)
Dividends paid to outside
shareholders (37) (23) (23)
Net cash (outflow)/inflow from
financing activities (124) 262 748
Net movement in cash and cash
equivalents 126 (97) (1 176)
Cash and cash equivalents at
beginning of period 2 365 3 834 3 834
Cash balances of subsidiaries
acquired - 40 311
Foreign subsidiaries translation
adjustment (121) 15 (604)
Cash and cash equivalents at end
of period 2 370 3 792 2 365
Balance sheet
Six months Six months Year
ended ended ended
30 Sept 30 Sept 31 March
2003 2002 2003
Rm Rm Rm
Ordinary shareholders" funds before
goodwill effects
- Africa 1 841 1 786 1 929
- International 982 754 868
Ordinary shareholders" funds before
goodwill effects 2 823 2 540 2 797
Goodwill written off and amortised (1 916) (1 732) (1 832)
907 808 965
Outside shareholders" funds 95 228 120
Total shareholders" funds 1 002 1 036 1 085
Linked liabilities of policyholders
and cell owners 51 443 42 374 46 302
Long-term liabilities
- Interest bearing 2 365 2 532 2 496
- Non-interest bearing 6 4 7
Provisions for post-retirement benefits 178 236 187
Deferred tax (32) 4 (42)
Capital employed 54 962 46 186 50 035
Linked assets of policyholders and
cell owners 51 443 42 374 46 302
Fixed assets 303 255 241
Goodwill 1 854 1 718 1 931
Associates (note 5) 107 258 135
Investments and loans receivable
- Interest bearing 643 632 674
- Non-interest bearing 11 15 41
Current assets
- Cash and cash equivalents 2 370 3 792 2 365
- Other interest bearing receivables 240 244 179
- Non-interest bearing receivables 577 917 605
3 187 4 953 3 149
Current liabilities
- Interest bearing liabilities 166 406 216
- Non-interest bearing liabilities 2 420 3 613 2 222
2 586 4 019 2 438
Net current assets 601 934 711
Employment of capital 54 962 46 186 50 035
Statement of changes in equity
Share Share
capital premium Reserves Total
Rm Rm Rm Rm
At 31 March 2002 3 110 658 771
Share issues - 12 - 12
Foreign subsidiaries translation
adjustment - - (54) (54)
Attributable profit - - 291 291
Dividends and capital distribution - (108) (104) (212)
At 30 September 2002 3 14 791 808
Share issues - 48 - 48
Share buy-back - - (70) (70)
Foreign subsidiaries translation
adjustment and other adjustments - - 57 57
Attributable profit - - 122 122
At 31 March 2003 3 62 900 965
Adjustment to opening reserves due to
adoption of AC133 (note 1) - - (1) (1)
Share issues - 10 - 10
Share buy-back - - (17) (17)
Foreign subsidiaries translation
adjustment and other adjustments - - 1 1
Attributable profit - - 185 185
Dividends and capital distribution - (53) (183) (236)
At 30 September 2003 3 19 885 907
Notes
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 except for the adoption of AC133
on Financial Instruments.
In terms of this statement the opening balances of financial instruments brought
forward from the previous year have been restated resulting in a decrease of
R1,1 million to the group"s opening accumulated reserves(see statement of
changes). In addition, unfunded insurer debtor balances have been offset against
related insurer creditor balances at the current and previous period ends. The
net effect of AC133 on the results of the period under review is not material.
The income statements and balance sheets of the foreign subsidiaries have been
translated to Rands at the following R:GBP exchange rates:
Six months Six months Year
ended ended ended
30 Sept 30 Sept 31 March
2003 2002 2003
Rm % Rm Rm
Weighted average rate (R:GBP) 11.9 (25%) 15.8 14.7
Closing rate (R:GBP) 11.7 (29%) 16.4 12.5
2 Net finance costs
Interest and dividends received
Collateral deposits -
vendor loan notes - 10 14
Loan swap deposit 18 18 36
Other deposits 36 43 -
54 71 50
Interest paid
Vendor loan notes - (9) (13)
Loan swap liability (18) (18) (36)
Exchangeable bonds (58) (75) (139)
Other bank borrowings (70) (7) 23
(92) (38) (115)
3 Earnings per share
The group has consistently presented three measures of earnings per share for a
number of years, namely:
- Basic earnings per share, which is required to be disclosed in accordance with
Statements of Generally Accepted Accounting Practice in South Africa;
- Headline earnings per share, which is required to be disclosed by the JSE
Securities Exchange South Africa and is the earnings measure published by them.
Headline earnings are designed to provide an objective measure for comparing the
performance of different companies and excludes goodwill amortisation and other
gains or losses of a capital nature;
- Core earnings per share, which represents headline earnings adjusted only for
the unrealised currency gain/loss and related taxation effects arising from a
Rand denominated loan raised in the UK in 1998 to refinance Sterling borrowings.
The unrealised gain/loss is clearly of a non-trading nature and is excluded from
core earnings in order to provide a better measure for the year-on-year
assessment of the trading performance of the group.
4 Diluted earnings per share
Diluted earnings per share is determined by increasing the weighted average
number of shares by 3 million in respect of the dilutory impact of "in-the-
money" 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 for
the current period.
5 Associates
The directors" valuation of associates is R172 million (31 March 2003: R193
million).
6 Capital expenditure and commitments
Six months Six months Year
ended ended ended
30 Sept 30 Sept 31 March
2003 2002 2003
Rm Rm Rm
Depreciation for the period 54 62 117
Capital expenditure for the period 127 60 144
Operating lease commitments
- Due within one year 160 143 190
- Thereafter 1 134 859 1 296
1 294 1 002 1 486
Executive directors RI Gordon (Group chief executive) J Percy-Davis* (Deputy
group chief executive) QJ Heaney* MG Ilsley
Non-executive directors GW Kerrigan* (Chairman) TRT Bohlmann
|PL Heinamann MC Ramaphosa JVH Robins* GGH Todd PJJ van der Walt
*British
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
Company secretary JE Abraham
Transfer secretaries Computershare Limited 70 Marshall Street
Johannesburg 2001 South Africa
Sponsor Investec Bank Limited 100 Grayston Drive Sandown 2196
Sandton South Africa
Independent auditors PricewaterhouseCoopers Inc. Chartered Accountants (SA)
2 Eglin Road Sunninghill 2157 South Africa
www.alexanderforbes.com
A copy of the analyst presentation is available on our website
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