| Mon 7 Jun 2004, 9:44 | | AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2004 |
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AFRICAN LIFE ASSURANCE COMPANY LIMITED - AUDITED PRELIMINARY RESULTS FOR THE
YEAR ENDED 31 MARCH 2004
African Life Assurance Company Limited
(Registration number 1911/003818/06)
(`African Life` or `the Company`)
Share code: AFI ISIN: ZAE000000246
Audited preliminary results for the year ended 31 March 2004
Total embedded value R2,15 billion - up 6%
Embedded value of recurring new business R87 million - up 11%
Embedded value margin - recurring new business - 20%
Operating surplus R177,7 million - up 2%
Headline earnings per share 178,4 cents - down 11%
AC133 adopted
No impact on headline earnings, but income statement comparison to previous
period impacted)
Commentary
Business Environment
South Africa successfully emerged from its third democratic election with
economic stability and encouraging growth prospects underpinned by fiscal and
monetary discipline. The African continent enjoyed relative political stability,
which helped generate economic growth. Nonetheless, rand strength and currency
volatility was a key feature of our international operations during the year
under review.
The healthcare market continues to present great opportunity, but remains both
challenging and controversial with new, wide-ranging legislation. African Life
Health is well positioned to take a leadership role in its segment of this
market.
Black Economic Empowerment
Post year-end the Group announced an empowerment transaction where a broad-based
consortium consisting of a group of African Life`s strategic business partners,
led by Mvelaphanda, will acquire an effective 10% of the enlarged issued share
capital of the group, subject to shareholder approval. Black economic
empowerment (BEE) in its broadest sense has long been a core value of the Group
and this transaction helps fill the ownership gap created by the unbundling of
Real Africa Holdings` stake in 2000. This transaction is expected to further
improve an expected good position in terms of the requirements of the Financial
Sector Charter.
Results
In South Africa, a sharp drop in single premiums on the back of the low interest
rate environment and lacklustre recurring premium sales in the second half,
contributed to a 18% reduction in embedded value of new business to R113,1
million. Our international operations performed well, but results were
negatively impacted by rand strength and pula devaluation. Nevertheless,
operating surplus grew 2% to R177,7 million. Headline earnings decreased by 13%
to R191,1 million, impacted by a 22% decrease in investment income and certain
once-off modelling adjustments in South Africa and Botswana. Total embedded
value grew 6% to R2,147 billion, positively influenced by a supportive
investment environment and a reduction in the risk discount rate. The return on
total embedded value of 13,4 % was achieved.
A final dividend of 45,5 cents per share was declared.
South African Life Operations
Recurring premium business growth was stunted in the second half of the year by
the preparation of our tied and independent intermediaries ahead of the
introduction of FAIS and the launch of a competitor product. Notwithstanding,
recurring premium new business levels were maintained year-on-year. Single
premium new business declined by 70% to R191,1 million. Individual life
recurring premium income increased by 9% to R859 million benefiting from higher
average premiums and file size growth. The Group Risk division had an excellent
year in a difficult trading environment.
Important progress was made in key areas including a 16% increase, off an
already high base, in sales productivity, compliance with new legislation,
ongoing product refinements and innovations and improved premium collection
across all payment methods.
The recently announced BEE transaction, the finalisation of the agreement with
the South African National Taxi Council (SANTACO) and the renewal of the
contract with KBFA who administer insurance benefits to the Zion Christian
Church (ZCC) are all part of the division`s long term strategy.
International
International operations performed well in the review period, new business
recurring premium cases from all operations increased by 6% and file size grew
by 9% - both early indicators of future profitability.
Both the life and asset management operations in Botswana continued to make
impressive contributions to Group performance, despite the negative impact of
the pula devaluation. The senior team has benefited from the appointments of
prominent and seasoned business people, all citizens of Botswana.
Pan Africa (Kenya) enjoyed an excellent operational year and will make its
presence felt in the new financial year.
Our other African operations recorded satisfactory financial results.
Healthcare
African Life Health (ALH) experienced a watershed year, which has positioned the
business as a serious contender in its chosen slice of the healthcare market.
The acquisition of Amanzi introduced some 33000 additional principal members and
enhanced ALH`s product range and distribution channels. The division also
adopted a new technology platform, which has enabled ALH to successfully offer
third-party administration services to clients in South Africa and further
afield. ALH ended the year with over 54 000 principal members and is expected to
move to profitability in the current financial year.
Orfeo
The implementation of African Life`s new administration platform, Orfeo, is a
strategic focus of the Group and will offer economies of scale, additional
capacity and the benefits of mass customisation. In addition, with low, rand-
based costs, entering new territories with immediate processing capabilities is
relatively seamless, as the experience in Ghana and Zambia has proved.
In South Africa, the Orfeo platform has been installed in the new business
division of the life operations and the investment portfolio division, while
detailed testing is nearing completion for the remaining business units.
Prospects
We remain on track to fulfil our growth strategy. We expect the South African
life operations to resume its growth trend and the new life administration
platform will begin to show benefits. Our international expansion strategy
continues. African Life Health is well placed to make significant inroads in its
chosen market.
The Board is confident of sustainable long-term growth as we continue to add
value to our customers and generate returns for shareholders.
Directorate
In November 2003, Willem Roos was appointed to the board. As joint managing
director of OUTsurance, a member of the FirstRand group, he brings considerable
actuarial and creative risk management skills to the board and we look forward
to his input.
Audit opinion and independent review
The financial information has been audited by PricewaterhouseCoopers Inc. whose
unqualified audit opinion is available for inspection at the Group`s registered
address. The embedded value results have also been independently reviewed by
actuarial consultants, Tillinghast-Towers Perrin.
Dividend
A final dividend (number 31) of 45,5 cents per ordinary share has been declared
for the financial year ended 31 March 2004, bringing the total dividend for the
year to 84,5 cents per share (2003: 78 cents). The dividend is payable to
ordinary shareholders recorded in the books of the Company at the close of
business on 2 July 2004, the record date to participate in the dividend. The
last date to trade cum dividend will be Friday, 25 June 2004 and trading will
commence ex dividend from Monday, 28 June 2004. Payment will be made on Monday,
5 July 2004. Share certificates may not be dematerialised or rematerialised
between Monday, 28 June 2004 and Friday, 2 July 2004, both dates 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 7 June 2004
Group Income Statement
Audited Audited
Year to Year to
31 March 31 March
2004 2003
Notes Rm Rm
Premium income 1 1 917,1 5 611,9
Recurring 1 435,2 1 676,2
Single 481,9 3 935,7
Fee and other income 110,0 -
Investment return 824,1 (717,1)
Income from associated companies (0,1) 4,2
Total income 2 851,1 4 899,0
Goodwill amortised and impaired (20,4) (13,6)
Selling expenses (361,4) (382,3)
Operating expenses (358,1) (333,9)
Policyholder benefits (1 447,4) (1 775,7)
Change in actuarial value of
policyholder liabilities
under insurance contracts (326,6) (2 199,1)
Surplus before tax 337,2 194,4
Taxation (93,8) (101,0)
Surplus after tax 243,4 93,4
Attributable to minority shareholders (72,7) (36,6)
Surplus attributable to ordinary
shareholders 170,7 56,8
Operating surplus 177,7 173,6
Investment income on free assets 98,2 126,3
Taxation (84,8) (79,7)
Headline earnings 191,1 220,2
Goodwill amortised and impaired (20,4) (13,6)
Investment surpluses/(losses) on free
assets net of tax - (149,8)
170,7 56,8
Earnings per share (cents) 159,4 51,9
Fully diluted earnings per share (cents) 158,3 51,8
Headline earnings per share (cents) 178,4 201,3
Fully diluted headline earnings
per share (cents) 177,2 201,1
Weighted average number of
shares (000`s) 107 101 109 354
Notes:
1. Premium income 1 917,1 5 611,9
Recurring 1 435,2 1 676,2
Individual life 1 273,4 1 236,4
Group benefits 161,8 439,8
Single 481,9 3 935,7
Individual life 477,5 785,8
Group benefits 4,4 3 149,9
Group Balance Sheet
Audited Audited
As at As at
31 March 31 March
2004 2003
Rm Rm
ASSETS
Investments 13 109,3 11 907,9
Intangible assets 81,1 52,9
Fixed assets 116,3 114,9
Current assets 959,5 920,3
14 266,2 12 996,0
EQUITY AND LIABILITIES
Share capital and premium 437,0 488,2
Reserves 1 175,5 1 102,5
Excess of assets over liabilities 1 612,5 1 590,7
Minority shareholders` interest 393,5 360,3
Total shareholders` interest 2 006,0 1 951,0
Policyholder liabilities 11 754,3 10 496,3
Insurance contracts 4 420,3
Investment contracts 7 334,0
Deferred taxation 193,2 159,5
Long-term liabilities 25,5 -
Current liabilities 287,2 389,2
14 266,2 12 996,0
Abridged Cash Flow Statement
Audited Audited
Year Year
to to
31 March 31 March
2004 2003
Rm Rm
Cash flows from operating activities 1 370,3 3 207,8
Cash utilised in investing activities (1 041,3) (2 401,4)
Cash flows from financing activities (25,7) -
Net increase in cash resources 303,3 806,4
Cash resources at the beginning of the year 1 645,0 838,6
Cash resources at the end of the year 1 948,3 1 645,0
Segmental Analysis
Embedded value of New Business
(at valuation date)
South Africa International
business
31 March 31 March 31 March 31 March
Rm 2004 2003 2004 2003
Life Operations 65,0 87,2 30,5 28,1
- Recurring 62,5 56,1 24,8 22,0
- Single 1,2 25,3 4,8 3,8
- Other 1,3 5,8 0,9 2,3
Asset Management - - 17,6 22,5
Total 65,0 87,2 48,1 50,6
Embedded Value
Shareholders` Net value of
net assets in-force
business
31 March 31 March 31 March 31 March
Rm 2004 2003 2004 2003
South Africa 1 194,3 1 185,4 353,7 283,6
Botswana 390,2 386,8 169,7 138,4
Life Operations 297,6 281,5 89,8 100,7
Asset Management 92,6 105,3 79,9 37,7
Namibia 28,0 18,5 10,9 10,4
Total 1 612,5 1 590,7 534,3 432,4
Operating Surplus
South Africa International
business
31 March 31 March 31 March 31 March
Rm 2004 2003 2004 2003
Life Operations 110,2 114,1 45,9 37,3
Asset Management 21,6 22,2 21,6 22,2
Total 110,2 114,1 67,5 59,5
Statement of changes in the actuarial value of policyholder liabilities
Audited
Year to
31 March
2004
Rm
Insurance contracts
Policyholder liabilities at the beginning of
the year 10 496,3
Less: Policyholder liabilities classified as
investment contracts (6 245,5)
Policyholder liabilities at the beginning
of the year 4 250,8
Transfer from the income statement 326,6
Foreign currency effect of translating
liabilities (157,1)
Policyholder liabilities at the end of the year 4 420,3
Investment contracts
Policyholder liabilities at the beginning
of the year 6 245,5
Movement for the year 1 088,5
Pension and investment contributions 1 631,5
Net investment return 403,7
Withdrawals (1 215,6)
Fair value adjustment to policyholder liabilities (1 145,0)
Foreign currency effect of translating liabilities 1 413,9
Policyholder liabilities at the end of the year 7 334,0
Segmental Analysis (continued)
Embedded value of New Business
(at valuation date)
Total
31 March 31 March
Rm 2004 2003
Life Operations 95,5 115,3
- Recurring 87,3 78,1
- Single 6,0 29,1
- Other 2,2 8,1
Asset Management 17,6 22,5
Total 113,1 137,8
Embedded Value
Total
31 March 31 March
Rm 2004 2003
South Africa 1 548,0 1 469,0
Botswana 559,9 525,2
Life Operations 387,4 382,2
Asset Management 172,5 143,0
Namibia 38,9 28,9
Total 2 146,8 2 023,1
Operating Surplus
Total
31 March 31 March
Rm 2004 2003
Life Operations 156,1 151,4
Asset Management 21,6 22,2
Total 177,7 173,6
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:
* the value of the shareholders` net assets; and
* 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.
Year to Year to
31 March 31 March
2004 2003
Embedded value results Rm Rm
Shareholders` net assets 1 612,5 1 590,7
Value of in-force 534,3 432,4
Value before cost of capital 622,7 545,0
Cost of capital (88,4) (112,6)
Embedded value at end of period 2 146,8 2 023,1
Capital adequacy requirement (CAR) 721,1 656,8
CAR cover 2,2 2,4
Embedded value per share (Rands) 20,28 18,50
Embedded value earnings
Embedded value at end of period 2 146,8 2 023,1
Embedded value at beginning of period (2 023,1) (2 022,1)
Change in embedded value 123,7 1,0
Dividends and share repurchases 155,4 122,9
Embedded value earnings 279,1 123,9
These earnings can be analysed as follows:
Roll forward 171,3 24,0
Investment return on free assets after tax 85,9 (34,9)
Expected return on life business in-force 85,4 58,9
Change over the period 107,8 99,9
Value of new business at end of period 113,1 137,8
Value at point of sale 104,7 124,8
Expected return to end of period 8,4 13,0
Change in assumptions and methodology 86,9 (7,2)
Experience variations (30,9) (12,7)
Additional exchange rate fluctuations
and change in shareholdings (61,3) (18,0)
Total earnings 279,1 123,9
Value of new business at end of period 113,1 137,8
Value at point of sale
before cost of capital 123,5 152,9
Cost of capital (18,8) (28,1)
Expected return to end of period 8,4 13,0
The value of new business is derived from
new business premium income as shown below:
New business premiums
Recurring premium (API) 436,0 378,9
Single premium 1 318,1 2 428,2
Assumptions
The main assumptions used are as follows:
March 2004 March 2003
1. Economic South South
assumptions Africa Botswana Africa Botswana
% p.a. % p.a. % p.a. % p.a
Risk discount
rate (RDR) 13,2 13,5 14,5 16,5
Overall investment
return
(before tax) 11,1 11,6 11,3 13,0
Expense inflation
rate 6,7 7,0 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 and methodology
South Africa International Group
Rm Rm Rm
Mortality and morbidity 9,7 (2,4) 7,3
Expenses 4,5 22,3 26,8
Lapses and surrenders (0,8) (8,3) (9,1)
Premium updates 13,9 - 13,9
Data and methodology changes 0,4 (15,3) (14,9)
Other (3,7) 0,1 (3,6)
Total operational 24,0 (3,6) 20,4
RDR risk premium 12,6 14,5 27,1
Economic 35,0 4,4 39,4
Total 71,6 15,3 86,9
2. Experience variations
Mortality and morbidity 19,9 12,6 32,5
Expenses and commission (15,7) 0,6 (15,1)
Lapses and surrenders (26,8) (12,5) (39,3)
Premium updates 0,9 0,4 1,3
Premium collection shortfall (35,4) - (35,4)
Other 1,9 0,4 2,3
Total operational (55,2) 1,5 (53,7)
Investment return 5,6 17,2 22,8
Total (49,6) 18,7 (30,9)
Statement of Changes in Equity
Audited Audited
As at As at
31 March 31 March
2004 2003
Rm Rm
Share capital and share premium
Balance at the beginning of the year 488,2 488,2
Share repurchases on open market (51,2) -
Balance at the end of the year 437,0 488,2
Reserves
Balance at the beginning of the year 1 102,5 1 162,3
Income attributable to shareholders 170,7 56,8
Retained income 1 273,2 1 219,1
Dividends paid (88,6) (116,6)
Movement on fair value and foreign currency
translation reserves (9,1) -
Balance at the end of the year 1 175,5 1 102,5
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 (AC133), which became effective for
financial years commencing on or after 1 July 2002.
Changes in accounting policies
In terms of AC133, 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 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 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 AC133 and the
guidance and 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. As
the financial assets and liabilities of the Group have already been carried at
fair value in previous years, the impact of the implementation of AC133 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 items which have been materially
affected are summarised below:
Audited Audited
Year Year Year
to to to
31 March 31 March 31 March
2004 2003 2003
Post Pre-
AC133 AC133
Rm Rm Rm
Premium income
Recurring 1 435,2 1 656,0 1 676,2
Individual life 1 273,4 1 231,1 1 236,4
Group benefits 161,8 424,9 439,8
Single 481,9 785,8 3 935,7
Individual life 477,5 785,8 785,8
Group benefits 4,4 - 3 149,9
Fee and other income 110,0 103,8 -
Investment return 824,1 143,7 (717,1)
Policyholder benefits (1 447,4) (977,8) (1 775,7)
Changes in classification
The classification of the foreign subsidiaries have been changed at the
beginning of the year from being integrated foreign operations to foreign
entities. This change is due to the fact that management has been localised in
the foreign subsidiaries which recognises their independent nature. In terms of
AC112, the foreign currency translation differences arising on the translation
of the foreign entities are now taken directly to equity and disclosed as a
foreign currency translation reserve. This change has been applied prospectively
and would not have had an effect on previously reported headline earnings.
REGISTERED OFFICE AND POSTAL ADDRESS:
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: 07/06/2004 08:00:13 AM Produced by the JSE SENS Department
