| Mon 1 Dec 2003, 7:50 | | Group results for the six months ended |
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AFRICAN LIFE ASSURANCE COMPANY LIMITED - Group results for the six months ended
30 September 2003
AFRICAN LIFE ASSURANCE COMPANY LIMITED
(Registration number 1911/003818/06)
Share code: AFI
ISIN: ZAE000000246
("African Life" or "the Company")
Group results for the six months ended 30 September 2003
Recurring new business premiums 13% higher
Strong Rand and low single premiums in SA impact headline earnings
Headline earnings per share increases 4%
Value of in-force increases 13%
Embedded value per share 6% higher
AC 133 adopted
(No impact on headline earnings, but income statement comparison to previous
period impacted)
Group income statement
Unaudited Unaudited Audited
Six months Six months Year
to to to
30 September 30 September 31 March
2003 2002 2003
Note Rm Rm Rm
Premium income 1 986,1 2 262,8 5 611,9
Recurring 720,0 823,8 1 676,2
Single 266,1 1 439,0 3 935,7
Fee and other income 50,4
Investment return 421,4 (334,9) (717,1)
Income from associate
companies 0,3 1,9 4,2
Goodwill amortised (3,8) (6,8) (13,6)
Total income 1 454,4 1 923,0 4 885,4
Selling expenses (195,6) (187,3) (382,3)
Operating expenses (173,1) (155,4) (333,9)
Policyholder benefits (605,6) (645,0) (1 775,7)
Change in actuarial
value of policyholder
liabilities (302,9) (783,3) (2 199,1)
Surplus before tax 177,2 152,0 194,4
Taxation (55,2) (60,8) (101,0)
Surplus after tax 122,0 91,2 93,4
Attributable to minority
shareholders (32,1) (24,4) (36,6)
Surplus attributable to
ordinary shareholders 89,9 66,8 56,8
Operating surplus 91,6 86,3 173,6
Investment income on free assets 48,4 57,6 126,3
Taxation (46,6) (52,0) (79,7)
Headline earnings 93,4 91,9 220,2
Goodwill amortised (3,5) (4,7) (12,2)
Investment surpluses on free
assets net of tax (20,4) (151,2)
89,9 66,8 56,8
Headline earnings per
share (cents) 87,2 84,0 201,3
Fully diluted headline earnings
per share (cents) 86,6 200,9
Earnings per share (cents) 83,9 61,1 51,9
Fully diluted earnings per
share (cents) 83,4 51,8
Dividends per share (cents) 39,0 32,5 78,0
Weighted average number of
shares (000"s) 107 101 109 354 109 354
Note:
1.Premium income 986,1 2 262,8 5 611,9
Recurring 720,0 823,8 1 676,2
Individual life 616,3 594,9 1 236,4
Group benefits 103,7 228,9 439,8
Single 266,1 1 439,0 3 935,7
Individual life 263,2 396,0 785,7
Group benefits 2,9 1 043,0 3 150,0
Group balance sheet
Unaudited Unaudited Audited
As at As at As at
30 September 30 September 31 March
2003 2002 2003
Rm Rm Rm
ASSETS
Investments 14 106,0 11 146,3 11 907,9
Intangible assets 43,7 58,1 52,9
Fixed assets 118,2 122,0 114,9
Current assets 963,4 757,8 920,3
15 231,3 12 084,2 12 996,0
EQUITY AND LIABILITIES
Share capital and premium 437,0 488,2 488,2
Reserves 1 149,3 1 163,0 1 102,5
Excess of assets over liabilities 1 586,3 1 651,2 1 590,7
Minority shareholders" interest 365,6 379,1 360,3
Total shareholders" interest 1 951,9 2 030,3 1 951,0
Actuarial value of policyholder
liabilities 12 759,6 9 521,3 10 496,3
Liabilities under insurance
contracts 4 537,8
Liabilities under investment
contracts 8 221,8
Deferred taxation 182,9 206,5 159,5
Current liabilities 336,9 326,1 389,2
15 231,3 12 084,2 12 996,0
Statement of changes in equity
Unaudited Unaudited Audited
As at As at As at
30 September 30 September 31 March
2003 2002 2003
Rm Rm Rm
Share capital and share premium
Balance at the beginning of
the period 488,2 488,2 488,2
Share repurchases on open market (51,2)
Balance at the end of the period 437,0 488,2 488,2
Reserves
Balance at the beginning of
the period 1 102,5 1 162,3 1 162,3
Income attributable to
shareholders 89,9 66,8 56,8
Investment surpluses on free
assets net of tax 6,7
Dividends paid (49,8) (66,1) (116,6)
Balance at the end of the period 1 149,3 1 163,0 1 102,5
Abridged cash flow statement
Unaudited Unaudited Audited
Six months Six months Year
to to to
30 September 30 September 31 March
2003 2002 2003
Rm Rm Rm
Cash flows from operating
activities 2 224,1 728,1 3 207,8
Cash utilised in investing
activities (2 192,2) (774,2) (2 401,4)
Cash flows from financing
activities (51,2) - -
Net (decrease)/increase in
cash resources (19,3) (46,1) 806,4
Cash resources at the beginning
of the period 1 645,0 838,6 838,6
Cash resources at the end of
the period 1 625,7 792,5 1 645,0
Changes in the actuarial value of policyholder liabilities
Unaudited Six months to 30 September 2003
Rm
Under insurance contracts
Policyholder liabilities at the beginning of the year 10 496,3
Less: Policyholder liabilities classified as
investment contracts (6 238,5)
Policyholder liabilities under insurance contracts
at the beginning of the year 4 257,8
Transfer from the income statement 302,9
Foreign currency effect of translating liabilities (22,9)
Policyholder liabilities under insurance contracts
at the end of the period 4 537,8
Under investment contracts
Policyholder liabilities at the beginning of the year 6 238,5
Movement for the year 2 064,2
Pension and investment contributions 1 804,5
Net investment return 410,4
Withdrawals (150,7)
Foreign currency effect of translating liabilities (80,9)
Policyholder liabilities under investment contracts
at the end of the period 8 221,8
Accounting policies and basis of preparation
Basis of preparation
The accounting policies 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 2003, except for the adoption of the accounting
statement on recognition and measurement of financial instruments (AC 133),
which became effective for financial years commencing on or after 1 July 2002.
This interim report is in compliance with AC 127: Interim Financial Reporting.
Changes in accounting policies
In terms of AC 133, financial assets and liabilities need to be classified into
prescribed categories and valued accordingly. In accordance with this statement,
in respect of financial assets, policyholder assets have been designated as
"held at fair value" and shareholder assets have been designated as "available
for sale". Assets held at fair value are valued at fair value and investment
surpluses and losses are reflected in the income statement. Assets classified as
available for sale assets are valued at fair value and unrealised investment
surpluses and losses are accounted for directly to equity and therefore not
included in headline earnings. Realised gains and losses on "available for sale"
assets are included in the income statement but excluded from headline earnings.
In accordance with the statement and the guidance on the application of AC 133
to liabilities arising from long-term insurance contracts as issued by the
Accounting Practices Committee of SAICA, the actuarial value of policyholder
liabilities have been distinguished between insurance and investment contracts.
Insurance contracts continue to be valued and disclosed in terms of the
Financial Soundness Valuation (FSV) basis with the actuarially determined
liabilities now being disclosed separately from liabilities under investment
contracts on the balance sheet. Investment contracts are valued at fair value as
described in AC 133 and the professional guidance notes of the Actuarial Society
of South Africa, PGN 104.
This statement requires that this change in accounting policy be applied
prospectively and any adjustments to determine the new equity, asset and
liability bases are treated as opening adjustments in shareholders" equity. Due
to the financial assets and liabilities of the Group already being valued at
fair value, the impact of the implementation of AC 133 on earnings is not
material. The classification between insurance contracts and investment
contracts has had an impact on disclosure of the various lines of the income
statement. For comparative purposes, the material effects have been summarised
below:
Six months to Six months to Six months to
30 September 30 September 30 September
2003 2002 2002
Post AC 133 Pre AC 133
Rm Rm Rm
Premium income
Recurring 720,0 685,3 823,8
Individual life 616,3 573,8 594,9
Group benefits 103,7 111,5 228,9
Single 266,1 396,0 1 439,0
Individual life 263,2 396,0 396,0
Group benefits 2,9 - 1 043,0
Fee and other income 50,4 52,4 -
Investment return 421,4 108,7 (334,9)
Policyholder benefits (605,6) (490,4) (645,0)
Segmental analysis
EV of new business
(at valuation International
date) South Africa business Total
30 Sept 31 March 30 Sept 31 March 30 Sept 31 March
Rm 2003 2003 2003 2003 2003 2003
Life
operations 29,5 87,2 13,0 28,1 42,5 115,3
- Recurring 27,8 56,1 8,9 22,0 36,7 78,1
- Single 1,7 25,3 2,9 3,8 4,6 29,1
- Other 5,8 1,2 2,3 1,2 8,1
Asset management 17,9 22,5 17,9 22,5
Total 29,5 87,2 30,9 50,6 60,4 137,8
Embedded Shareholders" Net value
Value net assets of in-force Total
30 Sept 31 March 30 Sept 31 March 30 Sept 31 March
Rm 2003 2003 2003 2003 2003 2003
South Africa 1 156,2 1 185,4 306,6 283,6 1 462,8 1 469,0
Botswana 405,0 386,8 170,8 138,4 575,8 525,2
Namibia 25,1 18,5 12,5 10,4 37,6 28,9
Total 1 586,3 1 590,7 489,9 432,4 2 076,2 2 023,1
Operating South Africa International business Total
Surplus 30 Sept 30 Sept 31 March 30 Sept 30 Sept 31 March
Rm 2003 2002 2003 2003 2002 2003
Life
operations 46,8 46,3 114,1 32,8 29,9 37,3
Asset
management 12,0 10,1 22,2
Total 46,8 46,3 114,1 44,8 40,0 59,5
Total 29,5 87,2 30,9 50,6 60,4 137,8
Embedded Value Total
31 March 30 Sept 31 March
Rm 2003 2003 2003
Life operations 79,6 76,2 151,4
Asset management 12,0 10,1 22,2
Total 91,6 86,3 173,6
Group embedded value
The embedded value represents an estimate of the value of the Group, excluding
the value attributable to minority interests and goodwill attributable to future
new business. The embedded value comprises:
c the value of the shareholders" net assets; and
c 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 valuation date, discounted at the
risk discount rate.
The value of in-force business has been calculated for African Life Assurance Co
Limited, Botswana Insurance Holdings Limited and Life Office of Namibia Limited.
Other operations have been taken at net asset value.
Six months to Year to
30 September 31 March
2003 2003
Embedded value results Notes Rm Rm
Shareholders" net assets 1 586,3 1 590,7
Value of in-force 489,9 432,4
Value before cost of capital 602,9 545,0
Cost of capital (113,0) (112,6)
Embedded value at end of period 2 076,2 2 023,1
Capital adequacy requirement (CAR) 704,9 656,8
CAR cover 2,3 2,4
Embedded value earnings
Embedded value at end of period 2 076,2 2 023,1
Embedded value at beginning of period (2 023,1) (2 022,1)
Change in embedded value 53,1 1,0
Dividends and share repurchases 105,3 122,9
Embedded value earnings 158,4 123,9
These earnings can be analysed as follows:
Roll forward 67,3 24,0
Investment return on free assets after tax 33,1 (34,9)
Expected return on life business in force 34,2 58,9
Change over the period 91,1 99,9
Value of new business at end of period 60,4 137,8
Value at point of sale 57,1 124,8
Expected return to end of period 3,3 13,0
Change in assumptions and methodology 1 20,6 (7,2)
Experience variations 2 12,3 (12,7)
Additional exchange rate fluctuations (2,2) (18,0)
Total earnings 158,4 123,9
Value of new business at end of period 60,4 137,8
Value at point of sale before cost
of capital 75,1 165,9
Cost of capital at point of sale (14,7) (28,1)
Assumptions
The main assumptions used are as follows:
1.Economic September 2003 March 2003
assumptions South South
Africa Botswana Africa Botswana
% p.a. % p.a. % p.a. % p.a.
Risk discount rate 13,4 15,0 14,5 16,5
Overall investment return
(before tax) 10,4 12,4 11,3 12,6
Expense inflation rate 6,4 8,0 7,5 7,0
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 South Africa International Group
and methodology Rm Rm Rm
Mortality and morbidity 5,1 - 5,1
Expenses 1,1 (3,5) (2,4)
Persistency (0,1) (0,8) (0,9)
Premium updates 3,9 - 3,9
Data and methodology
changes (5,6) - (5,6)
Other (0,2) - (0,2)
Total operational 4,2 (4,3) (0,1)
Economic 22,4 (1,7) 20,7
Total 26,6 (6,0) 20,6
2. Experience variations
Mortality and morbidity 11,4 9,6 21,0
Expenses and
commission (4,5) 9,9 5,4
Persistency (8,8) 7,2 (1,6)
Premium updates 0,4 0,2 0,6
Tax - - -
Premium collection
shortfall (18,8) - (18,8)
Other (0,7) 4,9 4,2
Total operational (21,0) 31,8 10,8
Economic (1,8) 3,3 1,5
Total (22,8) 35,1 12,3
Commentary
Environment
The results of the life operations in South Africa reflect an improving economic
environment and the benefits and impact of lower interest rates and inflation.
Improved economic conditions and investor confidence in Botswana, Kenya, Ghana
and Zambia contributed to the progress made in the international division.
Healthcare markets remain uncertain with questions around the current and future
legislation inhibiting the Group"s ability to plan effectively.
African Life welcomes the introduction of the Financial Services Charter and is
well positioned to meet the required targets as true empowerment lies at the
heart of the Group"s culture and ethos.
Results
The Group remains focussed on recurring business, which is the lifeblood of its
operations. New recurring premium income increased 13% while the customer base
grew by 12%. As anticipated, single premium business in South Africa was
disappointing due to the declining interest rate environment. Despite these low
single premiums, headline earnings per share increased by 4% to 87,2 cents per
share (2002: 84,0 cents per share).
Operating surplus increased 6% to R91,6 million (2002: R86,3 million). Single
premium inflows in the Botswana fund management operation were unexpectedly
buoyant at R1,8 billon. However, the rand"s strength against the Botswana pula
reduced headline earnings per share by 5,3%.
The embedded value of new business was impacted by lower single premium volumes.
However, embedded value per share increased by 6% from R18,50 per share as at 31
March 2003 to R19,61 per share as at 30 September 2003, driven by a material
increase in the value of in-force business, better investment market performance
and the repurchase of 2,9% of the issued share capital.
No material operational experience variances were recorded for the period and
the introduction of AC133 had no impact on operating results, but impacts the
comparison of the income statement to the previous year.
South Africa
Despite a 65% reduction in single premium inflows to R117 million (2002: R334
million) the South African life operations performed well with recurring new
business volumes up 12% and new business annual premium income 18% higher
compared to the interim period last year. The continued growth in new business
volumes reflect higher productivity from the agency sales force and ongoing
support from independent intermediaries, albeit at a lower embedded value of new
business margin of 16% (F03: 18%). Management has determined the reasons for the
lower margin and has taken steps to rectify it.
The value of in-force increased by 13% on the back of continued focus on
business retention and minor operational experience variances. Previously the
changes in assumptions in the life operations were materially negative.
International
The international division continues to make good progress with recurring new
business premium income up 19%.
The Botswana asset management company recorded strong results, benefiting from
an expanding base of assets under management, while the life company maintained
new business volumes. These results were negatively impacted by foreign currency
translations.
A meticulous process to fill management positions created by the recent
resignation of senior employees in Botswana was completed smoothly and the
calibre of those appointed augurs well for continued growth.
Shareholder approval in Kenya to separate the short-term business from the life
company was obtained enabling African Life to focus on managing the considerable
potential of the life business.
The Group"s three newest operations (Kenya, Ghana and Zambia) collectively
increased recurring new business premium income by 88%. This new business is
not currently consolidated into the Groups"s new business results as they are
not considered subsidiaries for accounting purposes.
Healthcare
The healthcare activities, conducted through African Life Health (previously
named Ingwe Health Plan Organisation), offer affordable products to the emerging
market. Management remains confident of the healthcare market"s potential. The
loss of a member scheme resulted in a small loss for the period. However, steps
have been taken to restore membership levels.
Common administration platform
The decision to incorporate business process enhancements in the design of the
new system, Orfeo, and the resultant additional development and testing time has
hampered the swift conversion to a common administration platform. Both
developers and users are satisfied with progress to date.
Prospects
African Life continues to operate in challenging markets. New recurring business
growth is expected to continue, whilst the lower interest rate environment will
persist in pressurising the South African single premium market.
Management in the healthcare division will continue to focus on the employed but
uncovered market, building on its unique model and capitalising on the Group"s
health risk management skills.
The Board is confident of achieving results in the second half of the year that
build on those of the interim period.
Board of Directors
Willem Roos, Managing Director of Outsurance Holdings Limited, a FirstRand Group
Company, has been appointed non-executive director with effect from 27 November
2003.
Dividend
In line with the current dividend policy of declaring half of the total dividend
of the previous year, an interim dividend (No 30) of 39 cents per share has been
declared for the six months ended 30 September 2003, payable to shareholders of
ordinary shares recorded in the books of the Company at the close of business on
16 January 2004, the record date to participate in this dividend. The last day
to trade cum dividend will be Friday, 9 January 2004. The shares commence
trading ex dividend from the commencement of business on Monday, 12 January
2004. Payment will be made on
Monday, 19 January 2004. Share certificates may not be dematerialised or
rematerialised between Monday, 12 January 2004 and Friday, 16 January 2004, both
days inclusive. The dividend declared is payable in the currency of the Republic
of South Africa.
For and on behalf of the Board
Sipho Nkosi Jeremy Rowse
Chairman Chief executive
1 December 2003
REGISTERED OFFICE AND POSTAL ADDRESS
African Life Assurance Company Limited
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, M Mbekeni (Ms), W T Roos,
A van Heerden, T A Wixley
Date: 01/12/2003 07:28:11 AM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
