| Wed 17 Mar 2004, 16:42 | | Preliminary Report For The Year Ended 31 December |
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Sage Group Limited - Preliminary Report For The Year Ended 31 December
2003
Sage Group Limited
(Incorporated in the Republic of South Africa)
(Registration number 1970/010541/06)
Share code: SGG ISIN: ZAE 000006623
Preliminary Report for the year ended 31 December 2003
Salient Features
* Total earnings of R74,6 million (R239,5 million loss - 9 months to
31/12/02)
* Headline earnings per share of 23,5 cents (32,0 cents loss - 9 months
to 31/12/02)
* Total life new business premiums of R329,3 million APE (R436,1 million
- 12 months to 31/12/02)
* Sage Unit Trust external sales of R755,4 million (R1 438,7 million - 12
months to 31/12/02)
* Strong recovery in second half in individual division new business (up
18.7% on first half) and unit trust sales (up 31% on first half)
* Improved investment returns; Total assets under management of R10 566,5
million (R9 975,3 million at 31/12/02)
* Strengthened balance sheet - debt reduced to R500,4 million (R757,2
million at 31/12/02); CAR multiple improved to 2,15 times (1,53 times at
31/12/02)
* Significant restructuring of operations including management
rationalisation and consolidation of administrative platforms
* Group strategic review completed with clear focus going forward
Garth Griffin, Group Chief Executive, commented:
"During 2003 we focused on stabilising the business and carried out
restructuring and rationalisation to position the group for profitable
growth. Earnings have recovered and there has been a notable pick up in
business in the second half in our individual life and unit trust
operations. We have a strengthened balance sheet following the successful
capital raising last year, with a significant reduction in our debt and
have an agreed plan to further improve the capital structure of the
Group. At the operating level, significant progress was made on a number
of initiatives, including a broad-based brand revitalisation project, in
line with our newly agreed strategic direction."
Enquiries:
Sage Group Limited Tel: 011 377-5000
Garth Griffin, Group Chief Executive Tel: 011 377-5364
Nombini Mehlomakulu, Investor Relations Tel: 011 377-5821
College Hill Tel 011 447-3030
Nicholas Williams Tel: 083 607-0761
Angela Parr Tel: 083 578-3885
SAGE GROUP LIMITED
PRELIMINARY REPORT FOR THE YEAR ENDED 31 DECEMBER 2003
Introduction
Despite a difficult year for the life insurance and unit trust industries
and the specific challenges faced by the Group relating to the closure
and subsequent disposal of its international operations, Group earnings
recovered sharply from the loss experienced in 2002. Together with the
capital raising exercise in June 2003, this allowed the Group to
stabilise the South African business and to strengthen its overall
financial position.
Signs of a turnaround are evident in improving operating results in the
second half of the year compared to the first half. Individual new
business improved by over 18% and the surrender and lapse experience also
improved towards the end of the year. These are currently running below
the levels of last year. The decline in the company"s agency sales force
was arrested, while improved investment markets and management action
combined to lift Sage Life"s Capital Adequacy ratio from 1,53 at the end
of 2002 to 2,15 at December 2003.
The past year was, however, a very difficult period for the Group. The
difficulties with the international operations gave rise to concerns
about the future direction of the Group, and new business sales volumes
declined by over 24%. The challenges experienced by other industry
players are scant consolation. Surrenders and lapses increased
materially, leading, overall, to a small decline in the life business in-
force book. The result was a large overrun on the expense account for
2003.
Fortunately, the investment performance for the year was a compensating
factor, and, together with improved operating margins from other areas,
helped offset much of the impact of lower new business and higher
terminations.
Group Earnings: Summary
Group attributable earnings for the year amounted to R74,6 million, a
significant improvement on the loss of R239,5 million reported for the
nine months to December 2002.
The attributable earnings contribution to the Group by the operating
subsidiaries, including Sage Life amounted to R131,1 million, compared to
R124,3 million in the nine months to December 2002. After providing for
the cost of other activities of R16,7 million (R28,4 million previous
nine months), financing costs, including all Equity Linked Notes ("ELN")
related items of R54,9 million, a reversal of R15,1 million in respect of
discontinued international operations and capital items of R13,4 million,
total Group headline earnings recovered to R61,2 million from a loss of
R48,0 million in the prior accounting period.
Total Group attributable earnings per share for 2003 amounted to 28,7
cents compared to the loss of 159,8 cents per share in the nine months to
December 2002. Headline earnings per share for the year amounted to 23,5
cents compared to a loss of 32,0 cents per share in the preceding nine
months.
Results of Operating Entities
New Business
Total South African life new business for the year showed a decline of
24,5% to R329,3 million compared to the previous twelve months in terms
of Annual Premium Equivalent (annualised recurring premiums and 10% of
single premiums). Total new business in the Individual division declined
by 25,6% to R259 million, with the second half showing an improvement of
18,7% over the first half. In the Employee Benefits division, new
business decreased by 20% year-on-year to R70,3 million. External sales
by Sage Unit Trusts totalled R755,4 million compared to R1 438,7 million
in the previous year, with the second half showing an improvement of 31%
over the first half.
The life new business margin declined in 2003 to 7,7%, down from 15,7% in
2003. This reduction was due to a reallocation of margin from future
profits to sales expenses to better align allowances with actual
expenses, and a change in business mix away from the more profitable
single premium contracts.
Expense Management
Expenses of management increased by 6,9% year-on-year to R372,8 million.
This includes some R22 million of non-recurrent costs, related to
restructuring and capital raising activities. Total administration staff
declined from 708 to 629 over the year, an 11% reduction. Sales
remuneration expenses declined by 24.1% in line with the lower new
business volumes.
Terminations
Events affecting the Group impacted on policy surrenders which rose over
the year. As at June, the number of surrendered policies was 15% higher
than in the previous year, but by December this had reduced to 4,7%.
Lapses, however, were broadly within the actuarial assumptions.
As a result of the reduction in new business and the increase in overall
terminations, the Individual in force book declined in terms of number of
policies by 4,9%, but in force premiums showed a smaller decrease of 1%
to R1 018,0 million. The direct financial consequence was a significant
valuation loss on the expense account and on terminations for the year.
Claims and Other Policy Movements
Sage Life"s underwriting results contributed positively to results in
terms of both mortality and morbidity, as did the net result of other
policy movements, including automatic premium updates where we continue
to experience high levels of uptake.
Investment Performance
Client investment returns for the year were generally satisfactory,
buoyed by both the general rise in market levels and the good relative
performance by Sage funds. The money weighted average return on domestic
individual life funds was 19,8% (3% in 2002), while that of Employee
Benefit linked portfolios was 19,3% (-3% in 2002). For the three years
to 31 December 2003, the three major Employee Benefit product portfolios
showed excellent results, outperforming their `inflation-plus" benchmarks
and their peer group. Sage Unit Trusts also generally performed well,
but for the twelve months to 31 December, the flagship Sage Fund lagged
its peer group due to its structural and deliberate exposure to foreign
equities. Of the balance of the unit trusts, four were in the top
quartile of their peer groups for the 12 months; this position has
improved further into 2004. We remain confident that our investment
process is capable of consistently adding value for our clients.
The good investment performance had a positive impact on overall results.
Both policyholder and shareholder"s funds benefited directly from the
positive performance of the ABSA holding, although the overall exposure
to ABSA continues to be reduced as part of a prudent diversification
strategy.
Net flows
Net client flows for the year turned negative, an unsurprising result
given the general uncertainty surrounding the Group. Life net flows were
R12,7m negative over the 12 months, down from a positive net flow of
R225m for the previous 9 month period. Unit trust third party net flows
were R124,5 million negative, down from R115,7 million negative over the
previous period. Management is confident that this can be reversed.
Sage Life Policyholder Fund Earnings
Earnings from the Sage Life policyholder fund declined to a R19,3 million
deficit, from R128,3 million in the previous period. This is attributable
to the very difficult trading conditions impacting new business and
voluntary policy terminations as described above. Positive influences
were underwriting profits, investment performance and the margins from
other policy movements.
Sage Life Shareholder Fund Earnings
Net Group attributable earnings arising from the Sage Life shareholder"s
fund, excluding the earnings from operating subsidiaries, amounted to
R117,3 million (R15,9 million loss in the previous nine months). A major
portion of this return was due to the strong performance of the ABSA
holdings in the shareholder"s fund. Some of these holdings were hedged
during the course of 2003, and this reduced the impact of the ABSA
performance over the period by some R22 million.
In terms of the accounting policies as applied to Sage Life, the unit
trust business is carried at fair value, and valuation adjustments are
reflected in the Sage Life shareholder income statement. This value was
adjusted downwards by some R70 million over the year, to reflect changed
conditions in the unit trust industry, and now stands at R90 million.
Sage Life therefore reflects shareholder fund earnings of only R49,5
million.
Other Operating Subsidiary Results
In aggregate, other operating subsidiaries showed substantially improved
after tax profits of R33,1 million compared to R11,9 million in the
previous nine months. These subsidiaries distributed R26,6 million
(previous nine months R11,9 million) to Sage Life by way of dividends.
This was sourced predominantly from Sage Unit Trusts (earnings up from
R10,5 million to R25,0 million) and Sage Specialised Insurances (up from
R1,4 million to R8,1 million).
Sage Life Capital Adequacy
The inherent resilience of Sage Life"s financial soundness was
demonstrated by the improvement in its published capital adequacy ratio,
notwithstanding the difficult year, to 2,15 from 1,53 at December 2002.
This reflects the impact of positive investment markets as well as
successful management action in realigning investment portfolios and in
improving asset and liability matching.
Other activities
Costs attributable to other activities, comprising net Group expenses and
taxation, totalled R16,7 million against R28,4 million in the previous
period.
Group Financing Activities
Total Group financing costs in 2003 were R54,9 million compared to a net
gain of R125,0 million in the previous nine months. The major components
were :
Interest paid of R34,4 million to ELN noteholders (compared to R34,8
million in the previous period).
A negative adjustment of R46,9 million in respect of the ELN"s which were
revalued to fair value in terms of accounting standard AC133. This
resulted in an increased liability and a corresponding charge to the
income statement.
A net foreign exchange translation gain of R36,1 million (R181,5 million
previous nine months), being the benefit from the strengthening of the
Rand on the ELN liability (R116,2 million) offset by the cost (R80,1
million) of the hedge put in place during 2003 to cover the outstanding
ELN"s.
Other funding costs in respect of domestic borrowings totalling R23
million (R21,7 million previous nine months).
These costs were reduced by the profit of R13,3 million on the repurchase
of $16,7 million of the ELN"s which now have $48,3 million outstanding.
Debt at Group level at the year end had declined to R500,4 million from
R757,2 million at December 2002.
Discontinued international operations
We were also able to reverse some of the special provision made last year
for residual expenses connected to the international operations,
resulting in a credit of some R15 million. This was reversed out in
arriving at headline earnings.
Embedded Value Result
Over the year, Sage Life"s embedded value grew from R1 331,8 million to
R1 341,9 million, a modest increase of 1,8%. While the net asset value
increased from R671,7 million to R726,7 million, the value of the in-
force business declined from R660,1 million to R639,1 million due, in the
main, to the impact of the expense overrun and the higher level of
individual terminations. In addition, provision was made for ongoing
Sage Life shareholder fund expenses in the embedded value calculation,
introducing a further deduction of R23,9 million.
Group embedded value, arrived at by deducting the Group level debt from
the Sage Life embedded value and adjusting further for Group expenses not
allowed for in the Sage Life embedded value, stood at R804,4 million at
31 December 2003, or 222 cents per share. This compares with the 370
cents per share at 31 December 2002. The decline is largely attributable
to the dilutory effect of the new shares issued during the year, and the
further reduction in the fair value of the unit trust operation.
Dividends
No dividends were declared in respect of the financial year under review,
as part of the process of strengthening the Group"s financial position.
Key Group issues
Significant progress was made during the year in addressing each of the
key areas identified for specific action :
Group Balance Sheet
The specific issue and rights offer in June 2003 raised a net R332,1
million in new capital which was deployed in the main in restructuring
the funding of the Group and debt at Group level was reduced to R500,4
million from R757,2 million at December 2002.
International Operations
As previously reported, both the Bermuda and US operations of the Group
were sold during the year. There are no residual exposures, as reflected
in the recovery of excess provisions referred to elsewhere in this
report.
South African Operations
Internally, much was done to stabilise and then restructure the business
over the year. Senior management was rationalised and restructured, the
individual Broker, Agency and Unit Trust sales operations were combined,
the company"s distribution infrastructure was substantially preserved and
a major brand revitalisation project initiated. We continued with the
consolidation of retail administrative operations and the continuing
upgrade of the company"s technology platforms, and significant benefits
are expected to emerge during 2004. Internal communication was a major
focus during the year.
The results reflect the difficulties we experienced, but we have much to
be grateful for, not least of all the commitment of our people and the
ongoing support of intermediaries who continue to believe in the future
of Sage.
Prospects
Specific areas of focus for the current year include the restoration of
new business production levels, a continued strong focus on expense
management and the reduction of unit cost levels, the further development
of our distribution capability, the relaunch of the "Sage" brand into our
specific market segments and the ongoing development of leadership
talent. Each of these areas is being actively pursued and should reflect
in the Group"s activities during the course of 2004, establishing a base
for profitable and sustainable development into the future.
The outlook for 2004 remains challenging. We believe that we can improve
on the results at operating company level, but are less able to manage
the impact of investment returns on our overall results. However, given
the prospects for local capital markets for the year, and a measure of
stability, we believe that shareholders can look forward to further
improvements in earnings as the business continues to build momentum.
Audit opinion
The joint auditors, Grant Thornton and KPMG Inc., have issued their
opinion on the Group"s financial statements for the year ended 31
December 2003. A copy of their unqualified report is available for
inspection at the company"s registered office.
Preparation of preliminary report
The preliminary report has been prepared in accordance with South African
Statements of Generally Accepted Accounting Practice on a basis
consistent with the prior audited nine-month period, except for the
change in accounting policies set out in note 15.
Withdrawal of cautionary announcement
Shareholders are advised that the cautionary announcement relating to the
trading update issued on 28 January 2004, has now been lifted.
2003 Annual report and annual financial statements
The Group"s 2003 annual report will be posted to shareholders on 31 March
2004. The annual financial statements of Sage Group Ltd and Sage Life
Ltd will be available on the Group"s website by Friday 19 March 2004.
D C Cronje G Griffin
Chairman Group Chief Executive
17 March 2004
Directors Dr DC Cronje (Chairman) G Griffin# (Group Chief Executive) Dr
MP Adonisi JP Davies# Dr BM Ilsley L Kaplan# BA Myerson* JA Treger* HL
Shill AF van Biljon
CL van Wyk Adv T van Wyk FJ Visser Secretary: CS Cant*
(*British) (# Executive)
Registered office: 11th Floor Sage Centre 10 Fraser Street Johannesburg
2001 PO Box 7755 Johannesburg 2000 Registration number 1970/010541/06
Share code SGG ISIN ZAE 000006623
Transfer secretaries: Computershare Investor Services Limited 2nd Floor
Edura House 41 Fox Street Johannesburg 2001 P O Box 61051 Marshalltown
2107
Sponsor: Grant Thornton Corporate Finance (Proprietary) Limited 137 Daisy
Street corner Grayston Drive Sandown 2196 Private Bag X28 Benmore 2010
www.sage.co.za
SAGE GROUP LIMITED
Salient features
12 months 9 months
31 December 2003 31 December 2002
Rmillions Audited Audited
Total earnings/(loss) Rm 74.6 (239.5)
Total earnings/(loss)
per share cents 28.7 (159.8)
Headline earnings/(loss) Rm 61.2 (48.0)
Headline earnings/(loss)
per share (1) cents 23.5 (32.0)
Average number of
shares in issue million 260.0 149.8
(excluding treasury shares)
Sage Life embedded value Rm 1,341.9 1,331.7
Group embedded value Rm 804.4 573.9
Group embedded value
per share cents 222 370
Total number of shares
in issue million 362.3 155.0
(excluding treasury shares)
Financing activities
at Group level (2) Rm (54.9) 125.0
Debt at Group level Rm 500.4 757.2
SA activities
- Total assets under
management Rm 10,566.5 9,975.4
- New business volumes (3) Rm 1,338.7 1,823.5
- Life new business APE (4)Rm 329.3 336.2
- Life new business
embedded value Rm 16.7 40.3
- Net fund flows Rm -129.9 113.6
Financial ratios
Life new business embedded
value margin (5) % 7.7% 15.7%
CAR - Sage Life times 2.15 1.53
Interest cover (6) times 3.2 (2.1)
1. Total earnings for the year ended 31 December 2003 include the impact
of AC133
2. Financing costs at Group level include the fair value adjustment in
terms of AC133 and foreign exchange adjustments relating to the ELNs.
3. New business volumes: total life new business plus external unit
trust sales.
4. APE: Annual premium equivalent and is equal to new recurring premiums
(including automatic increase premiums) plus 10% of single premiums.
5. Life new business embedded value margin: calculated using APE
excluding automatic increase premiums.
6. Interest cover: total earnings before tax and finance costs at Sage
Group level, divided by financing costs (excluding fair value and foreign
exchange adjustments) at Sage Group level.
SAGE GROUP LIMITED
GROUP BALANCE SHEET
31 December 2003 31 December 2002
Audited Audited
Rmillions
Note
ASSETS 7,511.4 10,023.0
Non-current assets 19.1 22.5
- Tangible assets 65.2 69.9
- Intangible assets 15.4 27.4
Financial assets
Investments of
the life insurance
subsidiaries 7,411.7 9,903.2
652.5 663.6
Current assets 8,163.9 10,686.6
Total assets
EQUITY AND LIABILITIES
Total shareholders" interest 123.9 (156.6)
Ordinary
shareholders" interest 1 123.9 (249.1)
- Outside shareholders" interest - 92.5
Non-current liabilities 379.2 558.3
- Equity linked notes 2 360.3 558.3
Other 18.9 -
Policyholder liabilities 7,119.7 9,506.9
- Insurance contract liabilities 4,262.8 9,485.9
Investment contract
liabilities 2,823.0 -
- Deferred taxation 33.9 21.0
Current liabilities 541.1 778.1
- Short-term borrowings 3 55.1 198.9
- Derivative liabilities 4 102.9 -
- Other 383.1 579.1
Total equity and liabilities 8,163.9 10,686.6
SAGE GROUP LIMITED
SUMMARISED GROUP INCOME STATEMENT
12 months 9 months
31 31 December
December 2002
2003
Rmillions Note Audited Audited
Sage Life operating (19.3) 128.3
(deficit)/surplus
Net earnings/(loss)
attributable to Sage Life
shareholder"s fund 8 117.3 (15.9)
Other operating income 9 33.1 11.9
Attributable earnings/(loss) 131.1 124.3
from operations, after taxation
Other activities 10 (16.7) (36.5)
Financing activities 11 (54.9) 125.0
Discontinued international operations 12 15.1 (452.2)
Total attributable earnings/(loss) 74.6 (239.5)
Reconciliation of attributable
earnings/(loss) to
headline earnings/(loss):
Total attributable earnings/(loss) 74.6 (239.5)
Capital items 13 (13.4) 191.5
Headline earnings/(loss) 61.2 (48.0)
Weighted average number of 260 150
ordinary shares (millions)*
Total number of shares in 362 155
issue (millions)*
(* excluding 4.8m treasury shares)
Headline earnings/(loss) per 23.5 (32.0)
ordinary share (cents)
Total attributable earnings/ 28.7 (159.8)
(loss) per ordinary share (cents)
SAGE GROUP LIMITED
STATEMENT OF CHANGES IN EQUITY
12 months 9 months
31 December 31 December
2003 2002
Rmillions Audited Audited
Balance at beginning of year (249.2) 5.3
AC133 transitional adjustment to opening
accumulated deficit (23.2) -
Consolidation of the share incentive schemes (10.4) (1.4)
Earnings/(loss) attributable to shareholders 74.6 (239.5)
Dividends paid - (24.3)
Ordinary shares issued during the year 350.0 10.9
Share issue expenses (17.9) (0.2)
Balance at end of year 123.9 (249.2)
SAGE GROUP LIMITED
SUMMARISED CASH FLOW STATEMENT
12 months 9 months
31 December 2003 31 December 2002
Rmillions Audited Audited
Cash outflows from operating activities (48.0) (127.5)
Cash inflow from investing activities 80.6 34.6
Cash (outflow)/inflow from (21.9) 22.0
financing activities
Net Increase/(decrease) in cash and 10.7 (70.9)
cash equivalents
Cash and cash equivalents at 311.0 381.9
beginning of year
Cash and cash equivalents at end of year 321.7 311.0
Shareholders (within subsidiaries) 61.7 102.8
Policyholders 260.0 208.2
321.7 311.0
SAGE GROUP LIMITED
SEGMENTAL ANALYSIS
12 months 9 months
31 December 2003 31 December 2002
Rmillions Audited Audited
ASSETS
Life insurance SA 8,008.2 7,483.2
Unit trusts 25.4 30.9
Other 130.3 61.6
Discontinued - 3,110.9
international
8,163.9 10,686.6
LIABILITIES
Life insurance SA 7,484.5 6,982.9
Unit trusts 16.2 12.3
Other 539.3 829.7
Discontinued - 3,018.4
international
8,040.0 10,843.3
HEADLINE EARNINGS
Life insurance SA 83.5 111.2
Unit trusts 25.3 10.6
Other (47.6) (46.6)
Discontinued - (123.2)
international
61.2 (48.0)
TOTAL SA FUND INFLOWS
Life insurance SA 1,418.7 1,188.7
Unit trusts 472.6 916.3
Other 8.1 10.8
1,899.4 2,115.8
TOTAL SA FUND OUTFLOWS
Life insurance SA (1,431.4) (963.7)
Unit trusts (597.1) (1,032.0)
Other (0.8) (6.5)
(2,029.3) (2,002.2)
NET SA FUND FLOWS
Life insurance SA (12.7) 225.0
Unit trusts (124.5) (115.7)
Other 7.3 4.3
(129.9) 113.6
SAGE LIFE LIMITED
NEW BUSINESS
12 months 9 months
31 December 2003 31 December 2002
Rmillions Audited Audited
Life insurance premiums
(gross)
Individual 457.7 768.9
Annualised recurring 237.4 234.4
Single 220.3 534.5
Local 215.8 288.1
Bermuda branch 4.5 246.4
Employee benefits 125.6 138.3
Annualised recurring 64.1 65.7
Single 61.5 72.6
Total life new business 583.3 907.2
Unit trust sales
External 755.4 916.3
Internal 3,128.2 1,438.8
3,883.6 2,355.1
SAGE LIFE LIMITED
SHAREHOLDER"S FUND ANALYSIS
31 December 2003 31 December 2002
Rmillions Audited Audited
Listed investments - ABSA 440.7 434.6
Other investments
- Unlisted subsidiaries 104.0 161.8
Net asset value 21.5 (1.2)
Revaluation adjustments 82.5 163.0
- Properties 81.0 97.7
- Other interest bearing 82.2 7.8
investments
Current and other assets 42.8 -
Taxation and amount due to (24.0) (30.2)
policyholders
726.7 671.7
SAGE LIFE LIMITED
EMBEDDED VALUE
12 months 9 months
31 December 31 December
2003 2002
Rmillions Audited
Audited
Shareholder"s fund 726.7 671.7
Net value of life insurance business in force 639.1 660.1
- Value of life insurance business in force 660.0 684.3
- Cost of capital (20.9) (24.2)
Value of future corporate expenses (23.9) -
Embedded value 1,341.9 1,331.8
Embedded value earnings
Embedded value at end of period 1,341.9 1,331.8
Embedded value at beginning of period 1,331.8 2,528.0
10.1 (1,196.2)
Dividends declared - 55.0
Increase in capital - 0.0
Embedded value earnings 10.1 (1,141.2)
Components of embedded value earnings
New business 16.7 40.3
Earnings from existing business (108.7) (77.0)
- Expected return 89.3 91.1
- Operating experience variations (90.6) (32.6)
- Operating assumption changes (107.4) (135.5)
Investment return on shareholder"s fund 74.3 (1,185.5)
- Income 52.2 29.1
- Capital gains 41.7 (152.6)
- International operations - (1,028.9)
- Taxation and expenses (19.6) (33.1)
Value of future corporate expenses (23.9)
Change in shareholders" rate 51.7 81.0
Embedded value earnings 10.1 (1,141.2)
APE for embedded value purposes 329 336
Embedded value of new business as a
percentage of APE (new business / APE) 7.7% 15.7%
Principal actuarial assumptions % %
Risk discount rate 11.50 12.75
Pre-tax investment returns
- Equities and offshore investments 11.50 12.75
- Properties 10.50 11.75
- Fixed interest securities 9.50 10.75
- Cash 7.50 8.75
Expense inflation 5.50 6.75
SAGE GROUP LIMITED
EMBEDDED VALUE
31 December 31 December
2003 2002
Rmillions
Group embedded value
Shareholders" funds 123.9 (249.1)
Value of future corporate expenses (41.1) -
Group (17.2) -
Sage Life
(23.9) -
Adjustment for revaluation of unlisted 82.5 163.0
subsidiaries
ACCOUNTING POLICIES AND PRESENTATION
The principal accounting policies of the Group are consistent in all
material respects, except as set out below, with those of the previous
year. These policies comply with all relevant South African Statements of
Generally Accepted Accounting Practice.
The Group financial statements are prepared on the going concern basis
using the historical cost basis, except for those items which are carried
at fair value in terms of the relevant Statements of Generally Accepted
Accounting Practice.
The Group has adopted the principles of AC 133 - Financial Instruments:
Recognition and Measurement, which became effective, for financial years
commencing on or after 1 July 2002 in respect of accounting for financial
instruments .
In accordance with AC133:
-"The principles of the statement are applied prospectively and
historical figures are not adjusted to the new basis of accounting,
rather the cumulative effect on prior years is dealt with as an opening
transitional adjustment to retained earnings.
-Contracts with policyholders are now classified as either investment or
insurance contracts.Insurance contracts are those contracts which carry
significant insurance risk. Where no signifcant insurance risk exists,
contracts are classified as investment contracts.
Insurance contracts continue to be accounted for in terms of actuarial
guidance note PGN104. Investment contracts, however now fall within the
scope of AC133 and are accounted for in terms of the statement. The
liabilities in respect of each are disclosed separately on the balance
sheet.
-Premiums, investment returns, benefit payments, sales remuneration and
taxation in in respect of investment contracts are not included in the
income statement of the Life operation, but are accounted for directly
against the investment contract liabilities.
A draft International Financial Reporting Standard (IFRS) on Insurance
Contracts (Phase I) (ED5) was issued for comment on 31 July 2003. This
standard is due to come into force for listed insurers in Europe and
Australia in 2005. The prior implementation of AC133 in South Africa
has, however, raised many uncertainties about aspects of the statement
relating to the insurance sector. An ongoing process is underway to
develop guidance for this sector, from both an accounting and an
actuarial perspective,
The share incentive scheme trusts have been consolidated for the first
time into the Group financial statements as the trusts are under the
effective control of the Group.
Unallocated shares held in the trusts are treated as treasury shares and
are deducted from the number of shares in issue in determining the issued
share capital and earnings per share.
NOTES TO THE GROUP FINANCIAL STATEMENTS
31 December 31 December
2003 2002
Rm Rm
1. RECONCILIATION BETWEEN SHAREHOLDERS"
FUNDS IN SAGE LIFE LIMITED AND SAGE GROUP
LIMITED
Shareholder"s fund - SAGE LIFE LIMITED 726.7 671.7
- Adjustment to fair values of Sage
Life subsidiaries (82.5) (163.0)
Shareholder"s fund of Sage Life
Limited at Net Asset Value 644.2 508.7
- International operations
(discontinued) - 27.2
- ELN"s (385.0) (558.3)
- Domestic interest bearing debt (40.4) (188.9)
Gross (115.4) (198.9)
Preference shares issued by Sage
Life subsidiary - 10.0
Inter company loan 75.0 -
- Goodwill 13.9 15.6
- Tangible and intangible assets 4.0 33.7
- Net working capital items (112.8) (87.2)
Shareholders" funds - SAGE GROUP LIMITED 123.9 (249.2)
2. NON-CURRENT LIABILITIES
Equity Linked Notes
$58.2 million (2002: $65m) 8%
unsecured Equity Linked Notes (ELN"s)
redeemable 31 July 2005, valued at
fair value . The foreign liability
has been fully hedged by means of a
forward exchange contract at a forward
rate of R8.01/$.
Opening balance 558.3 739.8
Effect of transitional adjustment on ELN 12.3 -
- Total transitional AC133 adjustment 23.2 -
- Capitalised ELN costs written off (10.9) -
Repurchases (116.3) -
Fair value adjustment 46.9 -
Foreign exchange translation adjustments (116.2) (181.5)
Closing balance 385.0 558.3
Less: Current portion of the liability
included in short-term borrowings (24.7) -
360.3 558.3
3. SHORT-TERM BORROWINGS
Interest-bearing borrowings: 30.4 198.9
Redeemable preference shares issued
by subsidiary - 91.0
Bank borrowings 24.4 101.9
Other borrowings 6.0 6.0
Current portion of Equity Linked
Note liability (Note 2) 24.7 -
55.1 198.9
Bank facilities totalling R56.6m,
of which R24.4m has been utilised,
are secured by means of a pledge of
22.7% of the ordinary shares
in Sage Life Limited.
4. DERIVATIVE LIABILITIES
Equity Linked Notes forward exchange
contract 80.1 -
Equity derivative hedge 22.8 -
102.9 -
5. DEBT AT SAGE GROUP LEVEL
Equity Linked Notes 385.0 558.3
Domestic interest bearing debt (Note 1) 115.4 198.9
500.4 757.2
6. TOTAL ASSETS UNDER MANAGEMENT
SA total assets 8,163.9 7,575.7
- Sage Life assets 8,215.9 7,654.7
- Revaluation adjustments (82.5) (163.0)
- Other "on balance sheet" assets 30.5 84.0
SA Unit Trusts assets -
"off balance sheet" 2,402.6 2,399.7
10,566.5 9,975.4
International (discontinued) - 3,110.9
Total assets under management 10,566.5 13,086.3
7. SAGE LIFE FINANCIAL RATIOS
Sage Life shareholder"s fund 726.7 671.7
Capital adequacy requirements (CAR) 338.2 438.1
CAR covered by Sage Life shareholder"s
fund (times) 2.15 1.53
Shareholder"s fund as a percentage of
- Policyholder liabilities % 10.2% 10.1%
- Non-market related liabilities % 22.9% 21.2%
8. NET EARNINGS/(LOSS) ATTRIBUTABLE TO SAGE LIFE
SHAREHOLDERS" FUND
Investment income 27.3 14.5
Realised and unrealised net surpluses
on financial assets 109.6 2.7
Loss on disposal of international
operations - (1,028.9)
Adjustments to fair value of
subsidiaries (67.8) (152.6)
Taxation (8.0) (30.2)
Other (11.6) (2.9)
49.5 (1,197.4)
Reversal of adjustments to fair
value of subsidiaries 67.8 1,181.5
117.3 (15.9)
9. OTHER OPERATING INCOME:
Earnings of unlisted subsidiaries
- Sage Unit Trusts 25.0 10.5
- Sage Specialised Insurances 8.1 1.4
33.1 11.9
10. OTHER ACTIVITIES:
Net group expenses (12.3) (0.5)
Provision against share scheme loans - (24.0)
Goodwill amortisation (1.7) (1.2)
Taxation (2.7) (2.7)
Earnings/(loss) attributable to other
activities (16.7) (28.4)
11. FINANCING ACTIVITIES:
Equity Linked Notes (31.9) 328.2
Interest (34.4) (34.8)
Fair value adjustment - (AC133) (46.9) -
Unrealised loss on forward exchange
contract (80.1) 181.5
Foreign exchange translation adjustments 116.2 181.5
Profit on repurchases 13.3 -
Other (23.0) (203.2)
(54.9) 125.0
The ELNs have been fair valued for the
first time in terms of AC133 and
were previously held at face value;
last year the income statement only
reflected ELN interest paid and the
attributable foreign exchange
translation adjustment.
12.DISCONTINUED INTERNATIONAL OPERATIONS
Operating deficit of international
operations - (182.6)
Foreign exchange translation adjustment - (79.3)
Impairment of assets - (110.1)
International minority interest - (8.2)
Provision for discontinuation costs 15.1 (80.2)
15.1 (460.4)
13. CAPI
