| Fri 5 Dec 2003, 9:34 | | INTERIM RESULTS for the six months ended 30 Sep 03 |
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CAPITAL ALLIANCE - INTERIM RESULTS for the six months ended 30 September 2003
CAPITAL ALLIANCE HOLDINGS LIMITED
Registration number: 1952/000756/06
JSE Share code: CPT
ISIN: ZAE000011904
INTERIM RESULTS for the six months ended 30 September 2003
HIGHLIGHTS
* Increase in headline earnings per share of 36%
* Post AC133 increase in headline earnings of 36%
* Pre AC133 increase in headline earnings of 56%
* Further reduction in renewal costs achieved
The following are the unaudited consolidated results of the company and its
subsidiary companies for the six months ended 30 September 2003 together with
comparative figures.
SUMMARISED GROUP INCOME STATEMENTS
Unaudited for the
six months ended
30 September 30 September
2003 2002
Notes R"000 R"000
Income 2 096 918 4 047 778
Net premium income normal 838 313 897 683
Net premium income reinsurance
arrangements (38 991) 2 852 345
Policy fees on investment contracts 5 135
Investment income, net gain on
revaluation and disposal of
investments 1 292 461 297 750
Outgo 1 913 333 3 900 710
Net policyholder benefits 1 296 765 2 499 025
Commissions 60 885 64 365
Administration expenses 1 110 228 139 394
Amortisation of intangible assets 2 8 324
Taxation 3 32 110 11 176
Transfers to policyholder
liabilities under
insurance contracts 405 021 1 186 750
Life insurance and pensions
operations 183 585 147 068
Split as:
Operating income 149 807 79 480
Policy fees on investment contracts 5 135
Shareholders" investment income 48 881 55 148
Shareholders" (loss)/gain on
revaluation
and disposal of investments (20 239) 12 440
Other income attributable to
shareholders 20 068 12 169
Before taxation 20 068 12 231
Taxation (62)
Income after taxation for the
period 203 653 159 237
Preference dividend (11 378) (11 411)
Attributable earnings to ordinary
shareholders 192 275 147 826
Headline earnings attributable to
ordinary shareholders 4 200 599 147 826
Attributable earnings per share
(cents)
Basic 106,2 81,4
Fully diluted 106,2 81,4
Headline earnings per share (cents)
Basic 110,8 81,4
Fully diluted 110,8 81,4
Weighted average number of shares in
issue ("000) 180 999 181 575
Fully diluted number of shares in
issue ("000) 181 104 181 594
Total shares in issue ("000) 179 485 178 736
Notes:
1. Administration expenses include non-recurring items of R0,6 million for 2003
and R26,7 million for 2002. Reconciliation of administration expenses for the
period ended 30 September 2002 as previously reported:
R"000
As previously reported 107 058
Add: RFT levies reallocated from taxation to
administration expenses 5 712
Add: non-recurring items disclosed separately
previously 26 778
Less: amortisation of goodwill on acquisition
of subsidiary reallocated to equity (154)
139 394
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. Reconciliation of taxation for the period ended 30 September 2002 as
previously reported:
R"000
As previously reported 16 888
Less: RFT levies reallocated from taxation
to administration expenses (5 712)
11 176
4. As per the 31 March 2003 results, headline earnings have been restated in
respect of September 2002 to include exceptional items after tax of R18,7
million and exceptional reserving strain on reinsurance transaction of R56,9
million in accordance with the SAICA circular 7/2002 on headline earnings.
The headline earnings are calculated as:
R"000
Headline earnings as previously reported 223 517
Less: restatement of exceptional items as
mentioned above (75 691)
Attributable/restated attributable
earnings for the period 192 275 147 826
Add: amortisation of intangible assets 8 324
Headline earnings for the period 200 599 147 826
SUMMARISED GROUP BALANCE SHEETS
As at
Unaudited Audited
30 September 31 March
2003 2003
R"000 R"000
Assets
Investment assets 17 979 456 17 618 620
Intangible assets 14 984 23 308
Property, plant and equipment 37 733 38 775
Deferred taxation 77 013 89 401
Current assets 628 876 798 589
Total assets 18 738 062 18 568 693
Equity, reserves and liabilities
Total shareholders" funds 1 871 459 1 662 869
Outside shareholders" interests 200 000 200 000
Policyholder liabilities 15 767 122 15 405 943
under insurance contracts 14 200 160
under investment contracts 1 559 013
deferred taxation 7 949
Non-current liabilities 235 712 223 660
Current liabilities 663 769 1 076 221
Total equity, reserves and liabilities 18 738 062 18 568 693
SUMMARISED GROUP CASH FLOW STATEMENTS
Unaudited for the
six months ended
30 September 30 September
2003 2002
R"000 R"000
Cash flow from operating activities (691 015) 1 412 545
Cash flow from investing activities 225 888 (1 283 034)
Cash flow from financing activities 8 235 (33 013)
Net movement in cash and cash equivalents (456 892) 96 498
Cash and cash equivalents at beginning of
period 1 764 086 4 325 993
Cash and cash equivalents at end of period 1 307 194 4 422 491
SUMMARISED STATEMENT OF CHANGES IN EQUITY
Unaudited Audited Unaudited
six months year six months
ended ended ended
30 September 31 March 30 September
2003 2003 2002
Notes R"000 R"000 R"000
Share capital and
premium 1 043 101 1 018 347 1 031 145
Balance at beginning
of period 5 1 018 347 965 283 965 283
Arising from share
issue 28 571 124 298 124 298
Share issue expenses
written off (71) (311) (311)
Holding company shares
acquired by group
companies (3 746) (70 923) (58 125)
Non-distributable
reserve 600 600 600
Retained earnings 827 758 643 922 318 542
Restated balance at
beginning of
period 785 316 301 158 301 158
Balance at beginning
of period
as previously reported 643 922
Adjustment for change
in
accounting policy:
Accounting for fair
value of
embedded derivative
in terms
of AC133 142 302
Deferred taxation
theron (908)
Net income for the
period 203 653 495 473 159 237
Share of
pre-acquisition
profits
of subsidiary
previously held as
investment 6 (6 695) (6 144)
Dividends declared (161 211) (146 014) (135 709)
6 1 871 459 1 662 869 1 350 287
5.Reconciliation of opening share capital and premium at 30 September 2002 as
previously reported:
As previously reported 998 112
Less: holding company shares acquired by group companies allocated
directly to share capital and premium from treasury reserve (32 829)
965 283
6. Reconciliation of total shareholders" funds at 30
September 2002 as previously reported:
As previously reported 1 356 277
Less: reallocation (5 990)
Share of pre-acquisition profits of subsidiary (6 144)
Amortisation for the period 154
1 350 287
COMPOSITION OF SHAREHOLDERS" NET ASSET VALUE
As at
30 September
2003
R"000
Equity 636 833
Cash 383 293
Interest bearing 535 083
Property 69 388
Other 246 862
1 871 459
GROUP EMBEDDED VALUE
As at
30 September 30 March
2003 2003
R"000 R"000
Shareholders" net assets
total 1 871 459 1 662 869
plus: adjustment to group assets 99 612
less: Saambou Life intangible asset (14 984) (23 308)
Net value of in force life business 599 997 641 007
Gross value of in force life business 788 009 841 637
Less: opportunity cost of capital adequacy
requirements (188 012) (200 630)
Embedded value 2 456 472 2 380 180
Capital adequacy requirement 873 638 903 153
Capital adequacy cover (times) 2,4 2,0
Net asset value per share (Rand) 10,34 9,88
Embedded value of in force business
per share (Rand) 3,34 3,55
Embedded value per share (Rand) 13,69 13,43
VALUE OF NEW BUSINESS
As at
30 September 30 September
2003 2002
R"000 R"000
Gross value of new life insurance business 11 318 8 870
Less: opportunity cost of capital
adequacy requirements (1 989) (2 339)
Net value of new life insurance business 9 329 6 531
ANALYSIS OF GROWTH IN EMBEDDED VALUE
Six months Year
ended ended
30 September 31 March
2003 2003
R"000 R"000
Embedded value at end of period 2 456 472 2 380 180
Embedded value at start of period 2 380 180 2 094 495
Growth in embedded value 76 292 285 685
Less: changes in share capital 24 754 46 370
Saambou Life opening embedded value 124 310
AC133 adjustments to fair value 41 782
Plus: dividends declared or paid 161 211 146 014
Embedded value earnings 170 967 261 019
Analysed as:
Roll forward 88 801 136 956
Investment return on group net assets 48 710 31 371
Expected return on new business 40 091 105 585
Value of new business 9 329 38 557
Expected return on new business 583 2 412
Change in economic assumptions 12 172 9 065
Change in non-economic
assumptions and basis 32 338 31 497
Experience variations 27 744 42 532
Embedded value earnings 170 967 261 019
VALUATION BASIS: ECONOMIC ASSUMPTIONS
Six months Year
ended ended
30 September 31 March
2003 2003
R"000 R"000
Risk discount rate 12,10% 12,90%
Equity return (before capital gains tax) 11,60% 12,40%
Property return (before tax) 10,60% 11,40%
Fixed interest return (before tax) 9,60% 10,40%
Cash return (before tax) 7,60% 8,40%
Average investment return on Capital Alliance
Life business
(before tax) 10,25% 11,10%
Average investment return on Fedlife
business (before tax) 10,00% 11,10%
Expense inflation rate per annum 5,60% 6,40%
SUMMARISED SEGMENT INFORMATION
Unaudited for the six months ended
30 September 2003
Employee
benefits
Life and
insurance pensions Corporate Total
R"000 R"000 R"000 R"000
Income statement
extracts
Income from other
financial
services 22 220 22 220
Net premium income 702 438 96 884 799 322
Investment income,
net gain
on revaluation and
disposal
of investments 1 249 052 48 544 1 297 596
Net policyholder
benefits (1 220 401) (76 364) (1 296 765)
Commissions (51 975) (8 910) (60 885)
Administration
expenses (100 175) (10 053) (2 152) (112 380)
Amortisation of
intangible assets (8 324) (8 324)
Taxation (32 110) (32 110)
Transfer to
policyholder
liabilities
under insurance
contracts (364 598) (40 423) (405 021)
Income after taxation
attributable to
ordinary
shareholders 173 907 9 678 20 068 203 653
Adjustment for
amortisation
of intangible assets 8 324 8 324
Preference dividend (11 378) (11 378)
Headline earnings 170 853 9 678 20 068 200 599
Balance sheet
extracts
Assets
Non-current 17 269 109 249 022 591 055 18 109 186
Current 506 274 114 726 7 876 628 876
17 775 383 363 748 598 931 18 738 062
Liabilities
Non-current 15 897 150 74 295 231 389 16 202 834
Current 417 161 132 538 114 070 663 769
16 314 311 206 833 345 459 16 866 603
LIFE INSURANCE AND PENSIONS OPERATIONS
Unaudited for the six months ended
30 September 30 September 30 September
2003 2003 2002
R"000 R"000 R"000
Note Post AC133 Pre AC133 Pre AC133
Net premium income
Individual life
Single premiums 124 722 124 722 22 294
Recurring premiums 671 079 689 006 783 853
Gross individual life premiums 795 801 813 728 806 147
Reinsurance premiums (77 369) (77 369) (29 673)
718 432 736 359 776 474
Group benefits
Lump sums 5 659 6 383 5 392
Other premiums 151 939 151 939 149 017
Funeral single premiums 2 519 2 519 1 100
Gross group benefits premiums 160 117 160 841 155 509
Reinsurance premiums (63 233) (63 233) (59 087)
96 884 97 608 96 422
Credit life
Single premiums 24 586 24 586 25 703
Reinsurance premiums (1 589) (1 589) (916)
22 997 22 997 24 787
Net premium income normal 838 313 856 964 897 683
Reinsurance arrangements
IEB annuities and pensions 2 711 380
Saambou Life 183 440
IEB individual life (38 991) (38 991) (42 475)
Net premium income
reinsurance arrangements (38 991) (38 991) 2 852 345
Investment income, gains/
(losses) on revaluation and
disposal of investments
Insurance contracts
Investment income 577 374 626 834 555 793
Realised net gain on disposal
of investments 152 536 151 186 135 862
Unrealised gain/(loss) on
revaluation of investments 681 179 734 132 (378 170)
Foreign exchange translation
loss (97 156) (111 099)
Investment administration fees (21 472) (23 387) (15 735)
1 292 461 1 377 666 297 750
Investment contracts
Investment income 49 460
Realised net loss on disposal
of investments (1 350)
Unrealised net gain on
revaluation of investments 52 953
Foreign exchange translation
loss (13 943)
Investment administration fees (1 915)
Fair value adjustment relating
to
investment contracts (85 205)
Net policyholder benefits and
claims
Individual life 1 209 901 1 339 314 2 405 266
Death and disability benefits 192 786 193 023 216 061
Maturities 441 498 457 176 1 202 267
Annuities 292 297 381 090 362 642
Surrenders 360 635 385 340 698 591
Gross individual life claims 7 1 287 216 1 416 629 2 479 561
Reinsurance claims (77 315) (77 315) (74 295)
Group benefits 76 364 81 081 68 558
Death and disability benefits 129 867 129 867 101 837
Maturities 1 659 1 780 1 253
Member withdrawals 2 650 6 386 5 311
Scheme terminations and
investment withdrawals 1 491 2 351 4 869
Group funeral death and
disability benefits 3 173 3 173 2 950
Gross group benefits claims 138 840 143 557 116 220
Reinsurance claims (62 476) (62 476) (47 662)
Credit life 10 500 10 500 25 201
Death and disability benefits 11 282 11 282 27 009
Reinsurance claims (782) (782) (1 808)
1 296 765 1 430 895 2 499 025
Note:
7. Policyholder benefits are stated gross of policy loans. In order to arrive at
an estimate of net cash outflow in respect of benefits paid, R276,7 million in
respect of policy loans must be deducted from the gross claims of R1 287,2
million.
NEW BUSINESS ANNUAL PREMIUM INCOME BY SOURC
For the six months ended
30 September 30 September
2003 2002
R"000 R"000
Individual life recurring premiums 48 857 73 801
Capital Alliance Life Commercial 12 526 8 880
Broker 456 5 878
Distribution partners continuing 35 875 51 663
Distribution partners discontinued 7 380
Group benefits recurring premiums 28 287 47 738
Group risk and funeral 28 287 39 213
Credit life 8 525
Total new recurring premiums 77 144 121 539
Single premiums
Individual life 123 277 22 293
Pensions investment 1 575
Credit life 2 954 4 887
Total single premiums 127 806 27 180
Summarised Group commentary
1. Accounting policies and methods
The accounting policies adopted by the group 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
(AC133), which became effective for financial years commencing on or after 1
July 2002. This interim report is in compliance with AC127: Interim Financial
Reporting.
In accordance with AC133, in respect of financial assets, policyholder and
shareholder assets have been designated as held at fair value and are thus re-
measured to fair value and all realised and unrealised profits and losses are
recognised in the income statement.
In accordance with AC133 and the guidance on the application of AC133 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 categorised between insurance contracts and investment
contracts. Insurance contracts continue to be valued in terms of the financial
soundness valuation basis while investment contracts are valued at fair value as
described in AC133 and the guidance. The liabilities under insurance and
investment contracts are disclosed separately on the balance sheet.
Liabilities under investment contracts have been reflected in the balance sheet
at fair value, with changes in fair value being accounted for in the income
statement. The premium income and benefit payments relating to investment
contracts have been excluded from the income statement and are accounted for
directly in the balance sheet under the build up of liabilities in respect of
these contracts.
The statement requires that this change in accounting policy be applied
prospectively and any adjustments necessary are made to the opening balance of
retained income
As the majority of the financial assets and liabilities of the group have always
been valued at fair value, the impact of the implementation of AC133 was limited
to the distinction between insurance and investment contracts and the inclusion
of a financial instrument, which is accounted for as an embedded derivative. The
effect of accounting for the embedded derivative with a fair value of R142
million at 1 April 2003 has in terms of AC133 been adjusted against opening
retained income. The income statement effect in the period ended 30 September
2003 is an unrealised loss of R29 million, being the fair value adjustment
arising due to rand strength. The group previously reflected the value of this
instrument as an adjustment to the embedded value.
2. Review of operations for the period
The financial results for the six months to 30 September 2003 include a full six
month contribution from the Investec Employee Benefits ("IEB") annuities
reinsurance agreement and a six-month contribution from Saambou Life Assurers
Limited ("Saambou Life"), whereas the comparatives have no contribution from the
IEB or Saambou Life business.
2.1 Focus
Per the group"s stated objectives presented to shareholders in June 2003, the
group has single-mindedly focused on achieving the following objectives:
* Enhancing service levels, retention of existing policyholders and the Value of
In Force ("VIF").
* Reinforce business development activities.
* Investigate life insurance administration opportunities locally and
internationally.
* Conclude further integration transactions if available on acceptable terms for
shareholders.
In addition the group has further implemented initiatives to ensure that it
remains a leader in Black Economic Empowerment ("BEE") in the life insurance
industry.
2.2 Outcomes
The directors report the following outcomes with respect to the above
activities:
* Further expense reductions were achieved, leading to positive expense
experience variances. The existing Service Level Agreements, which were
considered industry leading, were strengthened to be more demanding, leading to
even better service delivery to policyholders and intermediaries.
* The additional maturity extension products launched in the period had an
excellent take-up. These products offer a compelling value proposition for
policyholders to extend matured policies. In addition the method of accounting
for matured policies has changed in order to more accurately reflect the
administration process, where maturities are only expensed when benefits are
paid to policyholders or when the policy is extended. In all other cases matured
policies are retained in the life fund until claimed.
* Policyholder retention has also been assisted by improving investment returns
and service levels, which have led to a substantial decline in surrenders during
the period, when compared to the prior period.
* Investment performance in most portfolios was in line with benchmark and
substantially ahead of the prior period. Both local bonds and local equities,
particularly small and mid cap counters, performed well. The absolute return
portfolios had an excellent run. Cash returns were affected by the large
reductions in interest rates and returns on international assets, although
acceptable in foreign currency terms, were adversely affected by rand strength.
Nevertheless returns to policyholders were maintained at competitive levels. The
operating income for the period was adversely affected by a R65 million
unrealised loss incurred in the annuity portfolio. This loss arose from the
reduction in long bond yields and the fact that there are no assets available to
exactly match the long dated liabilities.
* As previously discussed, shareholder investment returns were adversely
affected by the inclusion of unrealised losses on a financial instrument in
terms of AC133. These unrealised losses affected the headline earnings for the
period. On a pre AC133 basis, headline earnings would have been R230 million,
and headline earnings per share would have increased by 56% over the comparative
period. It must also be noted that the group"s tax charge increased
substantially for the period ended 30 September 2003 compared to the comparative
period.
* The embedded value as at 30 September 2003 increased by R34 million over the
embedded value at 31 March 2003 after adjustment for the financial instrument
accounted for in terms of AC133. This increase was, after payment of the
dividend of 84 cents per share.
* Embedded value of new business increased substantially when compared to the
comparative period to 30 September 2002, but fell short of our planned levels.
Capital Alliance Life Commercial continued to increase productivity per agent
and production overall, but distribution partner business disappointed in the
period. All distribution channels managed to maintain first year persistency in
excess of 75%. The group is proud to have been appointed as the funeral scheme
underwriter for the Discovery Key Health initiative and expects that this
distribution partnership will result in increased new business from the
implementation date of 1 January 2004. The group risk and credit life business
units had a quiet first half, being behind their new business production budgets
at 30 September 2003. The nature of these businesses is cyclical and subsequent
to 30 September 2003 these business units secured enough new business to be
ahead of budget for the year to date. The group is confident that these business
units will meet their production budgets for the full year.
* The group was nominated as one of six finalists in the "Ethics and Integrity"
category of the Deloitte and Touche Corporate Governance Awards.
* The group continued with implementing various BEE initiatives, aligned around
the five pillars of equity shareholding, employment equity, staff development
and training, procurement and corporate social responsibility. The group
welcomes the Financial Services Charter and is committed to ensuring that it
remains a BEE leader in the life insurance sector.
* The group continues to investigate a number of local transactions.
* In October the group announced the acquisition of 100% of the shares and
claims in Lumley Life Limited ("Lumley Life") in Australia, effective from 1
July 2003, by its Australian subsidiary, Capital Alliance Holdings Australia
(Proprietary) Limited ("CAHA"). The group previously held only 39% of CAHA and
hence did not consolidate the results of CAHA. Post the implementation of the
Lumley Life transaction and a concurrent rights issue by CAHA, the group will
increase its effective holding in CAHA to 68% and will consequently consolidate
the results of CAHA from the date of regulatory approval. Certain regulatory
approvals for the Lumley Life acquisition had been received as at the date of
this report and the balance of the required approvals are expected shortly,
whereupon the transaction will be concluded. The integration of the Lumley Life
policy book into Prefsure Life Limited ("Prefsure Life") has been planned and
will be completed by 30 June 2004. This integration will lead to substantial
cost savings and an enhancement in the VIF of the Australian operations.
The directors believe that the group has again demonstrated its commitment to
the enhancement of shareholder value in all of its activities in the period.
3. Dividends
Declaration of dividends is considered at the year-end.
4. Prospects
The result achieved in the first half of the year is considered highly
satisfactory and the group is determined to build on this result in the second
half of the year. The result achieved for the year ended 31 March 2003 was
exceptional and the group will focus on real growth in operating earnings and
dividends in future. The strong rand has had a severely detrimental impact on
the competitiveness of local manufacturers, which in turn has affected
commercial sector employment. Although the group has experienced good investment
performance in October and November, local investment markets may also be
detrimentally affected by further rand strength, which would have an adverse
impact on the group"s investment returns over the balance of the year.
The earnings in the period were adversely affected by the introduction of AC133
due to unrealised losses arising from currency movements, and this could
continue in the second half of the year should the rand continue to strengthen.
The group is committed to achieving further reductions in real administration
costs (albeit at a lower level), enhancements in service levels and an increase
in maturity proceeds retained, which will have a positive impact on earnings and
embedded value. It is anticipated that the embedded value of new business will
be higher in the second half. The group expects that many of the activities
relating to the merger of Lumley Life into Prefsure Life will be completed by 31
March 2004, although the financial benefits will only be realised in the
following year. The group"s local and offshore administration initiatives are in
progress and will receive additional focus in the last quarter of the financial
year.
For and on behalf of the board of directors of Capital Alliance Holdings
Limited
L M Nestadt (Chairman)
I M Kirk (Chief Executive Officer)
5 December 2003
Johannesburg
Directors: L M Nestadt (Chairman) M P Malungani (Deputy Chairman) I M Kirk
(Chief Executive Officer) (Irish) 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 Limited
70 Marshall Street Johannesburg 2001 PO Box 1053 Johannesburg 2000
Registration number: 1952/000756/06
Share code: CPT ISIN: ZAE000011904
To receive information electronically register on IPROXY
www.capitalalliance.co.za
Date: 05/12/2003 09:30:21 AM
Produced by the JSE SENS Department
