| Mon 7 Jun 2004, 9:53 | | Financial Results For The Year Ended 31 March 04 |
|
Alexander Forbes Limited - Audited Annual Financial Results For The Year Ended
Release Date: 07/06/2004 07:30:00 Code(s): AFB
ALEXANDER FORBES LIMITED - AUDITED ANNUAL FINANCIAL RESULTS FOR THE YEAR ENDED
31 MARCH 2004
Alexander Forbes Limited
(Incorporated in the Republic of South Africa)
(Registration number 1958/001974/06)
Share code: AFB
ISIN code: ZAE 000018230
Audited annual financial results for the year ended 31 March 2004
- Revenue of R4,4 billion
- Trading profit of R930 million
- Headline EPS of R1,51 (-7%)
- All core businesses profitable
- Over R600 million reduction in UK debt
- Dividend maintained at 67 cents
Income statement
2004 2003
Rm % Rm
Revenue from operations 4 436 (9) 4 880
Other revenue 13 13
Total revenue 4 449 (9) 4 893
Operating expenses (3 607) (3 943)
Operating profit 842 (11) 950
Operational interest income 88 104
Trading profit 930 (12) 1 054
Net finance costs (172) (117)
Profit before associates 758 (19) 937
Associates` profits 9 29
Non-trading currency gain/(loss) 6 (115)
Headline profit before tax 773 (9) 851
Goodwill amortisation and other capital items (170) (144)
Profit before taxation 603 (15) 707
Taxation (211) (221)
Profit after taxation 392 (19) 486
Minority interests (40) (75)
Attributable profit 352 (14) 411
Earnings per share
- Headline R1,51 (7) R1,62
- Attributable R1,02 (15) R1,20
Diluted earnings per share
- Headline R1,48 (7) R1,59
- Attributable R1,00 (15) R1,18
Distribution per share R0,67 R0,67
Number of shares (millions)
- issued (net of treasury shares) 345 344
- weighted average 345 342
- diluted weighted average 351 349
Balance sheet
2004 2003
Rm Rm
Ordinary shareholders` funds before goodwill effects
- Africa 1 637 1 914
- International 1 347 868
2 984 2 782
Goodwill written off and amortised (1 987) (1 832)
997 950
Outside shareholders` funds 107 120
Liabilities of investment and insurance operations 64 890 46 302
Long-term liabilities
- interest-bearing 1 826 2 496
- non-interest-bearing 3 7
Provision for post-retirement benefits 170 187
Deferred tax (64) (42)
Capital employed 67 929 50 020
Assets of investment and insurance operations 64 890 46 302
Fixed assets 289 241
Goodwill 1 882 1 929
Associates 82 135
Investments and loans receivable
- interest-bearing 103 633
- non-interest-bearing 46 52
Current assets
- cash balances 2 137 2 395
- other interest-bearing receivables 313 179
- non-interest-bearing receivables 1 804 2 145
4 254 4 719
Current liabilities
- interest-bearing 309 216
- non-interest-bearing 3 308 3 775
3 617 3 991
Net current assets 637 728
Employment of capital 67 929 50 020
Statement of changes in equity
Treasury
Share Share share
capital premium reserves Reserves Total
Rm Rm Rm Rm Rm
At 31 March 2002 3 110 658 771
Adjustment to opening treasury
reserves due to consolidation
of share trusts (62) (62)
Share issues 60 60
Treasury shares purchased (25) (25)
Translation and other movements 3 3
Attributable profit 411 411
Net distribution to
shareholders (108) (100) (208)
At 31 March 2003 3 62 (87) 972 950
Adjustment to opening reserves
due to adoption of AC133 (1) (1)
Share issues 1 18 19
Treasury shares purchased (24) (24)
Translation and other movements (68) (68)
Attributable profit 352 352
Net distribution to
shareholders (53) (178) (231)
At 31 March 2004 4 27 (111) 1 077 997
Abridged cash flow statement
2004 2003
Rm Rm
Cash flows from operating activities
Cash generated from operations 934 1 115
Movement in working capital balances (28) 148
Taxation, dividend and capital distribution (439) (598)
Cash flows from fiduciary activities
Movement in insurer balances (106) (472)
Refund of vendor loan notes (50) (554)
Cash flows from investing activities
Subsidiaries and associates acquired (79) (1 160)
Fixed assets acquired (170) (144)
Other net movement 78 135
Cash flows from financing activities
Net repayment of debt (486) 869
Withdrawal of matching deposit 280 -
Other net movements 9 (174)
Net movement in cash balances (57) (835)
Segmental revenue and profit analysis
2004 % 2003 2004 % 2003
Revenue Trading profit
International (GBPm)
Risk Services 116,5 (2) 118,3 16,3 (19) 20,0
UK and Europe 100,1 2 98,6 14,8 (17) 17,9
Asia and Latin America 16,4 (17) 19,7 1,5 (29) 2,1
Financial Services 57,5 13 50,8 6,9 25 5,5
Lane Clark & Peacock 30,3 27 23,8 3,9 11 3,5
IFA 27,2 1 27,0 3,0 50 2,0
Investment Solutions 3,6 414 0,7 (1,3) - -
Intragroup profit elimination (0,6) - - (0,4) - -
Direct Marketing 12,5 (52) 25,9 8,2 (11) 9,2
Total international (GBPm) 189,5 (3) 195,7 29,7 (14) 34,7
Total international (Rm) 2 309 (21) 2 912 356 (31) 514
Africa (Rm)
Risk Services 745 10 680 208 21 172
Financial Services 879 5 838 188 (10) 208
Investment Solutions 503 12 450 178 11 160
Total Africa (Rm) 2 127 8 1 968 574 6 540
Total Group (Rm) 4 436 (9) 4 880 930 (12) 1 054
2004 2003 2004 2003 2004 2003
International Africa Total
Trading profit 356 514 574 540 930 1 054
Net finance costs (155) (158) (17) 41 (172) (117)
Associates profits` 8 13 1 16 9 29
Non-trading currency
gain/(loss) 6 (115) - - 6 (115)
Headline profit before tax 215 254 558 597 773 851
Taxation on headline profit (37) (45) (175) (176) (212) (221)
Minority interests (29) (35) (11) (40) (40) (75)
Headline earnings 149 174 372 381 521 555
Notes to the financial statements
1. Basis of accounting
The financial information has been prepared on the historical cost basis in
accordance with South African Statements of Generally Accepted Accounting
Practice, except for the fair value adjustments required by the adoption of
accounting standard AC133 on financial instruments. The accounting policies used
in preparing the financial information are consistent with those of the previous
year, except for the following:
- The adoption of AC133 on financial instruments in accordance with the new
accounting standard. This resulted in a restatement of the opening balances of
certain financial assets and liabilities at 1 April 2003 and a corresponding net
decrease of R1 million to the group`s opening accumulated reserves.
In addition, uncollected insurer debtor balances have been offset against the
corresponding unpaid insurer creditor balances at the current and previous
financial year ends (this affects balance sheet presentation only).
- The consolidation of the group`s share incentive trusts in accordance with new
accounting requirements. This resulted in a decrease in attributable profit of
R1 million and R2 million in the current and previous financial years
respectively. In addition, unallocated shares held in the share trusts are now
treated as treasury shares and are deducted from shares in issue in determining
earnings per share. This resulted in an increase in the treasury share reserve
at 1 April 2002 of R62 million. Treasury shares totalled 8,7 million and 6,5
million at the current and previous financial year ends. The consolidation of
the share incentive trusts had no material net effect on earnings per share in
the current or previous financial years.
2004 2003
Rm Rm
2. Exchange rates
The income statements and balance sheets of foreign
subsidiaries have been translated to Rands as
follows:
- Weighted average R:GBP rate 12,1 14,7
- Closing R:GBP rate 11,6 12,5
3. Net finance costs
Interest and dividends received
Collateral deposits - vendor loan notes 1 14
Loan swap deposit 24 36
Other net deposits 31 60
56 110
Interest paid
Vendor loan notes (1) (13)
Loan swap liability (24) (36)
Term loan facilities (77) (39)
Exchangeable bonds (126) (139)
(172) (117)
4. Provision for post-retirement benefits
Balance at beginning of year 200 285
Settlements in cash (13) (46)
Net transfer to income statement (5) -
Foreign subsidiaries translation adjustments (12) (39)
Balance at end of year 170 200
Less: due for cash settlement - (13)
170 187
5. Associates
Carrying value in balance sheet 82 135
Directors` valuation 141 193
6. Capital expenditure and commitments
Depreciation for the year 112 117
Capital expenditure for the year 167 144
Operating lease commitments
- Due within one year 197 190
- Thereafter 1 270 1 296
1 467 1 486
7. Dividend
Notice is hereby given that at a meeting on 4 June 2004, the directors approved
a cash dividend of 67 cents per share in respect of the year ended 31 March
2004. The dividend will be payable to ordinary shareholders recorded as such on
in the register on 6 August 2004.
In compliance with the requirements of STRATE, the following dates are
applicable:
Last day to trade cum the dividend 30 July 2004
Date trading commences ex the dividend 2 August 2004
Record date 6 August 2004
Date of payment 10 August 2004
Shares may not be dematerialised or rematerialised between 2 August 2004 and 6
August 2004, both days inclusive.
Audit opinion
Our auditors, PricewaterhouseCoopers Inc, have issued their opinion on the
group`s financial statements for the year ended 31 March 2004. A copy of their
unqualified report is available upon request.
Review of operations
Overview
The group achieved revenue of R4,4 billion and trading profit of R930 million
for the year ended 31 March 2004. These results are down on the previous year
having been impacted by currency and other factors detailed in this review of
operations. Core businesses remain profitable and continue to produce strong
cash flows. As a result, the annual dividend has been maintained at 67 cents per
share.
Other important developments include:
- Strengthening of the international balance sheet - over R600 million of UK
debt has been repaid (including R227 million repaid after financial year end)
and South African Reserve Bank approval has been obtained to transfer an
additional R370 million from South Africa to the United Kingdom;
- Strong new business flows and growth in assets by Investment Solutions in
South Africa and the United Kingdom;
- Changes to the board composition and other enhancements to corporate
governance within the group; and
- Consolidation of the group`s empowerment position and profile in South Africa.
Africa (principally South Africa)
The trading profit of the African operations increased by 6% to R574 million:
- Risk Services
The Risk Services (corporate insurance broking), Personal Services (personal
lines insurance) and Guardrisk (cell captive insurance) businesses have
delivered a strong combined performance with trading profit growing by 21% to
R208 million. The core corporate insurance broking business showed modest
revenue and profit growth building on strong prior years` results. The personal
lines insurance business showed strong profit growth, benefiting from the
restructure completed in the previous year and also from improved underwriting
results. Guardrisk delivered another good performance.
- Financial Services
The Financial Services business recorded a 10% decrease in trading profit to
R188 million. The core actuarial consulting and administration businesses
produced good growth. Results were, however, affected by the impact of difficult
market conditions on the individual financial planning business (particularly
currency conditions), reduced profit share in Alexander Forbes Life as a result
of adverse claims experience and a disappointing second half performance by the
Healthcare business. There were also some cost pressures within the business.
- Investment Solutions
Investment Solutions recorded an 11% growth in trading profit to R178 million.
The business achieved significant net inflows of R5,7 billion for the year, on
the back of good client retention and new business gains. This resulted in
assets under management exceeding R64 billion at year-end. The business enjoyed
meaningful success in the large fund market and the joint venture with Stanlib
had a good year with assets increasing to R3,4 billion. The benefits of the
multi-manager approach to investments continued to be demonstrated with another
year of strong investment performance.
International (principally United Kingdom)
Trading profit of the international operations decreased by 31% to R356 million.
Measured in base currency, trading profit decreased by 14% to GBP29,7 million.
This highlights the impact of the strengthening of the Rand with a 21%
deterioration in the weighted average Rand/Sterling conversion rate applied to
our international earnings compared to last year.
- International Risk Services
The UK Risk Services businesses produced lower results with trading profit
decreasing by 17% to GBP14,8 million. The Professional Indemnity business traded
well, and benefited from good new business flows. The Corporate Risk Solutions
business recorded growth. Global (Wholesale) Broking Services experienced lower
than anticipated profits as a result of some team movements, the impact of the
weaker Dollar on US$-denominated brokerage, as well as reduced business volumes
and a change in the buying patterns for re-insurance in the London market. There
was also a reduction in interest earnings from insurance broking operations
resulting from lower interest rates and reduced cash holding periods.
Asia and Latin America contributed only modestly to total profits but are a
source of referral business for our London brokerage operations and represent an
important part of our international network and profile. The results from these
regions were down GBP0,6 million as a result of weaker currency conditions, the
closure of our office in Argentina and varying trading results across
territories.
- UK Financial Services
The Lane Clark & Peacock (LCP) and Independent Financial Advisory (IFA)
businesses produced a good combined performance with trading profit increasing
by 25% to GBP6,9 million. LCP completed the acquisition of an actuarial business
in Belgium during the year. They continue to increase their profile in the
United Kingdom. Alexander Forbes` IFA business recorded a recovery in
profitability with trading profit increasing by 50%. This business is widely
recognised in the United Kingdom as a leading provider of services for insured
defined benefit/defined contribution conversions.
- UK Investment Solutions
The multi-manager investment business recorded good new business gains, with
assets under management increasing to GBP230 million at the end of April. The
defined contribution administration business has also been successful in
attracting new clients with assets under administration reaching GBP6,9 billion.
Both businesses have strong new business pipelines. The Investment Solutions
business incurred a start-up investment cost of GBP1,3 million in its first year
of operations as a result of initial delays in regulatory approvals and
marketing activities. These have been resolved as reflected in recent new
business gains.
- Elimination of intra-group profits
In accordance with the group`s accounting policies, intra-group profits are
eliminated when preparing the consolidated results. This has resulted in GBP399
000 of net commissions earned by the IFA business (in respect of sales of
Investment Solutions products) being excluded from the current year`s results.
The results are reflected net of this amount.
- Direct Marketing
As previously communicated, trading profit of the Direct Marketing business is
expected to reduce over the medium term. The business continues to operate
profitably but on a smaller scale.
Financing
Net finance costs increased by R55 million in the current year as a result of
the funding of acquisitions concluded during the previous financial year and
lower interest earnings on cash balances held in the United Kingdom.
The international balance sheet has been substantially strengthened following
the repayment of R415 million debt during the year and a further R227 million
subsequent to the financial year-end. The debt repayments and the approval to
transfer an additional R370 million to the United Kingdom will assist the group
in the restructuring of international financing over the next 18 months. As
previously indicated, the group has already commenced discussions with existing
and alternative providers of funds with the objective of finalising the
restructure of funding arrangements well before due dates.
Associates
The pre-tax profit contribution from associates decreased from R29 million to R9
million as a result of the disposal of the group`s shareholding in Thebe Risk &
Benefits in March 2003 and trading losses incurred by National Britannia and
Medscheme. Management changes have been implemented at Medscheme and the
business continues to be restructured to improve performance.
Non-trading items
The group recorded a non-trading currency gain of R6 million (R4 million after
tax) on the Rand denominated loan raised in the United Kingdom to fund the
acquisition of Nelson Hurst in 1997. This compares to a loss of R115 million
(R45 million after tax relief) in the previous financial year. R280 million of
this loan was repaid in January 2004 and the remaining balance was repaid
subsequent to the financial year-end. Both repayments were funded by the
withdrawal and transfer to the United Kingdom of matching deposits held in South
Africa.
Headline adjusting items comprise goodwill amortisation and other gains or
losses of a capital nature. The increase from R144 million to R170 million
results from increased goodwill amortisation relating to acquisitions made
during the previous financial year and R7 million of costs incurred in the
closure of the office in Argentina.
Taxation
The effective tax rate on headline profit before tax is 27,4% (2003: 25,9%).
This results largely from favourable developments relating to prior year tax
assessments, primarily in the United Kingdom.
Earnings per share
Headline earnings per share decreased by 7% to R1,51 per share. Excluding the
non-trading currency gain and loss made in the current and previous years
respectively, headline earnings per share decreased by 15% in line with
attributable earnings per share. As stated above, all core businesses remain
profitable and continue to produce strong cash flows.
Corporate governance and empowerment
As previously advised, there have been a number of changes to the board during
the past year, notably the appointment of Paul Heinamann and John Robins as
independent Chairman and independent Deputy Chairman respectively and the
appointment of Mark Nicholls as an additional independent non-executive
director.
The group has also restructured its subsidiary boards and committees with the
aim of empowering businesses and strengthening governance:
- All board sub-committees comprise a majority of independent directors.
- The roles of Chairman and Chief Executive are separated.
- Each of the five principal operating subsidiaries has its own board, including
appropriate non-executive representation. Black representation on South African
boards ranges between 27% and 43%.
- Group executives do not hold shareholdings in any subsidiary company.
In South Africa, progress has been made with internal transformation, including
the appointment of a number of black executives to senior positions. This
progress is recognised in the `BBB` empowerment rating from independent rating
agency, Empowerdex. We were also ranked fourth in the Financial Services sector
in the recent Financial Mail empowerment survey and have been included in the
JSE Securities Exchange`s new Sustainability Rating Index. The group remains
committed to black economic empowerment and will continue to work closely
together with our empowerment shareholding consortium headed by Cyril Ramaphosa
of MCI.
Adoption of share option accounting
A new South African accounting standard, AC139, was approved on 27 May 2004,
which requires accounting for share option costs through the income statement
with effect from the group`s financial year ending 31 March 2006. In the
interests of good governance, the group will disclose the financial effects of
accounting for share options in the financial statements for the year ended 31
March 2004 and intends to early adopt accounting for share option expenses in
the year ending 31 March 2005. A summary of the financial effects of share
option accounting has been published separately on SENS.
Prospects
The group continues to target growth in our International and Africa earnings
primarily through organic growth in the short term coupled with strategic
acquisitions, particularly in the international arena, over the medium term.
Creating value for shareholders remains a priority through earnings growth and
by building on the progress made in the last year on governance, international
debt and empowerment. We look forward to growing Alexander Forbes in Africa and
internationally.
For and on behalf of the board
PL Heinamann RI Gordon
Chairman Group Chief Executive
7 June 2004
Directors
PL Heinamann (Chairman), JVH Robins* (Deputy chairman),
RI Gordon (Group chief executive), J Percy-Davis* (Deputy chief executive), MG
Ilsley (Group finance director), TRT Bohlmann, MP Nicholls*, MC Ramaphosa, GGH
Todd, PJJ van der Walt
* British
TRANSFER SECRETARIES
Computershare Investor Services 2004 (Pty) Limited
(Registration number 2000/006082/06)
Ground Floor, 70 Marshall Street, Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
SECRETARY AND REGISTERED OFFICE
Registered office
Alexander Forbes Place
61 Katherine Street, Sandown, 2196
South Africa
GROUP COMPANY SECRETARY
JE Abraham
www.alexanderforbes.com
